Australia's Two Speed Economy

22 Jul 11

Australia's two-speed economy has been blamed for wildly divergent confidence levels among small and medium businesses.

Research confirms that retail and manufacturing business confidence is in the doldrums, mirroring the big end of town, while mining remains buoyant.

The JP Morgan/Fujitsu Australian SME Market Report found that confidence levels from state to state also varied dramatically, reflecting the varying types of industries operating in each state.

Victorian confidence is in negative territory, falling to minus 12 per cent, just slightly better than New South Wales at minus 15 per cent. Mining-intensive Western Australia, Northern Territory and Queensland recorded confidence levels of as high as 15 per cent.

The survey found that while profitability was slowly building after the financial crisis, demand for credit was restrained, sales revenue was weak and costs such as wages, the exchange rate and interest rates were putting pressure on the businesses.

Fujitsu Australia and New Zealand industry group director Martin North said the results pointed to a growing divide between the haves and have-nots in business.

He said when mining and agriculture businesses were asked if they were positive about their businesses, an average 90 per cent said they were.

"In contrast, only 10 per cent of responses across retail and manufacturing were positive about the future of their business," Mr North said.

The survey also pointed to political uncertainty around policies such as the carbon tax hampering confidence.

Demand for credit was stronger in mining, agriculture and transport industries. Uncertainty about cashflows was blamed for the lack of borrowing.

An increasing number of small businesses were paying interest rates of more than 10 per cent, reflecting the lenders repricing risk associated with lending to small business.

The report said small and medium-enterprise write-offs were increasing, but were expected to level out.

The report described higher interest rates and tightening of consumer spending as a double whammy for the small end of town.

However, some industries would benefit from a knock-on effect as bigger businesses recovered.