Director sentiment has hit its lowest level in two years, as fears of the health of Asian economies and growing pessimism about the promise of a resolution of the European debt crisis weighs heavily on the nation's top business leaders.


The Australian Institute of Company Directors' second half 2012 Director Sentiment Index found that the overall sentiment about current economic conditions and the immediate outlook has fallen dramatically in the last six months.


The Index found growing pessimism across all segments, which include economic indicators, business conditions, regulation and government policy, legal issues, reporting and directorship conditions.


“The findings reveal that directors’ sentiment and their view of their business’ prospects have dropped dramatically, with concerns about the global economy, the high value of the Australian dollar and low consumer confidence identified as the key economic challenges facing Australia in the coming months,” said CEO and Managing Director of the Australian Institute of Company Directors, John Colvin.


“It also shows that directors are pessimistic about the growth of their business and profits in the coming year. Only 40 per cent of directors expect future growth and most predict a decrease in investment levels, staffing levels, business exports and the level of outsourcing in the coming year,” he said.


According to the survey, Directors felt that productivity growth, or lack thereof, is a pressing concern in the business world, ranking it the second most urgent issue for the Federal Government to address in the short term and high amongst the most important economic challenges facing Australia.


Poor policy and burdensome regulations were identified as key constraints by Directors, with 41 per cent identifying policy as a key impediment to growth. 42 per cent said that workplace laws and regulations were dragging down their prospects.


Cutting red tape was also ranked equal third as the most important issue Government should deal with in the short term.


“The findings of this survey emphasise the importance of the deregulation agenda. Business is clearly calling on government to reform those areas of Australian law that are a drag on productivity and develop policies that stimulate growth,” said Mr Colvin.


“To do this, it is also critical that governments consult with business in a comprehensive and meaningful fashion before announcing reforms, as they may have unintended consequences, practical problems or simply be misguided,” he said.


Amplifying these concerns about excessive regulation, more than 50 per cent of directors report that the time spent complying with red-tape has increased in the last 12 months, with employing workers and workplace health and safety identified by 70 per cent of directors as the aspects of their business most affected.


The full report can be found here