SME confidence rebounds as economy shows signs of recovery

Business confidence amongst small and medium companies has surged in the last three months as signs of economic recovery have emerged, a new survey of 1800 SMEs has revealed.

The Sensis Business Index shows the confidence indicator jumped up 18 percentage points in the last three months to 30%. It now sits slightly below the levels recorded 12 months ago.

But report author Christina Singh is quick to point out that business confidence remains only about half the strength it was in August 2007, when the Australian economy was humming and the indicator reached 59%.

The survey found confidence was strongest among businesses with between three and four employees (42%), followed by businesses with five to nine employees (36%). Confidence is lowest among businesses with 100 to199 employees.

This fits in with the theories NAB chief executive Cameron Clyne and ANZ boss Mike Smith have, who both referred to the concept of “waves” of bad debts that hit the economy during recessionary periods. The first wave has already hit the big end of town, the second wave is hitting medium-sized businesses and the third wave is still to hit smaller companies.

Despite the pressure on discretionary spending, sentiment is strongest in the accommodation, cafe and restaurant sector (52%) followed by the health and community services sector (48%) and the cultural, recreational and personal sector (46%).

The transport and storage sector is the most pessimistic (4%), followed by the manufacturing sector (16%) and retail trade (18%).

“The latest data suggests Australia’s economic environment is starting to rebound, with businesses expecting their operations to perform significantly better in the next 12 months,” Singh says.

“We have seen a strong improvement in demand during the quarter, but it remains negative overall and at historically weak levels. However, businesses are expecting conditions to continue to improve during the coming quarter, with sales predicted to be around August 2008 levels.”

SMEs also appeared determined to try to hang onto their staff where they can. Over the quarter, 14% of businesses shed staff, while 11% actually hired. The remaining 75% made no change.

“We are also expecting to see an improvement in employment in both the short term and for the year ahead,” Singh says.