Boardroom confidence hits three-year low as directors fret over interest rates, inflation and labour shortages

Confidence within Australian boardrooms is at its lowest since the first year of of the pandemic, with company directors fretting over rising interest rates, inflation and labour shortages. However, WA remains an outpost of optimism, with its directors far more confident than any other State, according to the Australian Institute of Company Directors’ latest survey of sentiment. A record 92 per cent of WA directors polled in the sounding of 1352 AICD members between mid-September and October 2 rated the health of the State’s economy as “strong”. By comparison, NSW was the next most confident State with a “strong” reading of 44 per cent. Trust in the State Government is also running at a near national high, with 45 per cent of directors in WA reckoning the Government understands business, though that is down from 52 per cent a year ago. The AICD’s twice yearly Director Sentiment Index lost ground for a third consecutive survey, settling at its lowest point since the second half of 2020 when COVID-19 had locked down much of the country. The national economy is still viewed in an optimistic light but confidence levels continue to fall. “Unsurprisingly directors are feeling more pessimistic, as they’re acutely aware of the challenges people are facing in the current environment,” AICD chief executive Mark Rigotti said. “And they’re worried about the impact that higher interest rates, rising living costs and the housing crisis are all having on their customers and staff.” Rising household costs have leapt to the fore this year, with 42 per cent of respondents now viewing cost-of-living pressures as the leading economic challenge for Australian businesses, up significantly from 24 per cent in the first half, and ahead of labour shortages (43 per cent) and productivity (32 per cent). Interest rates, in particular, are of concern. Even before Tuesday’s latest increase of 25 basis points by the Reserve Bank of Australia, some two-thirds of directors feared rising rates threatened to cause “a mortgage crisis” and 44 per cent say rate settings are hurting their businesses. “A majority of directors have told us that the RBA and monetary policy are a key driver of recession risk and that further interest rate hikes could be what forces the economy into recession,” AICD chief economist Mark Thirlwell said. “They are also concerned that current monetary policy settings will lead to a major uptick in business insolvencies,” he said. Among other findings, 69 per cent of respondents said their organisations had been affected by labour shortages, 88 per cent believe Australia has a skills shortage, 71 per cent believe skilled migration levels are not keeping pace with demand and 58 per cent reckon advancing reconciliation with First Nations peoples remained a national governance priority. Cyber security remains the standout issue keeping directors awake at night, with 45 per cent seeing it as the most pressing concern. However, 59 per cent identified compliance and regulation as the biggest factor affecting their boards’ appetite for risk.