Overview

SME business confidence improved in Q4 but remains firmly in negative territory. In contrast, conditions fell for SME businesses, led by a large decline in business services. Confidence and conditions were negative across all SME tiers and notably weaker than for larger firms captured in the NAB Quarterly Business Survey. This reinforces that the business environment remains challenging for SMEs. Input cost pressures eased, especially for labour costs, while the pace of output price growth also eased. Labour availability remains a significant constraint for around 30% of firms (though this level has stabilised in recent surveys) while the share of firms reporting sales as a significant constraint eased slightly in Q4 which may reflect the pick-up in trading conditions at the end of 2024.

Survey Details

• SME business conditions fell 1pt to -4 index points. Conditions for the smallest SMEs fell by 3pts to -5 index points, and larger SMEs saw conditions ease by 2pts. Conditions remain weakest for mid-tier SMEs, even with a small improvement in Q4 (up 1pt to -7 index points).
• By industry, SME conditions declined materially in business services (down 18pts). This was followed by smaller declines in finance (down 6pts), construction (down 4pts), transport (down 2pts) and retail (down 1 pt). However, finance and business remain the strongest industries for SME conditions in level terms. Conditions are weakest in manufacturing, accommodation and retail.
• SME business confidence improved by 3pts to -11 index points but remains well below average (+2 index points). The improvement was driven by large increases in accommodation, health, transport and manufacturing. However, SME confidence is negative across all industries except transport (which is only just positive at +1 index point).
• Across the states, SME conditions fell everywhere with the largest decline in SA. In level terms, SME conditions remain weakest in Vic (-8 index points) and NSW (-7 index points). SME confidence rose in all states, but all states remain in negative territory.
• Compared to larger firms (as measured in the NAB Quarterly Business Survey), SME business confidence and conditions remained notably weaker.
• Leading indicators were mixed. Capacity utilisation fell to 80.3%, almost matching the long-run average of 80.2%. Capex fell sharply by 5pts to +3 index points, Forward orders on the other hand rose slightly, up 2pts to -8 index points.

For more information, please see the NAB Quarterly SME Business Survey (Q4 2024)