Small businesses are no strangers to the odd knock or two. And this year is proving no different as resilience post the busy Christmas period shines through.
According to the latest Westpac-Melbourne Institute small and medium sized enterprises survey, business conditions sank 16.1 per cent in the first three months of the year compared to the prior quarter on the back of weaker sales and profitability.
But SMEs are bullish on better times down the track, the “future conditions” index rising almost 19 per cent to 120.5. Many SMEs also appear to have been getting ready for an uplift in future activity, the research finding 40 per cent upped investment in the past year and one in three increased working hours.
“My sense, in the conversations with customers, is that the last year has been tough, they’ve had significant margin pressure, they’ve had to adapt to changing consumer behaviours and they feel they’ve really come through that well,” Westpac general manager of SME business banking, Ganesh Chandrasekkar, told Westpac Wire.
“They feel really match fit and therefore optimistic about what’s to come.”
The survey mirrors other muted readings of the economy in recent times. The Reserve Bank of Australia last week adjusted its growth forecast for the economy from "a bit above 3 per cent" to "faster than in 2017", when gross domestic product expanded 2.4 per cent. Retail sales in January also rose a softer than expected 0.1 per cent, according to The Australian Bureau of Statistics.
The pressures were borne out in Westpac’s SME survey as many in wholesale and retail trade, hospitality and recreation service, and construction reported a decline in profits in the quarter amid an increase in costs.
But optimism about the future increased across all industries with the exception of agriculture, forestry and fishing.
As total annual business credit growth tracks around 3.4 per cent, Mr Chandrasekkar said SME demand for credit was broad-based across industries with equipment finance particularly strong. Regionally, SMEs in Western Australia are the most optimistic, followed by Victoria and South Australia.
Fresh from a trip to clients in Northern Queensland last week, Mr Chandrasekkar said while SMEs in the state appeared concerned about conditions, sentiment could improve in the next quarter following the recent rains that will assist farmers and amid steady coal prices.
“There may also be an improvement in tourism, particularly over the cooler months as domestic and international travellers visit the state,” he added.
By Michael Bennet
Editor, Westpac Wire