Small business confidence declines in the latest Westpac-Melbourne Institute Small Business Index but remains in positive territory

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1 September 2014

  • The Westpac-Melbourne Institute Small Business Index declined 10.1 per cent to 111.4 in the third quarter
  • NSW and QLD fell by 14.9 and 14.6 per cent respectively over the last quarter
  • WA the only state to indicate an improvement in overall performance, up 6.2 per cent
  • Micro businesses (annual turnover under $500k) show falls across all measures
  • Slowing economic prospects continue to bear down on SME confidence.

Australia’s small business confidence has reached the lowest level of the year with the latest Westpac-Melbourne Institute Small Business Index falling by 10.1 per cent to 111.4 in the August report, from 123.9 in May.

On a state level, small businesses in New South Wales and Queensland reported a significant decline of 14.9 and 14.6 per cent respectively, while Western Australia bucked the trend with a 6.2 per cent lift.

Despite the falls, overall confidence remains in positive territory with key indicators such as stable low interest rates underpinning hopes that recent declines will start to bottom out, said Julie Rynski, Westpac General Manager, Small Business.

“All States except WA have suffered some loss in small business confidence during August, however, the general outlook still remains optimistic (above 100). WA is the only state to report an increase in their overall performance, which has lifted by 6.2 per cent.”

“Despite a slight decline in most states, it’s encouraging to see that sentiment has remained positive for the third consecutive quarter, which reflects the dedication and hard working nature of small business.”

The Index also revealed that the proportion of small businesses nominating ‘economy’ as a positive factor declined sharply over the last three reports, from 35.1 per cent in the February report and 22.5 per cent in the May report to just 12.9 per cent in the latest report.

Looking ahead, the Index revealed that small businesses have more moderate expectations about future business activity than in previous quarters, said Ms Rynski.

“A net balance of 16.2 per cent of small businesses (declining from 26.1 per cent in the previous quarter) expects activity to improve over the next three months, and the majority of small business expect to maintain their current level of employment.”

“After speaking with many of our small business customers, we expect to see sentiment pick up across the nation over the next quarter in the lead up to the busy pre-Christmas period.”

“SMEs are the backbone of our economy and Westpac will continue to support this sector by offering easy access to specialised advice, together with the largest business banking footprint in Australia” added Ms Rynski.

Key findings

Westpac-Melbourne Institute Small Business Index

  • The Index fell 10.1 per cent to 111.4 in the third quarter
  • New South Wales and Queensland fell considerably, by 14.9 and 14.6 per cent respectively
  • Western Australia was the only major state to indicate an improvement in overall performance, with a rise of 6.2 per cent
  • ‘Customers’ remains the top positive factor affecting small business performance (nominated by 53.7 per cent of small businesses)
  • The proportion of small businesses nominating ‘economy’ as a positive factor has declined by 9.6 percentage points to 12.9 per cent
  • Micro businesses (annual turnover under $500k) in particular have been affected by wider economic conditions, recording a Small Business Index reading of only 103.0, signifitcantly less than businesses with an annual turnover above $500k
  • Among industry groups, small businesses in Hospitality and Recreational Services were the most optimistic about future business activity (a net balance of 39.3 per cent expecting an improvement in activity).

Notes to editors:

About the Westpac-Melbourne Institute Small Business Index
The August 2014 Westpac-Melbourne Institute Small Business Index was commissioned by Westpac Banking Corporation (WBC) (ABN 33 007 457 141) and conducted by the Melbourne Institute.

The research aims to provide information about the economic health of Australian small businesses. The report is a quarterly publication based on a representative survey of 300 small businesses from all over the country conducted between 7 July and 11 July 2014. Data from this survey provides measures of performance and the factors that have had the greatest positive/negative effects.

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