Small business conditions begin to stabilise, but employer group warns against rate rises

Small business conditions are beginning to stabilise, but SMEs face significant challenges before the economy will recover, according to the Australian Chamber of Commerce and Industry small business survey for August.

The survey’s small business index rose three points to 39.8 during the June quarter, the highest level since November 2008. But the index still remains in negative territory and is 11 points below the five-year average of 51.3.

An index level of 50 indicates a perfect balance between optimistic and pessimistic businesses, with any reading below 50 interpreted as a negative result.

The survey found that SMEs expect business conditions to improve over the next quarter, but their expectations for the economy are not so rosy. The index of expected economic performance grew from 30.2 in the March quarter to 36.9 in the June quarter, but still remains eight points below the five year average of 45.2.

Additionally, the small business sales revenue index rose from 38.9 to 40.1, but is still 14 points below the five year average of 53.9. The majority of businesses believe revenue will increase over the next quarter, with only large business recording an increase in the pace of decline in sales revenue.

Meanwhile, the profit growth index strengthened, growing from 33.8 to 34.5, but it still remains 11 points below the average of 45.3 with all sizes of businesses recording negative readings.

Wage growth continued to decline over the June quarter, with the index falling from 53.4 to 50.7, 13 points below the five year average. Additionally, medium and large businesses recorded bigger wage pressures than small businesses.

But employment seems to be on the rise, with the index growing to 42.1 points through the quarter, after seven consecutive quarters of declines.

ACCI acting chief executive Greg Evans said in a statement while business conditions are stabilising, the downturn is still posing several challenges to small business.

“Over the June quarter, small business experienced some stabilisations in trading conditions. Looking ahead, small business expects business conditions to improve further despite the expectations index remaining in contractionary territory.”

Evans has also urged the RBA not to lift rates before SMEs are truly back on their feet.

“Despite some improvement in the outlook, trading conditions for the small business sector remain difficult. Hiring intentions remain contractionary, business investment continues to be fragile and small business continues to report difficulties in obtaining credit. These conditions seem likely to affect business for some time suggesting it is still a long time off before the RBA should contemplate tightening monetary policy.”

The Government is still being blamed for hindering business, with taxes and government charges named as the biggest constraint on investment for a sixth consecutive quarter. Charges from lending institutions leapt from ninth to third place on the list of investment constraints.