RBA must cut rates and help SMEs

The Reserve Bank of Australia must cut official interest rates to stimulate an economy that is being weighed down by poor consumer confidence and worrying global economic conditions.

That is the clear message from a wave of ugly economic data that has hit our desks in the past 24 hours.

Without doubt the most shocking was MYOB’s survey of 1,000 businesses, which showed 38% of SMEs have seen revenue fall over the last 12 months. The average fall was a massive 27%.

The spread and size of the revenue falls reported in the MYOB data paints a very worrying picture about how small and mid-sized firms outside the mining sector are performing.

Losing more than a quarter of sales suggests a good number of these businesses are struggling to stay afloat. My worry is that a poor Christmas trading period could send a number of businesses to the wall in early 2012.

That said, 2011 has already been a horror year for collapses. Data released yesterday by the Federal Court shows the 2010-11 year was the busiest period since 2005-06, thanks to a surge in insolvency-related actions.

With monthly insolvency numbers hitting record levels several times a year, it’s unlikely the courts are going to quieten down any time soon.

That is underlined by figures out this morning from National Credit Insurance, which process claims to insurance against bad debts. Claims increased 30% in September, with the electrical, building and hardware and manufacturing industries receiving the largest number of claims. The advertising industry recorded the largest amount of debt against it with more than $1.1 million owed.

I’m also concerned about news that large accounting firm KPMG has started offering some voluntary redundancies and extended leave on 30% pay. It is really only three years since large accounting firms were forced to scale back due to the GFC. For this process to start again really does suggest that the post-GFC hangover is continuing.

How much attention would the RBA pay to this sort of data? Probably not a lot – bank officials have made it clear that their main focus is inflation and they will only cut rates when they are absolutely certain inflation is under control.

But this persistent weakness in the SME community cannot be ignored.

Sales are slumping. Businesses are hurting. The prospect that SMEs could be forced to start laying off staff must be getting more real by the day.

A Cup Day rate cut is desperately needed. The SME community – and the wider economy – desperately needs some stimulus and the RBA must deliver.