SMEs battling patchy recovery, but confidence remains high: Survey

Small and medium businesses remain confident about a strong economic recovery over the next 12 months, but actual conditions are still weaker than expected, National Australia Bank’s quarterly survey of SME confidence has revealed.

According to the survey, the index tracking business conditions fell by 13 points to five points in the March quarter, as compared with a fall from 14 to four points across businesses of all sizes.

The fall in conditions during the March quarter was felt most at businesses with between $5-10 million in turnover, while companies with $2-3 million in turnover performed best.

However, concerns about the patchy nature of the recovery isn’t denting the longer-tem confidence of SMEs, with the NAB’s confidence index dropping just one point from 35 points to 34.

Geoff Greer, executive general manager at NAB Business, said the dip in conditions and confidence can be blamed on the wind-back of the Government’s stimulus measures and a fall in post-Christmas sales, but points out that last year’s rapid rise in SME confidence may have been overdone.

“Between the June and December quarters last year, customer confidence and demand increased very rapidly by 44 points for SMEs. Many said at the time it was like watching a recovery in fast forward, so a correction towards more realistic growth and confidence is not surprising.”

“Even though SME conditions dipped, it is consistent with what our monthly business survey showed for larger businesses and the 12-month profit outlook for SMEs remains very optimistic.”

Looking at confidence by sector, smaller companies in the property services, construction and finance industries were the most confident, perhaps because of their proximity to Australia’s still-hot property market.

The beleaguered retail sector reported the lowest confidence levels, along with the health care sector, which Greer described as counter cyclical.

Demand, cashflow and access to skilled workers are the greatest concerns among skilled workers, while the survey indicates access to capital and rising interest rates were lower order worries.