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Perceived improvements in economic conditions have done little to boost the health of Australian small businesses, according to a joint research by Westpac and the Melbourne Institute.
The Westpac-Melbourne Institute SME Index, which examines the “economic health” of Australian small and medium-sized enterprises, dropped by 4.7 per cent, from 103.2 in March to 98.3 in June.
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The index also revealed that the majority of SMEs do not expect the 2018–19 budget to improve their business’ performance (63.9 per cent), with less than a third (30.2 per cent) of SMEs expecting the federal budget to improve the economy in the next 12 months.
Further, SMEs believe that the government’s planned research and development incentive overhaul (6.7 per cent) and investment in SME Export Hubs to help businesses go global (5.9 per cent) would not greatly impact the performance of Australian SMEs.
However, the research revealed that of the proposed budget measures, SMEs noted that the simplified Business Activity Statements (45.5 per cent) and the 12-month extension to the $20,000 instant asset tax write-off scheme (35.4 per cent) would have the greatest impact on their business.
According to the Westpac-Melbourne Institute research, the overall drop in business confidence was largely driven by a decline in profits (34.0 per cent) and harder access to credit and finance (21.7 per cent).
Westpac senior economist Matthew Hassan observed: “Small business confidence in Australia has reverted back to 2017 levels. Despite an optimistic start to 2018 and some improvement in trading conditions, the pick-up has not been as strong as businesses expected.
“SMEs are also less positive about the near-term outlook, with the slightly negative mood overall considerably more downbeat than three months ago.”
Mr Hassan added: “While it looks to have been relatively well received, the federal budget boost has not been enough to offset the disappointment around trading conditions and continued pressures on SME profitability.”
When compared to last year’s results, the index revealed a marginal uplift in business confidence among small businesses, rising by 0.7 of a percentage point, from 97.6 in June 2017, and a strong improvement from June 2016 (83.0 per cent).
Westpac general manager of SME business banking Ganesh Chandrasekkar commented: “We are seeing increased business activity across Australia. However, this doesn’t appear to be translating into real profit. With increased competitive pressures, particularly in the wholesale and retail trade sectors, businesses are finding it difficult to maintain margins.
“In a continuation of themes from last year, we see SMEs focus on the bottom line, tightly managing expenses and variable cost, resulting in a greater portion of SMEs deciding to reduce rather than hire staff for the first time since June 2016.
“Despite the cautious outlook on future business conditions, we see businesses continue to make targeted investment in equipment and machinery.”
In addition, the index revealed that confidence in the agriculture, forestry and fishing sectors was the lowest across industries, down from 107.9 in 2017 to 88.8.
Confidence in the construction industry, on the other hand, reported the highest reading, up from 99.7 year-on-year to 136.8.
When looking at business sentiment across the major states, 50 per cent of Victorian SMEs reported an increase in real business activity and sales over the past 12 months.
However, Victorian SMEs were the least optimistic about future conditions (94.7), when compared to SMEs in New South Wales (108.4), Queensland (106.1), South Australia (100.3) and Western Australia (103.1).
[Related: Business conditions fall, but remain strong]
