Business leaders are holding their breath amid bleak economic conditions, a new report reveals, by taking a “wait and see” approach to hiring and investment.
According to the CEO Institute Business Confidence Index, CEO confidence has fallen 92 points to -39 points. The index has a maximum value of 100 and a minimum value of -100.
Six months ago, CEO confidence in the economy was at 53 points.
The latest index is based on the responses of 299 CEOs, who were surveyed about their attitudes towards profit, sales, staff, investment and the economy.
The index saw an overall drop from 30 points in the previous quarter to three points in this quarter. The main driver for the fall is the -39 points recorded for confidence in the economy.
Evan Davies, a spokesperson for The CEO Institute, says businesses are “finely poised” between optimism and pessimism, although overall sentiment could be negative by the next quarter.
Davies says CEOs are relatively confident about continuing to invest and employ, but an increasing number are taking a “wait and see” attitude, partly driven by economic turmoil.
The survey shows the percentage of CEOs who “will not make a decision to hire or fire” is increasing. It was 37% in February before creeping up to 40% in May. It is now 43%.
“This cautious attitude may feed into lack of demand in the economy – it could be a vicious cycle,” Davies says.
The index indicates big businesses (at least $100 million turnover) are feeling the effects more than small companies – larger companies are less confident about the economy, profit and sales.
However, bigger businesses expect margin squeeze to be less than small companies.
Interestingly, the results of the report do not indicate a two-speed economy. The optimism of mining states Queensland and WA has faded rapidly.
The most dramatic fall in optimism was in WA, where confidence now sits at 10 points, while confidence in both NSW and Victoria is close to zero.
“There is evidence that businesses in these two states are finding it much more competitive than in other states,” the report says.
“The economy is more competitive in NSW than anywhere else as the difference between sales and profit expectations is larger than elsewhere, suggesting margin squeeze.”
In the next three months, CEOs say their greatest concerns are factors specific to their business (14%), consumer spending (13%) and government decisions (11%).
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