Business confidence drops sharply
Business conditions for small and medium-sized enterprises (SMEs) in Australia weakened further in the third quarter of 2024, NAB has reported.
The overall SME business conditions index fell by three points to -2, with mid-tier and larger SMEs seeing notable declines.
“Conditions for SMEs softened further in Q3,” said Gareth Spence, NAB head of Australian economics. “Both the employment and profitability indexes were negative, and trading conditions continued to trend downwards.”
The latest NAB Quarterly SME Survey revealed that smaller SMEs continued to experience negative conditions, while mid-tier SMEs dropped to -7 index points. Larger SMEs also saw conditions ease, settling at 0 index points. The weakest sectors for SME conditions were accommodation and food services, manufacturing, wholesale, and retail.
“Household incomes have been under pressure for some time, and although there are signs of easing, the squeeze on incomes continues to affect SMEs in discretionary consumer-facing industries as well as upstream sectors like wholesale and manufacturing,” Spence said.
SME business confidence also fell sharply, down eight points to -12 index points, reflecting concerns about the broader economic outlook. Forward orders remained steady at -8, while capital expenditure (capex) improved slightly, rising three points to +8. Capacity utilisation dropped to 80.7%, closer to the long-term average of 80.2%.
“SME confidence dropped in Q3 after improving in the previous quarter,” Spence said. “Confidence remains in negative territory, reflecting firms’ concerns about the economic outlook amid high inflation and restrictive monetary policy.”
Cost pressures persisted for SMEs, with purchase cost growth unchanged at 1.3% and labour cost growth rising slightly to 1.3% from 1.2% in the previous quarter. Final prices grew at 0.8%, a slight increase from 0.7%, while the sales margin index remained steady at -15 points.
“Cost pressures have continued for SMEs, with prices growing at a slower pace than input costs, indicating increased pressure on margins,” Spence said. “However, price growth reported by SMEs is currently stronger than that reported by larger firms in the quarterly business survey.”
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