In its quarterly Business Expectations report, credit insights firm illion found that confidence slipped 8.3 per cent in the most recent quarter among the 1,200 business leaders polled.
This followed a period of strong growth in business sentiment over the past 12 months.
Despite the sudden drop-off, confidence from the business sector still remains almost 30 per cent higher than this time last year.
“Trade risks have intensified over the past few months and business leaders, particularly those with a heavy focus on export markets, are watching these developments closely,” said illion CEO Simon Bligh, referring to the increasing trade tensions between the US and China.
“Economic data also continues to remain mixed, both in Australia and abroad, and we are seeing leaders take a cautious approach to spending and investment in these uncertain times.”
The group’s economic adviser, Stephen Koukoulas, suggested that the economic outlook “is not yet a concern”, but that businesses are increasingly sensitive to external shocks.
“There has been a clear downturn in business expectations for the trifecta of sales, profits and selling prices, which are the key drivers of the macroeconomic conditions in the economy,” Mr Koukoulas said.
“It is likely that the broadly-based decline in the housing cycle and on-going concern about household spending and weak wages growth have weighed on the outlook.”
The good news from this, suggested Mr Koukoulas, is that the brakes will force the Reserve Bank to refrain from raising interest rates any time soon.
“This mix of news is all but certain to see the Reserve Bank hold official interest rates steady for the next few months, and if there is any further loss of momentum in coming months, the door may open for an interest rate cut,” he said.
“This would be especially the case if expected selling prices, inflation in other words, fall further.”