Saturday, November 22, 2008

Business to Governor - thank's for the advice, but...

AUSTRALIAN businesses are flatly rejecting pleas from the Reserve Bank to continue spending in the face of economic downturn, with many saying they'll have to "pull in their horns" to survive.

On Wednesday in Melbourne the Bank's Governor Glenn Stevens pleaded with businesses, markets and commentators to look beyond what he called "the gloomy talk that's around" and focus on the long-term.

But a range of business leaders spoken to by The Age have derided that as bad advice.

"Around 20 per cent of our stores are making no money," said Gerry Harvey, who runs Harvey Norman. "Their sales are down in some cases 20 per cent and their costs are up. They've got to cut 20 per cent off everything; staff, stock, everything. If they do it too late, or if don't do it, or don't listen to us, they'll collapse."

Australia-wide, Harvey Norman's sales are down around 3 per cent, and the weaker dollar means the cost of the goods it imports is climbing. "I'm cutting back on advertising this Christmas. People say I shouldn't, but when margins are down and sales are down, if you keep spending on advertising, you'll go broke"...

Heather Ridout, chief executive of the Australian Industry Group says reality has to trump pleas for confidence.

"Businesses have to respond to realities. Many are not getting orders. They have to pull in their horns and hunker down," she says.

Four in ten businesses surveyed by the Industry Group are winding back their plans. "They've seen their orders fall, a good many are finding it hard to get access to cash. They have got to be much more cautious."

Ms Ridout says caution is also good advice for consumers, including those about to get economic stimulus cheques of $1,000 or more from the federal government.

"Consumers are seeing wealth impacts on their superannuation accounts and on their houses. They've got too much debt, and what they should be doing is deleveraging, not taking on more debt, and sepnding like everyone seems to want them to do. That's not rational," she says.

"Good advice to someone who gets a $1,000 cheque would be to pay off the elecrtricity bill, put a little bit aside just in case."

It's advice counseled against by the Reserve Bank Governor who on Wednesday warned against what he called "the paradox of thrift". He said when faced with a loss of income consumers and businesses naturally wanted 5to cut back their spending and save instead.

"The problem is that, for the economy as a whole, if everyone attempts this change simultaneously the paradox of thrift says that the economy will contract," he declared.

"I agree with what Glenn Stevens is saying, it will become a self-fulfilling prophesy," says Jeremy Johnson, president of the Victorian Employers' Chamber of Commerce and Industry. "But for some of our businesses the money tap has been turned off very quickly."

"Businesses that run on the smell of an oily rag will go under, but others will be able to invest in what they do and emerge stronger."

Heather Ridout said that smart businesses would use the downturn to clean out unneeded staff.

"They are keeping skilled workers and letting go of process workers. One of my members told me that his divisional manager is gone and that he's doing the job himself. He'll come out of this stronger."

3 comments:

Tat said...

Very sorry to hear the cost of tit imports is climbing.

Peter said...

tit has become it

Tat said...

Ah, so now there is no tit for Tat.

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