SME confidence ‘negative’ in Q1 despite resilience

According to NAB’s Quarterly SME Survey for 1Q23, although business conditions are “still resilient” SME business confidence stayed negative during the quarter, falling by 1 point (pt) down to -5 index points.

The survey found that confidence was negative “across SMEs of all sizes” but fell the most for mid-tier firms.

NAB chief economist Alan Oster said higher interest rates, elevated inflation, and a “clouded global economic outlook” were all likely causes weighing on firms.

Contrarily, SME business conditions were softer across the board for all SMEs. Although SME business conditions fell 1pt to +11 index points, it still sat above the long-run average of +6.

Conditions for mid-tier terms rose 3pts, however, this edged lower for larger and smaller SMEs.

“Business conditions continue to ease gradually across both larger firms and SMEs, but remained resilient through Q1,” Mr Oster said.

“In terms of SMEs, the smallest firms report very soft conditions but mid-tier and larger SMEs are at robust levels.”

SME business conditions remained the strongest in Western Australia, Queensland, and South Australia, while also remaining robust in Victoria and NSW.

In terms of business confidence across the states, confidence rose in South Australia and Western Australia and fell in Queensland. As a result, business confidence remained negative in all states except for South and Western Australia.

Looking at the industries, SME conditions returned to positive territory for property, which was up 6pts to +1 index point, with retail being the next weakest at +3 index points.

Transport, finance, and business all fell by 9pts, 7pts, and 4 pts, respectively, however, remained at “reasonable levels”, according to the survey.

Property saw a large increase in confidence, however, remained negative, rising by 9pts to -14 index points, while finance, retail, and health all reported “deeply negative confidence levels”.

In regard to cost pressures, the survey indicated that there was “little change” in Q1. Purchase cost growth sat at 2 per cent in quarterly terms (falling 0.2ppts from 4Q22), with 50 per cent of SMEs still reporting availability of materials as a constraint.

“There were some signs of easing in cost pressures reported by larger firms in the NAB Quarterly Business Survey in Q1,” said Mr Oster.

“However, that doesn’t appear to have been the case so much for SMEs which reported similar cost pressures to those experienced in late 2022.”

Premium members of The Adviser can find out more about the SME business space in the May edition of The Adviser magazine, out this month.

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Written by Adrian Suljanovic

Last Updated: 28 April 2023

Published: 01 May 2023