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Asia Crisis effects outweigh firm domestic economy

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A ustralian B usiness C ham ber VSurvey of Manufacturing in N.S.W. March Quarter 1998

ASIA CRISIS EFFECTS OUTWEIGH FIRM DOMESTIC ECONOMY One of the key business surveys monitored by the Reserve Bank has revealed a deterioration of business conditions in the March quarter. The weaker business environment experienced by the manufacturing

sector is largely attributed to a sharp drop in export orders and an increase in import competition. In the thirteen year history of the surveys, the extent of the drop in export orders was a record result, as was the strength of import competition. This indicates that the Asian crisis is impacting on the manufacturing sector somewhat earlier than expected.

The findings were contained in the latest Australian Business Chamber/Colonial State Bank survey of 480 manufacturers in NSW. The survey showed that the stronger performance of the manufacturing sector in the December quarter was not sustained into the March quarter. After adjusting for seasonal effects, production, sales, orders and profitability were all weaker in the March quarter. The December quarter results had been the strongest since 1994.

Manufacturers expect business conditions to improve in the June quarter. However, the extent of optimism is the most restrained in over two years.

The saving grace for the manufacturing sector was the strength of the domestic economy. Sectors reliant on the domestic economy, particularly construction, noted continued improvement in business conditions. The wood and paper products sector was by far the strongest sector in the March quarter and is the most optimistic in the outlook for the June quarter.

For the first time in three years, more manufacturers raised selling prices than reducing prices. Higher prices are seen the product of higher raw material costs and lower profitability. Overall, manufacturers expect to raise selling prices in the June quarter.

Australian. Business Managing Director, Mr Philip Holt, said the sharp fall in business confidence in the March quarter was as troubling as the drop in export sales.

After a spike in confidence in December, business conditions, and therefore confidence, deteriorated markedly in the March quarter.

Mr Holt said: “The one bright spot that we have pinned our hopes on is for the domestic economy to grow, counteracting some of the impact of the economic difficulties of our Asian trading partners.”

“Even though the problems differ among our Asian neighbours, we do fear the bad news will spillover and damage local confidence in the domestic market, impairing Australia’s ability to ride out the worst of the Asian downturn.”

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State Bank of New South Wales Limited (ACN 003 963 228) TO Bo* N500. Groevenor Place, NSW, 1220. Level 40. Grosvenor Place, 225 George Street, Sydney NSW 2000 Email: Web site:

Commenting on the survey results Mr Craig James, chief economist Colonial Stale Bank said:

“The dual nature of the Australian economy is clearly demonstrated in the survey. Firms dependent on the domestic economy, particularly housing, continue to do well. Conversely, manufacturers seeking to export to Asia or exposed to import competition are under enormous pressure and face challenging times ahead.”

"The worrying element is the weakening of hiring intentions, particularly by larger firms. The Asian crisis starts ‘hitting home' when job opportunities dry up and job security is placed at risk.”

“Asian crisis effects can be quarantined from derailing the domestic recovery, but business confidence will be pivotal. Low interest rates, firmer employment and rising housing activity will act as strong supports for the manufacturing sector over 1998.” 13 March 1998

For further information:

Mr Randal Markey Manager Government & Media Relations

Australian Business Chamber Ph: (02) 9927 7543 (w) 0417 694 520 (mobile)

Mr Craig James Chief Economist Colonial State Bank Ph: (02) 9259 4105 (w)

(02) 9525 2739 (h) 0419 695 082 (mobile)

A full copy of the survey is available on request.


IMPORT COMPETITION (net r m pona ยป Id survey question)

net fteisnoe (portent)

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State Bank of New South Wales Limited (ACN 003 963 228) PO Bo* N500, Grosvenor Place, NSW, 1220. Level 40, Grosvenor Place, 225 George Street, Sydney NSW 2000 Email: Web site:

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