Business confidence hits highest level in five years among Australia’s SMBs

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Business confidence rose by nine points this quarter, to now sit at the highest level in more than five years among Australia’s small and medium businesses (SMBs), according to the latest Sensis Business Index (SBI) survey.

John Allan, Sensis Chief Executive Officer said, “While sales and employment improved and prices remain positive, wages and profitability went backwards this quarter. These are not the results you would expect to see when confidence has lifted to a five year high.”

“Rather than being driven by these indicators, confidence is instead being driven by perceptions that the overall economic environment is improving. On top of this, the non-cyclical influences remain strong, with businesses continuing to feel particularly positive about their own specific business strengths.”

The net balance score of +44 – the difference between the number of confident SMBs, 60 percent, versus the number of worried SMBs, 16 percent, – is the highest business confidence score recorded since March 2011.

Small and medium businesses comprise 99 percent of all businesses operating in Australia. The Index, which reflects the views of 1,000 small and medium businesses from across Australia, also found that perceptions of the economy improved by 14 points this quarter, although they remain negative overall on -8.

“Perceptions of the economy have been negative for some time, and while they remain negative, they have improved to the best level we’ve seen in two years,” said Allan.

“Concern about the economic environment has halved, with only one in twenty businesses now worried, while the number of businesses reporting a lack of work or sales as a barrier to taking on new staff fell from 51 percent to 38 percent; the lowest level we’ve seen since September 2014.”

At the state level there were confidence gains everywhere except for Tasmania and the Northern Territory. New South Wales extended its lead, while Western Australia is now the least confident state. South Australia is finally off the bottom, following a 24 point rise in confidence.

“The eastern seaboard states are now the shining lights for business confidence nationally. As you head across the continent, however, confidence deteriorates, with businesses in the Northern Territory and Western Australia the least confident in the nation, followed by South Australia” said Allan.

“Tasmania has been on a roller coaster ride in recent times and saw the biggest fall this quarter, down 17 points, to now sit below average, having been the clear leader only two surveys ago.”

At a local level, confidence rose by 13 points in metropolitan areas (+50) but only rose by four points in regional areas (+35), with the gap between the two widening from six to 15 points this quarter.

“Metropolitan businesses are feeling more confident on all of the key performance indicators and, with the exception of New South Wales, now also lead their regional counterparts in terms of business confidence in every state and territory,” said Allan.

There was a reversal in confidence in South Australia and Western Australia, with businesses in Adelaide (up 33 points) and Perth (up 23 points) now more confident than those in regional areas in those states. The opposite was true in NSW, with regional businesses there the most confident of any regional area in the nation (+58) and also slightly ahead of SMBs in Sydney (+56).

The sector results were mostly positive, with Health and Community Services; Hospitality; and Finance and Insurance now sharing top spot, each on +58.

“While most sectors are feeling confident, manufacturers saw weak sales and demand, while retailers continue to worry about business conditions. These two industries are the least confident and are reporting more challenges than the other sectors,” said Allan.

Taken before the Federal Election, the survey found that businesses’ perceptions of the Federal Government in the lead up to the election were mixed, with 21% supporting the policies of the Coalition Government and 19% opposed, while the majority remained indifferent.

In terms of the perceptions of state and territory governments, only the New South Wales Government now has a positive rating, with all except for the NSW and NT Governments going backwards this quarter.