Rising Costs Hit Australian Small Business Sentiment

A window cleaner works on a shop front in Melbourne's central business district in Melbourne, Australia, on May 11, 2021. William West/AFP via Getty Images

The impact of the Omicron COVID-19 variant and escalating costs have cut short the recovery in the confidence of small and medium businesses across Australia, a new survey has found.

According to the latest National Australia Bank business survey of small and medium enterprises (SME), the confidence index for the March quarter fell six points to nine index points, affecting firms of all sizes.

The SME business conditions index also dropped five points, standing at six index points.

“Unfortunately, conditions remained very weak for SMEs in the hospitality sector, which has continued to face disruptions from the pandemic,” said National Australia Bank chief economist Alan Oster.

“SMEs in the property and construction sectors also saw conditions slip in the quarter, which could reflect a range of factors impacting the property market, including Omicron as well as slowing house price growth.”

Input costs were also on the rise, with a large proportion of firms suffering from shortages of labour and materials.

“This is translating to price increases,” Oster said.

“Still, our expectation is for the economy to continue to strengthen over coming months, which should help SMEs to recover from the disruptions earlier in the year.”

Meanwhile, Treasurer Josh Frydenberg has referred to the newly released report from the International Monetary Fund to highlight the positive outlook of the Australian economy.

“It upgraded Australia’s economic outlook, and it downgraded the global economic outlook,” Frydenberg told reporters in Sydney.

“Australia has outperformed all major advanced economies through this pandemic.”

A man pushes water out of a flood-affected business in Lismore, Australia, on March 31, 2022. Dan Peled/Getty Images

Nevertheless, observers still remain cautious while waiting for new developments from the Reserve Bank of Australia (RBA).

Key inflation figures for the March quarter will be released in the week commencing April 25, which will likely affect the RBA’s timing of raising the cash rate.

Economists from the Commonwealth Bank of Australia are predicting that the annual rate of the consumer price index will soar to 4.3 percent from 3.5 percent in the December quarter, which is the fastest growth pace since September 2008.

At the same time, they expect the underlying inflation rate to rise sharply to 3.4 percent from 2.6 percent, well above the RBA’s two to three percent target range.

“Petrol prices and housing purchase costs are key influences, but the Reserve Bank will be interested about whether price pressures are more broadly based,” Commonwealth Securities chief economist Craig James said.

Currently, economists are anticipating that the RBA will announce its first interest rate rise since November 2020 at its June board meeting.

“The RBA have made the point that interest rates won’t stay at those emergency levels forever,” Labor’s election campaign spokesman Jason Clare told reporters in Sydney.

“I think the key point on inflation is that those numbers show that everything is going up except people’s wages.”