Australian small and medium-sized businesses are facing increasing pressure from multiple directions, with deteriorating confidence, weaker revenue expectations and declining hiring demand creating a challenging operating environment.
The latest Fifth Quadrant SME Sentiment Tracker for May 2026 found that business confidence continues to weaken as many SMEs grapple with rising costs, uncertain economic conditions and shrinking profit margins.
Only 15 per cent of SMEs expect revenue to improve over the next four weeks, while short-term revenue expectations remain well below long-term averages. At the same time, 38 per cent of businesses reported declining revenue compared with a year ago, one of the highest levels recorded by the survey.
The research also found a growing divide between businesses. While 25 per cent reported revenue growth – the highest level since November – a larger proportion experienced declining turnover, highlighting an increasingly polarised trading environment.
Labour demand has also softened considerably. Just nine per cent of SMEs currently have job vacancies, down from 13 per cent in March and significantly below the 22 per cent recorded during FY24. However, skills shortages remain a challenge in sectors such as construction and health and education.
Profitability is also coming under pressure, with only half of SMEs reporting a profit in May as rising operating costs continue to erode margins. Many businesses are responding by cutting unprofitable products and services, reassessing projects and focusing on efficiency improvements.
Business sentiment remains subdued, with expectations for the global economy sitting at a net score of minus 68 per cent despite a slight improvement from March. Satisfaction with the Federal Government has also fallen to 24 per cent, the lowest level recorded in the past 13 months.
The survey suggests SMEs are becoming increasingly cautious about investment and borrowing. Demand for additional finance fell to just eight per cent, the lowest level in 13 months, while marketing expenditure expectations dropped to their weakest level over the same period.
According to Fifth Quadrant, the findings indicate that while some businesses continue to find growth opportunities, many SMEs are adopting a more defensive approach as economic uncertainty and cost pressures continue to mount.
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