- Mid companies return to record confidence
- Transport most confident, mining not so
- Investment plans remain muted

By Greg Peel

A fiscal cliff, a slower China, European uncertainty, government spending cuts, the strong Aussie dollar ? all are these are factors which one might expect to be weighing on the confidence of Australia's mid-market businesses as we move into 2013. However Commonwealth Bank's quarterly survey of companies in the $10-100m turnover range clearly indicates otherwise.

The mid-market was very confident back in March this year, with CBA's survey at that point hitting a record 9.3 index reading. The latest survey shows a return to the 9.3 level from a previous 4.3. The index measures company outlook on business conditions and challenges, investment plans, revenue projections and preparedness in the face of any volatility arising in the next six months.

Perhaps the biggest surprise in the findings is that of record confidence amongst retailers. The 2012 retail environment has arguably been the worst seen for the big listed retailers, and one might reasonably assume mid-market retailers have been doing it even tougher. Yet heading into Christmas and beyond, retail sector confidence is at a record 17.8, up from 10.7. Has the mid-market been a little more savvy when it comes to the online shift?

The transport and logistics sector is a beneficiary of the online shift. This sector claims to be the most prepared for future business conditions ahead and index-wise has hit a record 36.2. Information, media & telcos have also improved in confidence, citing falling costs as a positive. However media in particular has also seen a tough 2012, which may explain why this sector's index remains at a negative reading of 21.7.

Finance & insurance is another sector having suffered in the wake of the GFC. Finance in particular has been forced into steady staff lay-offs due to tough markets. But costs have now been reduced, and the sector is feeling more confident at 12.4. Business services is also happy about lower costs at 22.3.

The elephant in any Australian room is always mining. The big end of mining town has swung fairly quickly over 2012 from exuberant and ready to spend to restrained and delaying projects, given a slowing China and lower commodity prices. It is thus no surprise those in the mid-market mining sector have posted a fall in confidence to minus 7.2 from plus 17.7.

CBA notes, nevertheless, that there appears to be a bit of a time lag when it comes the mining sector result. As we approach 2013, China's economic prospects appear to be on the turn, which was not the case at the time of the last survey. CBA expected a negative result last time, not this time, and still respondents cite a slowing China as a primary issue, along with increasing competition from offshore. Perhaps the next survey will show a rebound.

If record net confidence for Australia's mid-market seems surprisingly positive, perhaps a more accurate outlook can be derived from the fact businesses are not yet prepared to convert this confidence into investment plans and major company changes. Confidence is being derived from a period of cost reduction and volatility preparedness, which suggests a record result is more "confidence in not going under" than "confidence for a strong year". Says CBA:

"The focus of this Index has been the common theme of cost management heading into 2013. Companies are placing less emphasis on growth at the moment and ensuring they have the financial support required for any unforeseen challenges in the future."

There were other interesting findings from the survey. Preparedness for ongoing volatility reached its highest level since September 2011, with 45% of companies "well" prepared. Those expecting conditions to improve over the next six months represented 31%. Rising energy costs are seen as the biggest factor affecting conditions going forward domestically, while a slower Asia is the biggest fear internationally. Companies in the upper turnover half ($50-99m) are the most concerned about international competition.