Profit promises disappoint: Economy round-up

A spate of profit downgrades by Australian listed companies over the last month is the worst sharemarkets have seen since 2003, according to investment bank Morgan Stanley.

Stellar growth in 2006-07 is unlikely to be repeated in the current financial year, with the strong dollar, drought, and underperformance in some key sectors responsible, Morgan Stanley reportedly says.

The comments are reflected in new Australian Bureau of Statistics figures defying market expectations of growth to show declining company profits for the first time in two years. Company gross profits fell 2.1% in the September quarter, although they remain up 9.4% for the year.

Sales of goods and services in the three months to September were also flat, with wholesale increasing 0.4% and manufacturing not growing or contracting.

The Australian Industry Group-PricewaterhouseCoopers Australian Performance of Manufacturing Index also grew only moderately, increasing 0.5 points to 53.8, above the 50 point mark dividing growth from contraction.

“Cost and competitive pressures and the high dollar, however, continue to weigh on performance in the sector. This makes the efforts to lift productivity by both the industry and the new Government critical to a sustainable manufacturing sector in the long-term,” AiG chief executive Heather Ridout says.

Despite the weaker economic data, however, it appears inflation remains a threat. The TD Securities-Melbourne Institute monthly inflation gauge for November released today rose by 0.3% to 3.6% for the year, its highest level since March this year.

According to the gauge, underlying inflation is now sitting on 3.6%, well above the Reserve Bank of Australia’s target of 2% to 3% inflation.

On the markets, at 12.45pm the S&P/ASX200 is up 0.1% on Friday’s close to 6538.7, and the Australian dollar is trading at US88.29c, up on Friday’s Sydney close of US88.62c.