Confidence among Australian business leaders is 'tanking'

• Confidence among Australian business leaders is "tanking", according to illion's latest Australian Business Expectations Survey.

• Expectations for sales, profits, employment and investment in the year ahead all fell during the March quarter the largest decline was seen in sentiment towards sales.

• illion says the deterioration reflects "widespread uncertainty" towards the domestic and global economy.

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Confidence among Australia's business leaders is "tanking", according to illion's latest Australian Business Expectations Survey, driven lower by a broad weakening in expectations towards the year ahead.

And that means the likelihood of Australian economic growth continuing to hum along at over 3%, as policymakers at the Reserve Bank of Australia (RBA) expect, is unlikely to be achieved.

"There were sharp declines in expectations across all categories of the survey, with sales, profits, employment and capital investment all falling," said Stephen Koukoulas, Economic Advisor at illion.

"If these expectations are realised, it is likely that economic performance over 2019 will significantly undershoot the latest forecasts from the Reserve Bank of Australia".

The chart below shows expectations for sales, profits, employment and investment levels among those leaders who took part in the latest survey.

While higher than in prior surveys, expectations for what lies ahead weakened across the board in March quarter.

"Expectations for financial performance are down across the board, with the majority of industries predicting a significant slump heading into the March quarter," illion said.

"The most notable decline in expectations comes in the form of sales numbers, with the overall index dropping by 17% to 30.2 points.

"Employee expectations also took a hit, with a reported 5% decline, while profit forecasts slumped 12.5% to 23.9 points."

The group says expectations also appear to be on a downswing compared to the previous year, noting the sales and profits subindexes slumped 11.7% and 8.8% respectively compared to what was conveyed 12 months ago.

In overall terms, confidence in the latest survey fell to the weakest level since August 2017, driven by what illion described as "widespread uncertainty" on both the domestic and global economy.

"Local factors driving uncertainty include the approaching federal election, while everything from the flow of credit and residential house prices through to regulation and corporate governance will be impacted by the Royal Commission, due to deliver its final recommendations in early February," said Simon Bligh, CEO at illion.

"Globally, equity market turbulence in the US, Europe and Asia has carried into the new year. This is being compounded by additional unknowns such as US political division crystallising in the form of an extended government shutdown, Brexit entering its endgame and increasing signs of China’s economy slowing."

While confidence levels have certainly fallen, mirroring the similar trends in other business surveys from the NAB and Ai Group, Koukoulas says the latest results point to a "soft landing" for the economy this year. However, he cautions a further deterioration in sentiment would be an unwelcome development.

"Based on the latest survey data, the economy is likely to experience a soft landing in 2019, while any further downturn in business expectations will raise the possibility of significantly weaker economic conditions," Koukoulas says.

Approximately 1,200 executives took part in the latest survey, conducted between October to December.

The data presented reflects their views on whether they expect an increase, decrease or no change in their quarter-ahead sales, profits, employees, capital investment and selling prices compared with the same quarter a year ago.

The full March quarter report can be accessed here.