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SMEs confidence steady in the lead up to EOFY

16 March, 2017

The Westpac-Melbourne Institute SME Index (SME Index), which examines the economic health of Australian small and medium sized enterprises (SMEs), shows business confidence remains stable.

It went from 100.7 in Q4 2016 to 99.9 in Q1 2017 as SMEs prepare for the upcoming Federal Budget and end-of-financial-year.

The slight decline in the SME Index indicates businesses have a conservative outlook on future business conditions, despite many reporting improvements in current business operations (sales, profits, employment). 

Westpac's General Manager of SME Business Bank, Julie Rynski said, "It's pleasing to see a steady level of optimism among Australian businesses as they gear up for the end-of-financial-year.  

"We know tax time can be stressful for business owners, with around a quarter of our SME customers telling us they experience cash flow difficulties because of late payments and around 24 per cent with more than $10,000 in unpaid invoices on their books."

Looking at sentiment among the major states, Victoria was the most optimistic (106.0) with marginal dips in overall confidence across most of the other states. Decreases of 8.7 per cent were identified in New South Wales (100.8), 8 per cent in South Australia (94.2) and 1.9 per cent in Queensland (98.3). Western Australia recorded the lowest SME Index reading, reporting an 8 per cent decrease to 80.4.

Westpac Senior Economist, Matthew Hassan said there were a number of contributors to the current results.

"Trading conditions have clearly improved on a year ago. Some of the concerns about the wider Australian economy have also likely eased with GDP posting a solid rebound in the December quarter, more than reversing a surprise contraction in the previous quarter.

"Meanwhile the global backdrop has improved, the mining investment downturn is nearly over and interest rates and the Australian dollar remain supportive. There are clearly still significant areas of concern for SMEs; consumer demand is patchy, the outlook for housing is uncertain and profits are under pressure. Overall, the picture looks mixed with improvements in current activity offset by ongoing doubts about the extent to which these will be sustained," said Hassan.

Across industries, the SME Index was strongest for Professional Services (111.7), Health & Aged Care Services (108.6) and Manufacturing (104.2), with each sector showing improvements in business conditions in the last 12 months. The survey found a dip in confidence in the Construction sector, declining by 12.4 per cent, partly due to a decline in profits (25 per cent), harder access to finance (21.9 per cent) and an increase in government regulations (56.3 per cent).

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