Subdued SME conditions trigger a drop in confidence

  • Business confidence of SMEs weakened sharply in the June quarter, consistent with the deterioration in confidence reported by larger businesses in the NAB Quarterly Business Survey. At an aggregate level, SMEs are less optimistic than larger firms. The high Australian dollar, cautiousness of households and concerns about the global outlook are likely to have contributed to the decline in sentiment. The survey preceded the announcement of the carbon tax. SME business conditions were unchanged at a subdued level, although remain broadly in line with conditions reported by larger firms.
  • The most significant falls in business confidence were reported in property, construction, finance and retail, while confidence in health and business services improved. Retail sentiment is now the weakest of all industries, while confidence is strongest in business services. Confidence levels fell across all major states, with SA reporting the lowest level of confidence, followed by NSW and Queensland. WA and Victoria are the most optimistic about near-term activity, although confidence even in these states is relatively poor.
  • Property and business services recorded the largest decline in business conditions, while in contrast, conditions improved in construction and manufacturing. Conditions were strongest in health services and finance, and weakest in property and transport. By state, conditions fell sharply in SA, followed by WA, and improved in Queensland and NSW. Despite improving solidly in the quarter, conditions in Queensland remained the most subdued of all mainland states, while conditions were strongest in Victoria and NSW.
  • Confidence levels fell to uniformly weak levels across all firm sizes. Conditions were also relatively subdued across SMEs; conditions improved for low-tier (turnover of $2-3m p.a.) and high-tier ($5-10m p.a.) firms reflecting improvements in profitability and employment, while conditions of mid-tier firms ($3-5 m p.a.) softened.
  • Consistent with general weakness in business conditions, cash flow deteriorated in the June quarter, especially in transport, wholesale, property and business services, while cash flows improved most in health services. Cash flows were weaker across all states in the June quarter, with the exception of Queensland where they improved solidly.
  • Employer's long-term decisions continue to be constrained by a general lack of demand, while tax & government policy and global economic uncertainty were perceived to be more constraining factors in the June quarter.

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