Trade Confidence Survey Australia:1H 2015

Trade Confidence Survey Australia:1H 2015

About the Survey The HSBC Trade Confidence Survey gauges business sentiment and expectations on trade activity and business growth over a six month time horizon. A balanced sample of small enterprises to large corporate businesses are interviewed across 22 emerging and developed countries, with questions soliciting responses in three core areas: Trade confidence: anticipated import/export volume changes, impact of regulatory and FX changes, need for and access to trade finance, outlook on buyer/supplier risks. Business confidence: expected changes in both the local and global economy and the impact on business these changes are anticipated to have, the outlook on financial risk and its mitigation, and major business priorities/concerns. Future business outlook: expected business volume change, areas and strategies for growth, the business s international aspirations, regional opportunities and top trade currencies. The consistency of the survey s methodology across all the countries involved and the number of interviewees (key decision makers from ~250 businesses per country) give the resulting data considerable credibility. Therefore at an individual and aggregate level it conveys a realistic impression of business, trade and growth confidence at both a per country and global level.

Australia Dull Now, Brighter Later Australia s trade confidence (as measured by HSBC s trade confidence score) continued the gradual and minor decline it started in the first half of 2014 (1H14), with a further fall of one point. Respondents also had downbeat views on the local economy and were only marginally positive on the global outlook. However, one strongly positive note was their very upbeat outlook on future business volumes. Trade outlook Australia s trade confidence score made a two year high of 106 in 2H13. Since then it has drifted lower to 104 in 1H14 before falling again marginally in 1H15 to 103, nine points below the global average. Despite this, the score remains positive (neutral score is ) and well above the sub- lows seen in 1H09 and 1H12. Australia: Trade confidence 150 Australia Confidence Score Global Confidence Score Primary factors Despite the declining overall confidence score, most of Australia s primary underlying factors were net positive. There was a strongly positive perception of changes in export volume with 49% expecting growth (slightly below the global average of 53%) and only 8% expecting contraction. However, on a net basis, Australia actually scored fractionally ahead of the global average for this factor of 40%. Rather lower levels of optimism applied to the need for and access to trade finance, which on a net basis both scored plus 15% (both below the respective global net averages of 23% and 25%). The anticipated impact of regulatory change was fairly neutral (net positive 4%, versus a global average of net plus 10%). The same could not be said of the impact of exchange rates, where sentiment was very definitely negative: 51% of respondents expected a negative impact and 20% a positive one, which on a net basis was a long way below the global net average of plus 5%. 120 111 111 113 114 107 110 105 110 109 107 107 107 107 106 104 102 97 96 103 90 1H09 2H09 1H10 2H10 1H11 2H11 1H12 2H12 1H13 2H13 1H14 1H15

1 111 110 7 107 107 Trade Confidence Survey: Australia Dashboard Trade Outlook: 96 09 1H10 2H10 Volume 1H11 of import 2H11 export 1H12 2H12 491H13432H13 8 1H14 1H15 Trade Confidence: Score Global Country 1H14 104 105 110 1H15 114 113 114 103 109 104 103 107 106 102 Positive Neutral Negative Economic Outlook: Expected Change in Economy 25% 77% 85% 13% 62% 45% 25% 30% Local International Impact of Change to Business 32% 29% 50% 45% 21% 21% Regulation changes 14 74 10 Exchange rates changes 20 28 51 Need for trade finance 18 79 3 Access for trade finance 16 81 1 Increase Same Decrease Buyers Default 3% 77% 20% Expected Change in Economy 25% 32% Suppliers Default 5% 10% 85% Impact of Change to Business Risk Outlook: TOP FINANCIAL RISKS 1. Exchange rate volatility 2. Commodity price volatility 3. Cash flow management TOP RISK MANAGEMENT STRATEGIES 1. FX Hedging 2. Internal Cost cutting 3. Negotiate better payment terms with suppliers Future Outlook: TOP PRIORITIES FOR BUSINESS 1. Grow revenue 2. Improve profit margins 3. Improve sales figures POSITIVE FACTORS FOR GROWTH LOCAL INTERNATIONAL Increase demand Favourable exchange rates Improve margins Increase demand Improve productivity Increased margins BARRIERS TO GROWTH Stronger competition Unfavourable exchange rates Reduce demand Reduced demand Increased costs of materials Increased costs of materials

