Strong Dollar A Bigger Worry Than Interest Rates for Chief Executives

THE surging Australian dollar ranks as a far bigger influence on profitability than the threat of further interest rate rises, a survey of chief executives says, in a sign of the growing strain the currency is placing on many companies.

The Australian Industry Group CEO survey, to be published today, underlines the challenges of the mining boom by nominating the high dollar as the top concern of business bosses – on a par with preparing for an economic upswing.

The dollar – which has risen 10 per cent since early last month, eroding foreign earnings – was cited as the top influence on profits by 14 per cent of executives. Fewer than 5 per cent of the 378 chief executives nominated higher interest rates as a worry.

Skills shortages, which are also expected to increase as the mining boom gathers momentum, were the top concern for 11 per cent of executives questioned for the report, which focused mainly on companies with turnover below $50 million.

The growing signs of strain being caused by the dollar were confirmed by the NAB business confidence survey.

NAB said overall confidence had slipped slightly last month but remained positive, suggesting the economy was on track to recover from weakness early in the quarter.

However, the survey also highlighted the sharp difference between mining and other industries, with widespread weakness in wholesale, retail and manufacturing clashing with boom times for miners.

”Manufacturing has reported negative employment conditions for four months in a row, probably because its trade-exposed sectors have been pressured by slowing global growth and then by the appreciating Australian dollar,” the report said.

Citing the growing pressure on exporters, the Ai Group chief executive, Heather Ridout, called for cuts in company tax and urged the government to encourage innovation and infrastructure development.

”By taking action in these areas, governments can lift the productivity of Australian businesses and assist in countering the structural pressures that many businesses are facing as a result of the mining boom,” she said.

The top priority for governments for business, however, was keeping the economy out of recession, followed by reducing red tape.

Although it highlighted the challenges of the mining boom, the Ai Group survey said most companies were banking on stronger profits in the year ahead. Three-quarters expected to hire more staff in the coming year; companies with turnover above $200 million were most likely to hire new workers.