Business confidence edges down as higher costs erase profits

CCIWA Chief Economist

Aaron Morey

Business confidence for the coming year has ebbed further, reaching lows last seen early in the COVID pandemic. CCIWA’s latest Business Confidence Survey – the only WA-based gauge of business sentiment – shows rising operating costs, wages and interest rates are eroding profitability for WA businesses.

 

In the short term, one in four WA businesses expect weaker economic conditions (23%). Over the next 12 months, two in five respondents (40%) expect the WA economy to deteriorate, an increase of 7 points. In total, the confidence of WA businesses in the economy has fallen 24 points since the post-COVID highs (Dec 2020).

 

The weakest sentiment was recorded among businesses in healthcare and social assistance (22%), agriculture (30%) and retail trade (31%). WA’s professional services sector is the most upbeat about our economy (67%), with optimism rising 17 points this quarter. The resources sector is also upbeat (57%).

 

WA’s skills shortages remain the biggest drag on confidence, citied by four in five (83%) businesses. 

 

While the profitability of WA businesses has continued to fall away, labour costs and other prices soar. Nine in every ten respondents cited rising labour costs (87%), with wages being hiked an average 7%. Higher operating costs are most cited in the food services (91%), construction (87%) and transport (86%) sectors. 

                                                             

Nearly four in five WA (78%) of WA businesses report having to pass inflating costs on to their customers, or to delay projects (16%) and decline opportunities to bid for new work (11%).  

 

WA businesses are seeking to adapt to ongoing uncertainty, through improved digital presence (47%), improved cyber security (28%) and action on ESG factors like ethical products (23%). In good news, concern about disrupted supply chains is beginning to ease.

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