Global economic conditions main mid size business concern

While overall confidence levels between Australia’s small and medium businesses are similar, both having declined in the past quarter, they have very different reasons for their concerns about the economy.

In particular, author of the Sensis Business Index, Christena Singh says medium enterprises believe conditions in Australia will only improve once conditions in the rest of the world do.

The latest Sensis Business Index found business confidence amongst Australia’s small and medium businesses at 25 per cent, down two percentage points in the past quarter. When you look at the top line confidence readings between small and medium businesses there was only a one percentage point difference, with medium business confidence at 26 per cent, however this represented a four percentage point fall for medium businesses.

Medium businesses that were confident based their confidence on providing a necessary product or service, being in a stable or growing industry and not expecting conditions to change. By comparison the top reasons for confidence given by small businesses were being established and experienced in the business, having plenty of work coming up and having good profitability.

However the difference was even more distinct when looking at the reasons why businesses were concerned. Medium business concerns centred around vulnerability to global economic conditions, the general economic outlook, uncertainty from the carbon tax, decreasing business and the high level of the Australian dollar. Small businesses that were concerned were most likely to cite people not spending ahead of a decrease in business and global economic conditions.

It is not surprising that the concerns of medium businesses at the moment are focused on global economic issues, considering the March 2012 Sensis Business Index found that 19 per cent of medium businesses export, compared to 12 per cent of small businesses.

Historically, before the GFC impacted business confidence, medium businesses reported higher confidence than small businesses since they were included in the Sensis Business Index in November 2000.

With medium businesses more likely to have international linkages than their smaller counterparts, the impact of the downturn in the global economy has been more pronounced in medium businesses. As you can see in the chart, medium businesses reported an 11 percentage point higher net confidence level on average than small businesses before the GFC started to impact business confidence in November 2007. After this the gap in confidence fell to five percentage points on average.

So a return to higher confidence levels in Australia’s medium business sector will be contingent to a large extent on improvement in the global economic environment, as well as increased growth levels in our domestic economy.
 

Christena Singh joined Sensis in 2003 as the author of the Sensis Business Index and the Sensis e-Business Report. The Sensis Business Index is the flagship of Sensis’ SME research program. Since its inception in 1993, the Sensis Business Index has become one of the most widely referenced small business surveys in Australia. As well as authoring and providing media commentary on Sensis’ major public economic reports, Christena is also passionate about communicating the success of Australian small and medium businesses, both within Australia and overseas, and how the fast adoption of technology and e-commerce have helped Australia’s small businesses grow.