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Sales and investment expected to expand although Asian crisis expected to slow domestic growth



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MEDIA RELEASE

No one can be in any doubt that we live in difficult times. The catastrophic fall in output in the Asian region, which is spreading to markets around the world, must have a detrimental impact on business confidence.

Business is rightly worried about future trends and has judged that the effect of the present high level of international instability will lower growth. It could hardly be otherwise.

The fall in the index from 48.9 to 39.9 reflects the general consensus within business that the Australian economy will slow from the 4.9% growth rate achieved in the year to March. A growth rate of around half that level now looks a far more likely outcome for 1998-99.

It is, however, important not to read excessive gloom into these figures. The survey results show an economy in which sales are continuing to expand and in which higher levels of investment in plant and equipment are occurring and are forecast to continue.

The sales expectation figure, in particular, portrays a business community which is maintaining an optimistic outlook. The expected net balance for sales is +14.1. This is hardly the outcome one would expect from a business community overly concerned with its current prospects.

Similarly, the data on investment shows an expected positive net balance of +5.8. Perhaps more importantly, the investment net balance for large business is a very healthy +23.1.

The data show that large business is weathering these storms better than are smaller firms. It is important to appreciate that large business is continuing to improve, and remains notably optimistic about future trends even given the problems now hemming in the economy from all sides.

The impact of Asia is most clearly seen in the data on exports. There has been a large fall in the proportion of firms with rising export levels. The net balance a year ago was +6.7. This year the net balance has been recorded at -10.8.

May be reported on: 31 August 1998

Sales and Investment Expected to Expand Although Asian Crisis Expected to Slow Domestic Growth

Statement by Mark Paterson, Chief Executive on the release of the August 1998 National Survey o f Business Expectations

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This is, however, not the full story. Even with the turbulence surrounding the Australian economy, the expectations data show an improvement forecast in net exports during the quarter ahead. The net balance for exports shows a figure of +5.0.

The survey data provide clear evidence that business is concerned about future trends and also that the owners and managers of Australian firms remain reasonably optimistic about their own prospects.

There has seldom been an international trading environment as difficult as the one that now confronts business. It should surprise no one that confidence has fallen. What may be surprising is that business, even with all the punishment it has taken, does continue to remain reasonably optimistic.

If the survey data say anything at all it is that the Australian economy is extremely resilient.

For further comment, please contact: Mr Mark Paterson 02 6270 8004 (B/H) ' Chief Executive 0419 215 037 (mobile)

Dr Steven Kates 02 6273 2311 (B/H) Chief Economist 02 6295 0827 (A/H)

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L E A D I N G A U S T R A L I A N B U S I N E S S