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Wage costs top small business constraints

Investment predicted to remain weak in the March qtr as business conditions for smaller firms deteriorates, says ACCI survey

February 15, 2011

Businesses are becoming “increasingly pessimistic” about Australia’s economic growth in 2011 and are expecting investment to remain weak as the conditions for smaller firms deteriorates.

The latest Australian Chamber of Commerce and Industry (ACCI) Small Business Survey reveals the divergence in business conditions between small and other sized businesses, first noted six months ago, worsened in the December quarter.

The index of Small Business Conditions
decreased further from 44.5 to 42 over the December quarter, eight points below the important 50 level.

The survey suggests that Australia’s two track economy is not just about the mining and non-mining sectors but also about the conditions facing small business relative to larger companies.

The indicators for business conditions, sales revenue, employment, selling prices and investment in plant and equipment were contractionary for small businesses over the quarter, while remaining positive for large businesses.

The February Small Business Survey also found that small businesses have become increasingly pessimistic about Australia’s economic growth in 2011, with the index of expected economic performance falling further into negative territory from 49.9 to 47.4 over the December quarter.

Small business expects business investment to remain weak in the March quarter, with the expectations indicators for investment in building and structures and plant and equipment remaining negative.

For the first time since the December quarter of 1999, wage costs has become the number one constraint on small business investment.

ACCI Director of Economics & Industry Policy, Greg Evans, says over the December quarter, small business growth indicators and confidence have deteriorated to the levels not experienced since the June quarter of 2009.

“This survey also provides clear evidence that small business performance is still lagging significantly behind its larger counterparts,” Evans says.

“It is concerning that continued weakness in small businesses’ sales performance and selling prices in the face of the rising cost of labour and finance, has affected small business cash flow and put significant squeeze on small business profitability,” he says.

According to Evans, recent floods and cyclone activity on the eastern seaboard will further dampen small business confidence over the first half of 2011.

“Therefore, the recent indications that the Reserve Bank will sit on the sidelines over the next few months will provide much needed breathing space for small businesses to rebuild, recover and regain stronger footing,” he says.

The survey assessed business conditions and business confidence among 997 small businesses around the country over the October, November and December period.

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