Speaking Sensis

Business confidence among small and medium businesses was just one percentage point higher than it was a year ago according to the latest Sensis® Business Index, released today.

The index recorded the largest single-quarter fall in business confidence among SMEs in the history of the index (which started back in 1993), which was larger than anything measured in a single quarter during the global financial crisis. 

And it’s not hard to see why. 

Businesses are saying that they are seeing business falling and customers not spending. Business confidence rose strongly out of the GFC, but Australia’s SMEs are yet to reap the benefits of economic recovery. They are yet to record a net positive quarter of profitability, that is, one where more businesses record increasing profits than decreasing ones. The last time that happened was back in February 2008.

SMEs are definitely saying that they are doing it tough, with more believing that the economy is slowing rather than growing. And their perceptions of the Federal Government have also fallen sharply in the past quarter.

The Australian economy has done well throughout the economic downturn compared to most other developed economies. We have not had a recession. But to get sustainable growth back into our economy requires business growth and investment to improve.

So, this quarter, seeing the largest single quarter fall in business confidence since the inception of the survey made me recall the last time I reported this, back in November 2007, before the last election and before other economic signals started heading downward – small businesses reported the first signs of the GFC hitting Australia. Hopefully this quarter’s fall will not be replicated in successive quarters as happened throughout the GFC.

That is why this quarter’s results are so important, because they show so starkly that Australia’s small and medium businesses, the backbone of our economy, are finding economic conditions worsening.  It is important that we listen to what small businesses are telling us this time.

In business it is important to look forward, but it is also important to stop sometimes and look back.

One year ago, the Sensis® Business Index recorded the lowest level of confidence among Australia’s small and medium businesses since the survey began in 1993.  Confidence at height of the downturn fell to 12 per cent net balance in the first quarter to 2009.  This quarter, one year on, we measured confidence at 49 per cent.

And you can see from the chart it has been a pretty volatile couple of years in the business world.  And while confidence has improved, it suffered in the past quarter – such is the complexity of economic recovery. 

When global economies headed downhill, governments went into action with stimulus packages to keep things ticking over. The prescription that governments and central banks followed worked to a large extent.

While I could make a comment here about roof insulation, it is probably best to just say that the Australian economy made it through without a recession, technical or otherwise. Let’s just leave it at that…

The interesting thing is that the prescription for the GFC was pretty well known, but what was not well-known was what to do “next”.  As an economy we are now at this “next” stage and Australia’s small and medium businesses are saying that they are still facing problems of economic downturn, such as falling sales and lower demand.

But at the same time they are having to concurrently deal with the “problems” of growth, such as trying to find staff for their businesses and trying to get finance to grow their businesses.

Managing the recovery is as complex, if not more so, than managing the downturn. But it is still important to look back to where we were a year ago and what we have achieved since then.

And after you look back, it is also important to remember to start looking forward again. I’d be keen to hear about what you see on the horizon…