Growth, inflation and labour market all easing
SME conditions and confidence edge lower.
Small and Medium Enterprise (SME) business conditions edged lower in Q4, following the rebound last quarter. Conditions for Mid-tier SMEs we slightly lower, while the low- and high-tier segments were unchanged. High-tier firms continue to outperform at +7 index points, with conditions in the lower tiers still negative.
According to Alan Oster, NAB Group Chief Economist: “SME business conditions were slightly lower in the quarter, following the large ups and downs in previous quarters. Conditions remain below average – like the results we are seeing in our other surveys. That said, within the SME segment, larger firms continue to outperform smaller firms by some margin”.
SME business confidence also declined slightly in Q4 and at 0 index points lies at the threshold between improving and deteriorating. Confidence remains below average. Similar to the reads for conditions, larger firms are significantly more confident than smaller firms that activity in their segment will improve going forward.
“The ongoing weak read for confidence suggests that SMEs themselves do not see an upcoming improvement in activity. Confidence is higher for larger SMEs, likely reflecting their recent experience of better conditions. Confidence remains negative for smaller firms” said Mr Oster.
By industry, results were mixed in the quarter. Manufacturing and wholesale saw the largest improvements in conditions in the quarter, offset by declines in finance, health, accommodation, cafes & restaurants, and business services. Overall, conditions are now most favourable in finance and health and weakest in retail and accommodation, cafes & restaurants. By state, Victoria continues to outperform the other states. SA and Qld remain positive, but NSW and WA are lagging and in negative territory.
According to Mr Oster: “Across states and industries results were mixed in the quarter. The washup is that finance and health continue to see the most favourable conditions by some margin compared to the weakest industries – retail and accommodation, cafes & restaurants.”
“The results for the retail and other discretionary consumer sectors such as cafes, accommodation & restaurants are quite concerning, but in line with the results we are seeing in our other business surveys, as well as official consumer data that show discretionary spending has weakened significantly over the past year.” Mr Oster said.
According to Mr Oster: “Like our surveys for larger business, forward looking indicators continue to point to more of the same with respect to activity going forward in the sector. It appears, that the slowing in consumption and downturn in construction activity continue to weigh on business. While lower rates are likely to have provided some support it appears policy makers, both fiscal and monetary could do more to support the business sector – particularly SMEs where sales/trading (ie demand) continue to be the largest constraints for the sector”
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 Q4 2019
© National Australia Bank Limited. ABN 12 004 044 937 AFSL and Australian Credit Licence 230686.