WA business confidence edges up but rising costs barrier to growth

Key points:

  • Business confidence is up one percentage point since the June quarter.
  • Most businesses (79%) said rising costs were the biggest barrier to growth.
  • Fewer businesses identified skills shortages as a barrier to growth, down 13 percentage points from a year ago.
  • Construction sector showing the most confidence, driven by a strong pipeline of residential building and despite rising costs in the sector.

Business confidence in Western Australia has edged upwards in September, with loosening labour conditions helping to tackle skills shortages.

CCIWA’s quarterly Business Confidence Report found three in 10 businesses (31%) believe conditions will improve in the next three months, up a percentage point since last quarter.

Just under one in five (17%) expect the WA economy to improve in the next 12 months, up a percentage point since last quarter.

CCIWA Chief Economist, Aaron Morey, said while confidence has edged up, most businesses have identified rising costs as a barrier to growth.

“Almost four in five businesses (79%) cited rising operating costs as a barrier to growing their business over the coming year – as rising wages, steep insurance costs and tax burdens exert cost pressures on businesses,” he said.

“The retail sector is most concerned, with 94% of businesses saying rising costs will be a handbrake on growth.

“Other sectors showing significant concern about rising costs include resources (93%), transport (90%) and healthcare (90%).”

27% of businesses also cited weak demand as a drag on confidence, up one percentage point from last quarter.

“Weak demand, driven by cooling consumer sentiment is really the canary in the coal mine for economic growth and gives a powerful indication of the potential challenges facing the WA economy,” Mr Morey said.

Concerns about skills shortages have eased in the September quarter with fewer businesses (71%) identifying it as a barrier to growth, down 13 percentage points from last year.

Businesses in the construction industry are leading short-term confidence amongst WA businesses.

More than two in five (44%) expect stronger economic conditions, up a significant 10 percentage points since last quarter.

“This likely reflects the huge pipeline of residential construction set to be completed, along with the slight easing of labour market conditions,” Mr Morey said.

The resources sector has also seen a lift in short-term confidence, with two in five (43%) showing optimism, up 10 percentage points since last quarter.

Mr Morey said this was in line with strong prices for some commodities, but challenges remain for the resources industry.

“It remains to be seen what impact the Federal Government’s proposed workplace reforms will have on business confidence in the resources industry,” he said.

“The attack on labour hire firms is likely to have a significant impact on the mining sector, which relies on labour hire for legitimate operational reasons.

“It’s likely those concerns will weigh on businesses when they plan for future growth.”

The majority of businesses (68%) said they would like to see a reduction in WA’s payroll tax burden in the next state budget, while 52% would like to see new measures to attract more workers to WA.

The full Business Confidence Report is available to CCIWA members.

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