The prospect of rising interest rates and taxes, escalating global concerns and uncertainties, the appreciation of the Australian dollar and weak consumer sentiment has led to a decline in business conditions and sentiment in Australia.

The July 2011 ACCI Survey of Investor Confidence shows that all actual and expected business indicators fell over the June quarter, except the Expected Wages Growth index.

The current indexes of Own Business Conditions, Sales and Profitability deteriorated over the June quarter, to be at their lowest level since the survey began in 1998. Expectations indicators for all three indexes retreated further below their recent peaks recorded during the September 2010 quarter, indicating businesses have become increasingly pessimistic about their own trading conditions over the next three months.

While the actual indicators for National Economic Conditions and Climate for Investment retreated further into contractionary territory over the June quarter, their expectations indices for the next three months fell below the 50 mark for the first time since the June 2009 quarter.

Financial constraints have become increasingly significant over the quarter with Insufficient Retained Earnings increasing from fifth to third position; Current Levels of Debt surging from thirteenth to eighth position; Level of Interest Rates increasing to the sixth position; and Raising Loans from Financial Institutions falling from ninth to tenth position.

Greg Evans, Director of Economics and Industry Policy at ACCI said it is alarming that actual business conditions fell to levels not seen since the survey began in 1998 and many of the expectation indicators declined to the lowest levels since The June 2009 quarter.

“The Survey clearly highlights that mainstream Australian businesses continue to face significant upward pressure on production costs and downward pressure on selling prices which has put a significant squeeze on business profit margins and viability,” he said.

According to Mr Evans, “In the current weak trading environment, businesses continue to face the presence of high interest rates, an appreciating dollar and soft consumer demand.”

“More exposed businesses will find it increasingly difficult to cope with further cost imposts including the proposed carbon tax and the prospect of rising interest rates.”

Mr Evans said the flood levy which is operable from 1 July represents the first increase in income tax in 15 years and this will further hamper sentiment and spending amongst taxpayers earning above $50,000 per annum.