Directors expect downturn

Company directors reported a significant downturn in expectations for Australia's economic outlook, reversing a two-year trend in the AICD/KPMG Boardroom Report survey which, until now, had seen director optimism at ever-increasing record highs.

Looking at the downturn in optimism, KPMG NSW chairman John Harkness said that the Australian business community was obviously concerned that expected increases in inflation and interest rates – domestic and international – would impact on the ability of business to perform. "On the domestic front, however, our company directors also identified uncertainties relating to the new tax policy as one of the contributors to an expected downturn in economic conditions," he said. "It would appear that both business and Government have much to do between now and July 1 to ensure that the tax reform process does not create an additional economic hurdle," Harkness said. In addition to the impact of the tax reform process, AICD chief executive Ian Dunlop said that directors' outlook for workforce expansion should also be a focus in the coming months.

"While directors predicted significant company sales and profit improvements over the next two quarters, they were not as secure about the environment outside their businesses," Dunlop said. "As a result, directors were not as positive about company prospects or workforce expansion in the future. "Clearly, the risk of increasing unemployment should be taken into account by the Government as it finalises the Budget plans for 2000-01." Company director optimism in Australia's economic outlook for the next 12 months shrunk to 22 percent and those predicting a deterioration in economic conditions rose to 42 percent reaching the level last seen in December 1998. Within that context directors contributed the expected decline to the possible negative effect of the new tax policy implementation (25 percent), interest rate uncertainty (18 percent), post Olympics decline (10 percent), and a slowing in overall economic growth (8 percent). Congruently, overall director optimism in their own company prospects dropped 9 percent, even though they indicated improved outlook on all business performance measurements.

For example, those expecting increased sales for the next quarter rose by 9 percent to 57 percent and increased profit by 9 percent to 52 percent. The Boardroom Report is one of the largest and most comprehensive business surveys conducted in Australia. It is representative of the business spectrum from large to small businesses across all industry categories, and is increasingly recognised as one of the key indicators of corporate sentiment in Australia.

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