Fed: Business confidence slumps, profits dive

AAP General News (Australia)
12-05-2000
Fed: Business confidence slumps, profits dive

By Stephen Spencer, Economics Correspondent

CANBERRA, Dec 5 AAP - The first fall in company profits for four years and a continuing
slide in business confidence today added to the worsening news on employment.

But the growing evidence of a slowdown has brought interest rate rises to an end, with
economists now predicting the next time rates are changed they will fall.

The Reserve Bank board met today for the final time this year, but it's impossible
to find anyone in the financial markets who expects to see a rise in rates tomorrow morning.

"I think we'd all fall off our chairs if we saw the RBA do anything," HSBC Bank Australia
economist Grant Fitzner said.

That view could only have been strengthened by the latest survey of manufacturing by
Westpac and the Australian Chamber of Commerce and Industry (ACCI).

Production was down, business confidence fell, overtime fell for the first time in
two years and firms are now cutting employment.

Westpac chief economist Bill Evans said the survey clearly pointed to a slowdown in
the economy, with prices and profit margins both being forced down.

"That of course takes a lot of pressure off the interest rate outlook and we certainly
believe that the next move in interest rates will be down," he told reporters.

But ACCI chief executive Mark Paterson said the survey still didn't point to a recession.

"We don't see in these numbers any suggestions of a recession," Mr Paterson said.

Further evidence of the slowing economy came with the latest Australian Bureau of Statistics
(ABS) survey of company profits, which fell in the September quarter - for the first time
in four years, according to one measure.

Profits fell 9.5 per cent, seasonally adjusted, before income tax, and 4.2 per cent
before tax, net interest and depreciation.

But Treasurer Peter Costello played down the fall, saying it followed a very strong
rise in the June quarter.

"Company profits are now 17.1 per cent higher than they were a year ago," Mr Costello
told parliament.

"There's been some moderation of those exceptionally strong levels in the September
quarter but none the less the profit share ... is at historically high levels."

His assessment was supported by economists, who said profits in September had also
been affected by the Sydney Olympics, write-offs in the mining sector and the cost of
introducing the GST.

However, the fall is likely to cut economic growth when September quarter figures are
released next week.

AAP ss/daw/was/de

KEYWORD: ECONOMY NIGHTLEAD

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