Australian small and medium businesses have regained some confidence about growth, despite continuing pressure from weak revenue, borrowing costs and an uncertain economic outlook.
Fifth Quadrant’s Small & Medium Enterprise Sentiment Tracker for August found 41 per cent of SMEs were concentrating on growth over the next 12 months, up sharply from 24 per cent in July.
Net growth intent jumped from plus four per cent to plus 26 per cent, its strongest result since October, suggesting some of the uncertainty weighing on business confidence earlier in the year had eased.
However, the improvement comes against a challenging financial backdrop.
Revenue remained negative overall, although it improved during August. Twenty-five per cent of SMEs reported higher revenue compared with 12 months earlier, while 33 per cent reported a decline, producing a net score of minus eight per cent.
Short-term expectations also improved, but remained negative for a fifth consecutive month. Just 18 per cent expected revenue to improve over the following four weeks.
The divide between larger and smaller businesses remained significant. SMEs employing 20 or more people recorded a net revenue result of plus 36 per cent, compared with minus 11 per cent for businesses employing fewer than 20.
Employment indicators offered further signs of improving confidence. Hiring intentions increased for a second consecutive month, while 15 per cent of SMEs were trying to fill vacancies. Among larger SMEs, 55 per cent were recruiting.
Wage pressures also eased, with 19 per cent expecting wages to increase over the next three months, down from 30 per cent in July.
Despite renewed growth ambitions, financial stress remains a concern. Demand for additional finance increased to 12 per cent, with 26 per cent of businesses requiring finance planning to use it to fund Australian growth.
Meanwhile, 12 per cent of SMEs expected difficulty meeting loan repayments over the next six months, the highest level recorded in 13 months.
Cost pressures remain the biggest challenge, nominated by 50 per cent of SMEs, while difficulty securing finance almost doubled from seven to 13 per cent.
The results suggest SME confidence improved substantially during August, but the durability of that recovery will depend heavily on revenue, costs and financing conditions.