Overview

SME business conditions and confidence improved in Q1 2025. Each of the business conditions sub-components (trading, profitability and employment) rose, though profitability and employment conditions remain in negative territory. This was a stronger survey reading than for larger firms captured in the NAB Quarterly Business Survey, which saw conditions ease slightly over the quarter. However, conditions and confidence remain weaker than the quarterly survey in level terms, though the gap for conditions has closed slightly. Like in the quarterly survey, the share of SME firms reporting labour as a significant constraint on output eased. Labour costs growth also softened in the quarter, though purchase costs growth was marginally higher. Note that this survey was conducted before tariff announcements in early April.

Survey Details

• SME business conditions improved by 3pts to -1 index points. Improvement was strongest for the smallest SMEs (up 5pts to +1 index points), followed by mid-tier SMEs (up 4pts to -3 index points). SME conditions overall remain weaker than the quarterly survey in level terms and in negative territory.
• By industry, SME conditions improved in all industries except business services and finance. Business services saw a material decline for the second quarter in a row (down 10pts in Q1), while finance conditions were down 3pts. Despite the decline, conditions are strongest in finance and transport and remain weakest in manufacturing.
• SME business confidence improved by 4pts to -8 index points but remains well below average (+2 index points). The improvement was driven by large increases in property and construction. However, SME confidence remains negative across all industries except property and transport (though transport is only just positive at +1 index point).
• Across the states, SME conditions improved in every state, led by WA (up 6pts) and Qld (up 5pts). In level terms, SME conditions remain weakest in NSW and Vic (both at -5 index points). SME confidence rose in all states, but all states remain in negative territory, with Victoria lagging notably behind other states at -15 index points.
• Conditions weakened this quarter in larger firms (as measured in the NAB Quarterly Business Survey), in contrast to the improvement in SME business conditions. However, in level terms, conditions and confidence remain relatively weaker in SME firms.
• Leading indicators were mixed. Capacity utilisation was steady at 80.3%, which is close to the long-run average. Capex and forward orders both improved over the quarter.
• Cost pressures eased across labour costs and overheads. Purchase cost growth ticked up slightly (1.4% from 1.3%).
• Final prices were steady at 0.6% while the sales margin index improved from -20 to -17 index points.

For more information, please see the NAB Quarterly SME Business Survey (Q1 2025)