Below trend growth to continue
SME business conditions eased in Q2 while leading indicators remained mixed.
According to NAB Group Chief Economist Alan Oster, “It was disappointing to see SMEs unwind the strong gains since late last year and underperform compared to larger businesses. While the weakness was broad based across industries and firm sizes, it is not completely bad news. The leading indicators are mixed. Rising capacity utilisation and capital spending intentions were encouraging, while on the other hand, we saw lower forward orders and cash flows. We will continue to monitor the conditions faced by the SMEs, as they are essential to job creation and our economic recovery.”
Regarding the labour market, Mr Oster said “employment conditions held up at a level slightly above the average since 2006, despite weaker trading conditions and profitability. It was particularly encouraging to see the smallest SMEs improve their hiring intentions in recent quarters.” Small businesses play an essential role in our economy and account for the largest share of total employment in Australia by firm size.
Across states, conditions fell in all three major eastern states, while improving strongly in South Australia and Western Australia. Business confidence fell across all states.
The business environment our SMEs operate in was not without challenges. Trading conditions declined the most at the smallest SME firms (with turnover $2-3m), while mid-sized SMEs (turnover $3-5m) reported a slight deterioration and the largest SMEs (turnover $5-10m) continued to experience improving trading conditions. The results highlight the challenges faced by the smallest SME firms, who often have a less diversified business model and may be constrained to a single location or product offering. “It is important we continue to support these businesses and understand their concerns to better service them.”
Firms continued to cite a lack of demand and new orders as a constraint on their business performance. Our survey also showed lower profitability across all firm sizes, as SMEs’ margins were squeezed between low final product price growth and higher overheads growth.
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