The outlook for small business in the months ahead will depend on confidence. Former Labor advisor and economist, Stephen Koukoulas, says that at the moment it’s not there, which is restricting small business. And as long as confidence remains subdued, small business will struggle. When confidence is down, people don’t spend.
“It’s confidence,” Koukoulas says. “Interest rates aren’t being a constraint.
“If we had interest rates high, we could say it was interest rates. If the world economy was going to hell, you could blame it on that, but the world economy is actually okay. The dollar is down from 80 cents, so even those firms that were competing with cheap imports [are more competitive].
“There are some things that should be helping the business sector not hindering them, and they’re not.”
An economy in the middle
Koukoulas says the signs all point to a lack of confidence because the economy overall is sitting in a middle position.
“With employment being subdued and wages growth being low, people just don’t have the disposable income to spend,” he says.
“That said, there is the benefit of very low interest rates helping them with their cash flow position so in a sense there is nothing disastrous.
“It’s just this scenario where rates are low, they will stay low for a long time. There is no prospect of a rate hike in the next year or two, you wouldn’t think.”
From that viewpoint, it’s a positive environment for business. Low interest rates are a definite boost for bottom lines.
Industries are seeing different things
Looking purely at the figures, the Australian economy is seeing mixed results.
While sagging prices for iron ore and coal exports dragged down Australia’s deficit in March by 18 per cent to $1.32 billion, building approvals hit a record high in March. Australian Bureau of Statistics data shows the surge in the number of buildings approved skyrocketing to a seasonally adjusted 2.8 per cent to 19,419 in March, eclipsing January's previous high-water mark of 19,282 approvals.
And retail figures rose 0.7 per cent in February, responding to the Reserve Bank of Australia’s rate cut. The latest rate cut in May giving consumers more in their pocket is expected to produce improved retail figures.
A different state experience
At a national level, different states are also experiencing different economic climates, which makes macroeconomic predictions for small business difficult.
“There are differences occurring now because WA is being hit with the mining downturn and to some extent Queensland is too, whereas NSW is doing pretty well… People are feeling rich because their houses are going up in value,” says Koukoulas.
“There are all these geographic differences for small business.
“The small business sector involved in housing and construction is doing ok. The multispeed or patchwork economy has switched from a mining focus to now being [a] construction focus.
“I don’t think we are heading for a recession, but nor are we yet at the stage where there is much positivity and feeling that the economy is humming along and picking up the business sector.”
Look to Canberra
A lack of consumer confidence means one thing: There is a limit to what the Reserve Bank of Australia can actually do. Strong leadership from Canberra, he says, is the only way confidence can be restored.
“They need some policy certainty and more realistic talking about the budget deficit.
“Why are firms holding back on their activity? They’re just not confident. This has been evident from both sides of politics, there’s been a lack of real commitment on economic policy, that’s been a real problem."
However, the 2015 Federal Budget, with its focus on small business, is a definite plus. Not surprisingly the latest NAB Business Expectations Index increased from three points to seven in May, the highest level since last August.