Iran war to exacerbate local business woes after CCIWA survey reveals confidence plunge not seen since COVID

Long-term business confidence in WA was already in freefall before the Iran War erupted, plummeting at a rate not seen since the onset of the COVID pandemic in early 2020. Labour shortages and interest rate rises are weighing heavily on the local economy, according to the Chamber of Commerce and Industry WA’s survey of almost 400 businesses in February. Only 44 per cent of those surveyed expected conditions to improve in the next 12 months — equating to a drop of 24 percentage points since the last survey in December. Short-term confidence fell six percentage points, with 43 per cent of businesses expecting stronger conditions in the next three months. Rising costs were identified as a “major barrier” to growth by 68 per cent of respondents, up 16 percentage points. CCIWA chief economist Daniel Kiely said persistent labour shortages were the biggest underlying concern. “The employment market in WA is extremely tight, with seven in ten (69 per cent) businesses telling us that labour shortages are their number one barrier to growth,” Dr Kiely said. “We’ve seen labour shortages become most prevalent in the construction sector, where 82 per cent of businesses reported it as a barrier.” Dr Kiely said a further downturn in confidence was “a likely result” of the Iran War and it would be compounded by last week’s interest rate hike. “WA businesses were struggling with cost pressures before this conflict started, so we’re coming into the crisis in an environment where business confidence was already going down,” he said. “We expect confidence to take a further hit as a result of the conflict, driven by the increased cost of fuel, which impacts virtually every business in some way. “There are also widespread concerns about potential supply chain issues for sectors like agriculture, which rely on the Strait of Hormuz to transport goods like fertilisers and petrochemicals.” Nola Pearce’s company TraumaSim manufactures hyper-realistic artificial body parts for medical training purposes and has already faced transport issues due to the Iran War. “Our biggest order for the year headed off via air freight before the war kicked off . . . the airspace got closed when the war started, and they’re still trying to find a way to get it to its destination,” she said. “We’re anticipating it’s going to get a lot worse than it is at the moment, we’re already starting to see little bits of the freight costs being elevated and anytime there’s fuel prices increases that’s got to be absorbed somewhere. “From our perspective, manufacturing in Perth, the most remote city in the world, has its own problems and anything that impacts on freight is amplified for us.” Ms Pearce said making any sort of investment decision or predicting how far input prices could rise was “extremely difficult” given the uncertainty surrounding the War’s resolution. Dr Kiely said the prospect of escalating costs for businesses made CCIWA’s ongoing call for payroll tax relief more relevant than ever. “Businesses are being squeezed from every direction, and payroll tax is one area the State Government has the power to do something about,” he said. “When you consider payroll tax kicks in at a $1 million annual wages bill, it’s capturing more small and medium-sized businesses than ever thanks to rising labour costs.” Dr Kiely said skilled migration and better support for apprenticeships, traineeships and other work-based learning would play a crucial role in shoring up WA’s workforce for the future. “Federal incentives for employers who take on apprentices and trainees have been slashed, and we’ve seen an overall decline in the number of people starting apprenticeships and traineeships,” he said. “It’s vital that both the State and Federal Government make skills training a priority and take a longer-term approach to ensuring there’s a pipeline of workers for WA industries.” Housing shortages also remain a key barrier to business growth in WA, according to Dr Kiely, with almost one in three (27 per cent) of businesses identifying it as an issue — up six percentage points from December. “Housing supply impacts the attractiveness of WA as a place to work and live and in turn effects business competitiveness,” he said.