Business group warns against rate rises after survey highlights investment concerns

The Australian Chamber of Commerce and Industry has urged the Reserve Bank of Australia to keep rates on hold at its February board meeting after a survey of business investment intentions shows conditions remain patchy.

The ACCI’s investor confidence survey showed that while companies’ confidence about their profitability and sales in the next six months is now at the highest level since October 2007, a clear gap remains between current sales and profitability conditions.

Business investment expectations also remain weak, with just 14% of businesses saying they expect to increase investment in 2010.

Given the important role that rising business investment will play in the further economic recovery, the weak investment expectations underline the ACCI’s concerns about the real state of the economy.

The ACCI’s director of economics and industry policy, Greg Evans, is urging the RBA to hold fire on rates for the time being.

“Actual conditions, sales and profitability continued to fall short of prior expectations. Weak investment indicators also suggest that businesses remain pessimistic about their business capital expenditure plans in the first half of 2010.

“To ensure sustainable economic recovery, it is imperative that fiscal and monetary policy settings continue to encourage productive business investment and jobs creation.”

A more positive note from the survey was sounded by employment expectations, with just over 20% of businesses surveyed forecasting an increase in employee numbers over the year.

In another positive, 52% of respondents said they expect the economy to improve slowly during 2010, a sharp turnaround from 12 months ago when just 9% of respondents expected better economic conditions.