It has been argued publicly by leading banking economists such as Craig James that Australian households are in a good position to cope with the Reserve Bank’s historic third interest rate rise in a row. But is business ready?
Serial entrepreneur — Melbourne-based Domenic Carosa of Dominet — couldn’t contain his rage heading straight to bloggers’ world.
“Today, the RBA board increased interest rates again by 25 basis points, now up to 3.75 per cent,” he wrote. “Either they can see well into the horizon or are living in a global vacuum.”
And this was before Westpac turned insult into injury by tacking on an extra 20 basis points to take 45 basis points off their customers. The slug on business loans was only 25 basis points but consumers will be feeling the pinch — especially those with Westpac home loans.
For a typical home loan, the Westpac play took $84 a month off someone with an average $300,000 loan. However, lots of customers have loans bigger than this figure.
This follows the November consumer confidence reading, incidentally a Westpac survey, which revealed a fall for the first time in six months in November, down 2.5 per cent. Economists pointed to higher interest rates as the chief cause.
So, just how good is it out there?
There’s a new indicator out this week — the CBA’s Business Sales Indicator (BSI), which tracks the value of credit and debit card transactions processed through its customers’ merchant facilities.
The latest BSI rose by 0.3 per cent in trend terms in October and that’s the third consecutive month of slower growth.
“This reflects the effects of the stimulus package coming off,” said Symon Brewis-Weston, the head of local business banking at CBA. “Right now we are not seeing the business confidence translate into higher business spending and the question is how interest rate rises could dampen spending intentions.”
The weakest sectors were automobiles and vehicles (down 1.4 per cent), utilities (down 0.9 per cent) and hotels and motels (down 0.6 per cent).
The sector where transaction growth has been consistently weak over the past three months has been business services (down 0.2 per cent).
The strongest sectors were personal service providers (up 1.4 per cent) followed by amusement and entertainment (up 1.3 per cent in trend terms).
In contrast, the Sensis Business Index released this week showed business confidence remained high but it’s tailing off.
“Following two very strong quarters of growth, business confidence has risen more moderately this quarter,” said Christena Singh, who conducts the survey. “Business confidence is now at the highest level in Australia since August 2007.”
Despite a stronger overall report on business conditions, the profitability indicator overall was still in negative territory.
“Small businesses overall are expecting demand and profits to be down on the previous quarter, but remain well above the low levels experienced during the economic downturn,” Singh said.
By the way, 12 per cent of businesses cut their workforces over the quarter and while the economy is getting better, we’re not talking boom times.
Domenic Carosa, whose IT consultancy works with businesses here and overseas, thinks the precariousness of the global economy should make us more cautious about interest rate imposts. He’s got an innovative idea.
“I ask the board of the RBA, for the future of Australia, take a taxpayer-funded junket and see how the rest of the world is actually faring,” he disrespectfully suggested.
By Peter Switzer
