Business confidence suffers budget aftershock

There was a sharp drop in business confidence this month following the federal budget, despite the share market recording a slight improvement, according to Roy Morgan Research.

The research house’s monthly business confidence index fell 9.1 per cent in May, down from 123.1 points to 111.9.

A statement by Roy Morgan said the large drop in business confidence is likely to be more tied to the “poorly received” federal budget than uncertainty surrounding the upcoming federal election.

“The level of business confidence in May is clearly negative for the economy overall, and now below the year average (116.7),” it said.

“The weakest indicators in May relate to the upcoming year, which suggests the impact of election uncertainty.

“Net expectations of business performance over the next 12 months have dropped to 20.6 points (down 17.5 points in May) and net views of whether the next 12 months will be a ‘good/bad time to invest’ are now 12.1 points (down 14.2 points).”

Norman Morris, industry communications director at Roy Morgan Research, said the “worst possible outcome” of a federal election for business confidence – a hung Parliament – is currently “looming large”.

“Unfortunately for businesses, the longest federal election campaign for more than 60 years ensures there will be little clarity on this issue until July at the earliest,” he said.

[Related: The aftermath of the 2016 budget]

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