NAB SME Business Survey: Quarter 3 2020

SME Conditions & Confidence better in Q3, but still weak.

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The SME sector experienced a significant improvement in conditions and confidence in Q3, partially reversing the previous quarter’s plunge. Despite the gains in Q3, at a national level SME conditions and confidence remain weak, as do leading indicators.

According to Alan Oster, NAB Group Chief Economist: “The unwinding of COVID-19 related restrictions within most states led to a welcome rebound for the SME sector in Q3. However, the level of conditions and confidence remains weak”.

SME business conditions and confidence improved in all states, but only marginally in Victoria. SMEs in WA and SA are experiencing the best conditions and are the most confident, whereas Victoria is the weakest.

“While there was an improvement in conditions and confidence across all states the impact of the re-imposition of COVID-19 restrictions in Victoria is evident. The gains in Victoria were marginal and Victorian SMEs are experiencing notably poorer conditions, and are far more pessimistic about the future, than their counterparts in other states” said Mr Oster.

At an industry level the improvement was broad based with all industries seeing an improvement in conditions. While accommodation, cafes & restaurants, which saw the largest fall in Q2, staged the biggest recovery this sector still has the weakest conditions, and became more pessimistic in the quarter. Health had the strongest conditions of all the sectors, followed by retail where conditions were positive for the first time since 2016 Q4.

According to Mr Oster “There was an improvement in conditions across all industries at a national level. However, the disproportionate impact of the downturn on some sectors is still evident. In particular, accommodation, cafes & restaurants continue to struggle with very weak conditions and SMEs are pessimistic about the future.”

Leading indicators improved in the quarter but remained at weak levels. Forward orders – the pipeline of work – improved significantly but was still very weak. Similarly expected business conditions at both the 3 and 12-month horizons improved and, while near term capex expectations (next 3 months) showed no improvement, the 12 month expectations lifted.

According to Mr Oster: “While leading indicators in the survey, such as forward orders, also showed improvement in the quarter, they remain at a weak level, suggesting that there is still a long path ahead in the recovery from the recession. With capacity utilisation still low there is little near-term incentive for businesses to take on staff or undertake investment”.

The NAB SME Survey is the leading survey of small and medium businesses in Australia, and complements the comprehensive Quarterly NAB Business Survey (QBS) which covers larger businesses. The SME survey offers a rich repertoire of insights into factors affecting smaller firms’ conditions by state, industry and size, as well as an assessment of their outlook for investment and output.

For more information, please see the NAB Quarterly SME Business Survey Q3 2020