SMEs feeling gloomier about the future

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The Westpac-Melbourne Institute SME Index, which examines the economic health of Australian small and medium-sized enterprises (SMEs), slipped into negative territory in June.

Despite perceived improvements in current market conditions over the past three months, the index was down 4.7 per cent to 98.3.

The 2018-19 Federal Budget has also done little to inspire broader SME confidence, with 63.9 per cent of businesses stating they expect to see no impact on their performance over the next 12 months, compared with 55.6 per cent following the 2017-18 Federal Budget. Less than a third (30.2 per cent) of SMEs believe the budget will improve the Australian economy.

Westpac Senior Economist Matthew Hassan said, “Small business confidence in Australia has reverted back to 2017 levels. Despite an optimistic start to 2018 and some improvement in trading conditions, the pick-up has not been as strong as businesses expected. SMEs are also less positive about the near-term outlook with the slightly negative mood overall considerably more downbeat than three months ago.

“While it looks to have been relatively well received, the Federal Budget boost has not been enough to offset the disappointment around trading conditions and continued pressures on SME profitability.”

Compared with last year, the index reveals a marginal uplift in business confidence among SMEs, increasing 0.7 per cent from 97.6 in June 2017 and showing a strong improvement since the 83 recorded in June 2016.

Westpac General Manager of SME Business Banking Ganesh Chandrasekkar said, “We’re seeing increased business activity across Australia, but this doesn’t appear to be translating into real profit. With increased competitive pressures … businesses are finding it difficult to maintain margins.

“We see SMEs focus on the bottom line, tightly managing expenses and variable cost, resulting in a greater portion of SMEs deciding to reduce rather than hire staff for the first time since June 2016.”