SME business confidence hits 7 year high

| February 7, 2018

SME optimism regarding the national economy has reached its highest level since December 2010. Almost three in ten (29%) small and medium businesses (SMBs) believe the economy is growing. This is nearly double the proportion who believe it is slowing (15%), resulting in a net balance score of (+14) according to the latest Sensis Business Index (SBI) survey.

Small business confidence also remains high despite a small decrease in confidence this quarter. There was a four point decrease in business confidence since last quarter – dropping from net +46 to +42 (59% confident – 17% worried). This is equal to the third highest confidence level recorded since March 2011.

Sensis CEO, John Allan said: “Small and medium businesses positivity about the economy continues its trend upward since June last year. Small businesses are telling us that the values of sales, prices charged and profitability are the areas they are most positive about in the year ahead.”

The Index, which reflects the views of 1,000 small and medium businesses from across Australia, also revealed that small business views of the Federal government have become negative for the first time since March 2017. Businesses saying Federal Government policies are supportive fell (18% to 17%), while those saying policies work against small business increased (15% to 20%). The net balance was down 6 points to -3.

Despite positive business confidence and perceptions of the economy, support for the Federal Government has fallen into negative territory for the first time in nine months. Small businesses who are unimpressed with Federal Government policies cite too much bureaucracy, and a focus on big business which has increased by 5 points, from 13 to 18%.

“Small businesses are telling us that access to finance was more difficult than last quarter, or at this time last year – decreasing 12 points to a net balance of +1, 14 points lower than December 2016,” said Mr Allan.

SMBs are finding it hardest to access finance in the Northern Territory returning a score of -10. It’s a similar story in Western Australia and Queensland with -8 and -2 scores in each. In terms of access to finance, Victoria is leading the way with small businesses reporting a score of +10.

Across the nation, business confidence was lower in each state but Tasmania, where it increased 10 points to +60 and in Queensland where it was one point higher at +43. Tasmania became the most confident state or territory while the Northern Territory remained the least confident, also recording the biggest decrease in confidence, down 14 points to +12.

Capital city confidence is again highest in Hobart (up 13 points to +65), followed by Sydney (up 6 points to +54). The least confident cities are Darwin which fell 13 points but still trails the rest with +15, and Adelaide which dropped 16 points to +29.

Metropolitan business confidence continues to outpace regional, by 9 points (+46 versus +37). This is despite confidence falling faster in metropolitan areas, down 4 points where regional confidence fell by 2 points.

Confidence remains relatively high in all sectors except transport and storage and retail trade, which both found conditions tough in the last quarter. Despite this, retail trade is showing some signs of a turnaround for this quarter and for early 2018.

At the state and territory government level, the only favourable ratings were for the Tasmanian, NSW and NT governments. The SA government remains the most widely criticised by SMBs.

New South Wales

Mr Allan noted that “NSW and Sydney small businesses continue to show strong confidence levels. The main reasons driving confidence were being an established, solid business, healthy sales and having specific business strengths. Worried SMBs referred to cost pressures and falling sales as the key concerns.

“Diving further into the results however we see a reversal in confidence between Sydney based businesses and their regional counterparts. Confidence in Sydney was up 6 points to +54, while confidence in regional NSW was down 20 points to +34. The Sydney confidence level is 12 points above the national metropolitan average while the regional NSW is three points under the average,” said Mr Allan.

SMB support for the policies of the NSW Government was unchanged at +1. The main reasons for a positive view of the Government are infrastructure development and a belief it is helpful and interested in small businesses. The most common criticism is that the Government is not doing much.

SMB support for the Federal Government in NSW was down 9 points to -8, leaving it below the national average of -3.

NSW SMBs unimpressed with the Federal Government’s policies cited too much of a focus on “big business” (up from 13% to 18%) and there being too much bureaucracy (unchanged at 14%). Of those with a favourable assessment, the key reasons given were the Government being seen as supportive and interested in small businesses, efforts to reduce tax, and offering tax incentives.

Metro businesses remain more confident by nine points, with regional SMBs less positive than their metropolitan counterparts about the economy’s strength now and in 12 months.

The most positive views are found in Cultural, Recreational and Personal Services (+8), followed by Building and Construction (+4). The least impressed sectors were Wholesale Trade (-24) followed by Retail Trade (-14).

Victoria

Business confidence among small and medium businesses in Victoria fell 7 points to a net balance of +43 in the final quarter of 2017 – 3 points behind NSW but 1 point above the national average.

John Allan observed that “the final quarter of the year saw business confidence in Victoria drop below NSW, following them drawing neck and neck in the previous index in September 2017. The biggest concern for Victoria’s small businesses is falling sales volumes, whereas those who are confident cite having an established business as the main reason for their confidence.”

Confidence in Melbourne was down 12 points to +42, which is 4 points below the metropolitan average, while confidence in regional Victoria was up 6 points to +46 and nine points above the national regional average.

“One of the most interesting trends in this report is that regional business confidence has overtaken Melbourne business confidence for the first time since March 2017 – bucking the national trend, noted Mr Allan.

Victorian SMBs support for the state government increased by 1 point to a net balance of -12. The Victorian government is still the second most unpopular state or territory government after South Australia.

“Small businesses are telling us that their main issues with the state government relate to penalty rates and extra public holidays – a consistent theme for a number of reports now,” said Mr Allan.

Queensland

The state government remains unpopular among small businesses, despite improving its rating by 2 points to -11.

Mr Allan argued that “despite the state government remaining unpopular among small businesses, business confidence continues the upward trend which began in June 2017. Small businesses which are confident cited having an established business and healthy sales as the drivers of their confidence.

“Small businesses with a negative view of the government cited too much focus on big business as their main issue, whereas supportive businesses highlighted the support shown with incentives, subsidies and grants as front of mind.”

The Index revealed that Brisbane has lost its rank as Australia’s most confident capital city. SMB confidence dropped 10 points to +52 and now ranks second behind Hobart.

South Australia

SMB support for the SA Government continued to decline, dropping by 4 points to -30, and remains the lowest in the nation.

John Allan agreed that “the state government continues to trail the rest of the nation. Small businesses are telling us that poor economic management and high or increasing taxes are the main issues. Whereas, for those who are positive, the government is seen as helpful to small business with incentives, subsidies and grants.”

Confidence among South Australian small and medium businesses fell two points this quarter to +34 as confidence in metropolitan areas dropped 16 points, but regional SA saw a dramatic rise of 29 points. Despite an overall decline of two points in SA business confidence, this remains the second-best result since December 2013.

“South Australia saw a significant shift in confidence in regional and metro areas and consecutive confidence reversals, with SMBs in regional areas now more confident than their metropolitan counterparts by 15 points. Confident businesses pointed to having well established, solid foundations and healthy sales, while worried SMBs cited falling sales,” said Mr Allan.

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