SME business conditions drop further in September quarter

Small to medium sized business (SME) conditions experienced another decline in the September quarter, the third drop this year.

Business conditions turned poor in the September quarter, falling 9 points to -1 index point, the first time they have dropped into negative territory since the September quarter, 2001.

But despite the deterioration in business conditions experienced by SMEs across the country they continued to fare better than their larger counterparts which saw their index fall to -3 points.

The research comes from the latest NAB SME Survey Australia – September 2008, which saw fewer than a quarter (23 per cent) of SMEs report good or very good conditions (27 per cent in the previous quarter), compared to 24 per cent reporting poor or very poor conditions (up from 19 per cent in the June quarter).

All SMEs experienced the decline in the September quarter, but it was the smallest businesses (annual turnover of $2m-$3m) still the worst affected at -2 index points

Conditions for mid-sized SMEs (annual turnover of $3m-$5m) and large SMEs (annual turnover of $5m-$10m) fared only slightly better with sharp declines in business conditions to 0 index points.

Geoff Greer, Regional General Manager of Business Banking Australia, said declining business conditions were affecting businesses across the board.

“Business conditions across the world are very difficult at the moment and suggest that businesses, regardless of size, are doing it tough,” Mr Greer said.

“As customers tighten their belts and their confidence in spending drops, so too do the results for Australian businesses.

“SMEs are still faring better than their larger counterparts and will be keenly watching the economic conditions and hoping for a bounce from the Federal Government’s $10.4 billion economic stimulus package.

“Factors such as interest rates, unemployment and economic growth will continue to have a flow-on effect to SMEs.

“The good news is that the expected business confidence among SMEs looking to the December quarter has improved slightly, but is still poor at -4 index points.

“The best performing sector among SMEs was business services, which is bucking the trend and on a par with mining in the large business sector.

“Health and accommodation/cafes also stayed in positive territory, while those in the finance/insurance sector were weak.

“Real estate related business struggled in the September quarter as did many of the sectors reliant on consumer spending like food and personal goods retailing.”

The decline in business conditions translated to the bottom line for small to medium businesses with profit growth dropping into negative territory.

Businesses reported poor profit growth in the September quarter, with the NAB SME profit index down a further 6 points to -2 index points.

The 12-month profit outlook remains relatively stable, up 1 point to a modest 9 index points, after being revised down by 12 points last quarter.

The profit outlook for the next 12 months is better among business services, health and parts of transport, while parts of manufacturing, wholesaling, retailing and construction are more concerned about their fortunes.

“It is not surprising, given the current economic uncertainty, that SMEs are most concerned about the impact of a lack of demand on their bottom lines over the next 12 months,” Mr Greer said.

“SMEs are also concerned about factors like the availability of labour, wages and interest rates and fuel and material costs, as well as competition, and funding pressures.

“Despite the challenges currently facing SMEs and the global economic uncertainty, we can take encouragement from the fact that their profit outlook still remains positive for the coming year.”


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