Economic impact on businesses Local economy The outlook for the local economy in the Australia was clearly negative, with 27% of respondents expecting a weaker economy and 16% a stronger one. At net minus 11%, this was far below the global net average of plus 26%. The impact of economic change on business was marginally less negative, with 29% of respondents negative and 19% positive. The strongest favourable business factor was increased product demand (76%, also the most important factor globally), followed by increased margins/ profitability (62%). The top negative factor was stronger competition (58%, also the most important factor globally), followed by reduced product demand and higher material costs (49%, also the second ranked factor globally). Global economy Australian respondents were far more positive on the global economy (31% positive and 27% negative) and were also marginally less pessimistic on the impact this would have on business than they were in connection to the local economy, with 31% negative and 22% positive. However, on a net basis both these metrics were a long way below their respective global net averages. The leading positive factor was favourable exchange rates (67%), just ahead of increased product demand (66%, also the top factor globally) with increased margins some way back. The main negative factor was unfavourable exchange rates followed by reduced product demand and higher material costs. There was a clearly negative outlook overall on business financial risks (30% negative versus 13% positive), which was a long way below the global average of net positive 12%. It was therefore understandable that 47% of respondents saw a strong need for financial risk mitigation. However, 30% also saw minimal need, making a contrast with many other countries where there was a much higher number of neutral responses. Nevertheless on a net basis this was still a long way above the global net average of just plus 3%. 31 % Australian respondents were far more positive on the global economy The standout financial risk was seen as exchange rate volatility (78%, also the top risk globally), followed by commodity price volatility (the second ranked risk globally) and cash flow management issues. Strategies to manage risk were led by FX hedging, followed by cost cutting (the top strategy globally) and negotiating better supplier payment terms (the second ranked strategy globally). Business performance The top business priority for Australian respondents was growing revenue (80%), then improving profit margins. The primary business concern by a very large margin was competitors that compete solely on price (67%, also the top concern globally) followed a long way back by the global economic crisis (39%). Trade risks outlook Australian survey respondents had a marginally negative view of the risk of suppliers failing to honour agreements (7% negative, 3% positive), but this was still six points higher than the global average on a net basis. They were far more concerned about the risk of buyers defaulting on their payments (negative 21%, positive 2%), putting them eight points below the global net average. The top negative factor behind the risk of suppliers failing to honour agreements was the expectation that their financial health would deteriorate (also the top negative factor globally), followed by contraction in the global economy causing business instability.

Looking ahead Future growth Despite their rather downbeat view on many other survey questions, Australian respondents were resoundingly positive in their expectations of future business volumes, with 54% expecting them to increase and only 7% for them to decline. On a net basis this was four points below the global net average. It is interesting to note that while quite a few other countries anticipated high percentage volume increases, these were by contrast often offset by double digit percentage decrease expectations. Expected growth areas were headed by identifying and acquiring new customers, followed by improving customer relationships/satisfaction, then enhancing productivity. The first two areas were also the joint most commonly cited globally. The top strategy for growth among respondents was selling more to existing customers, followed by acquiring new customers (respectively also the second and first ranked strategies globally). International growth Asia was seen as by far the most important region for the best growth opportunities (47%, also ranked as the top region globally), followed at a considerable distance by Oceania (20%). China was the country with the greatest growth potential (23%, also ranked second globally), followed by the New Zealand (20%) and the USA (16%, also ranked top globally). USD was regarded as the top trade currency (90%, also ranked top globally), followed by EUR (40%, also ranked second globally). The individual country preferences respondents expressed for China and the USA are also reflected in the HSBC long term trade forecasts 1, which have both countries in Australia s top five export destinations in both 2013 and 2030. Conclusion While Australian respondents immediate trade and local economic views are hardly optimistic, there is some reassurance in their far more optimistic business confidence outlook six months ahead. The downbeat sentiment regarding the local economy is hardly surprising when one considers that Australia s Q4 2014 GDP growth was just 0.5%, which was the slowest year-on-year evolution in four quarters. The economy has been dependent on the export and housing industries, as business investments were hit by the collapse in mineral resources values, which also put a significant number of jobs at risk, as well as depressing tax revenues. Top 5 Hotlist Export Destinations * Top 5 Hotlist Import Origins * RANK 2013 2030 RANK 2013 2030 1 China China 1 China China 2 Japan Japan 2 USA USA 3 Korea Korea 3 Japan Singapore 4 India India 4 Singapore Malaysia 5 USA USA 5 Korea Vietnam *Ranking amongst the 24 trade partners covered in the HSBC Global Connections Trade Forecast 1 https://globalconnections.hsbc.com/global/en/tools-data/trade-forecasts/au

Trade Confidence Survey The survey was conducted by TNS in 22 markets with 5,265 companies ranging from small enterprises to large corporate businesses. The study gauges sentiment and expectations on trade activity and business growth in the next six months. The data collection ran from March through April 2015. This document is provided by HSBC Bank plc and HSBC Group members ( HSBC ) and their third party contributor. It is not intended as an offer or solicitation for business to anyone in any jurisdiction. The information contained in this document is of a general nature only. It is not meant to be comprehensive and does not constitute financial, legal, tax or other professional advice. You should not act upon the information contained in this document without obtaining your own independent professional advice. The views and opinions expressed by the third party contributor are their own and not necessarily those of HSBC. The information contained in this document has not been independently verified by HSBC. This document contains information relating to third parties. The information does not constitute any form of endorsement by these third parties of the products and/or services provided by HSBC or any form of cooperation between HSBC and the respective third parties. Under no circumstances will HSBC or the third party contributor be liable for (i) the accuracy or sufficiency of this document or of any information, statement, assumption or projection herein or any other written or oral information provided in connection therewith, or (ii) any loss or damage (whether direct, indirect, consequential or other) arising out of reliance upon this document or any opinion or statement made in this document. All efforts have been made to ensure that the information contained herein is current at the first date of publication. HSBC and the third party contributor does not undertake, and is under no obligation, to provide any additional information, to update this document, to correct any inaccuracies or to remedy any errors or omissions herein. No part of this document may be reproduced, stored in a retrieval system or transmitted in any form or by any means, electronic, mechanical, photocopying, recording or otherwise, without the prior written permission of HSBC and the third party contributor. Any products or services to be provided by any HSBC group member in connection with this information are subject to the terms of separate legally binding documentation.