Australia’s mid-market a beacon of hope: Report

Things are looking up, according to the chief financial officers of 5,000 Australian mid-market firms surveyed in a new report and index of business confidence released today by GE Capital.

GE Capital, the financial services unit of American conglomerate General Electric, used data compiled by DMB Consultants Business Financial Services Monitor, which checks in with 19,000 Australian businesses every month, more than 5,000 of which are in the mid-market.

GE Capital found the mid-market companies, defined as those making between $10 million and $250 million in revenue, were notably more optimistic about their prospects than those in large and small businesses. In assessing the six months to March 2012, the report concluded that Australian mid-market businesses had experienced the shortest and least severe downturn of all business sectors, remaining the most optimistic sector in the business landscape.

The index of business confidence ranges from -1, indicating dismal confidence, and +1, indicating strong growth prospects, and uses the same questions to measure confidence across all market segments. For the mid-market, it peaked at 0.31 in February 2012, which is a significant rise from the last report six months when it stood at 0.22. Its biggest fall was in January where it troughed at 0.17. “Falls experienced by the other sectors were all larger, including the fall by the small business sector, which was twice as large,” the report states.

Mid-market confidence was higher than large business confidence for every month from September 2011 to February 2012, before large business confidence edged past it in March this year. Mid-market confidence consistently eclipsed small business confidence from June 2011 to March 2012.

If the recovery in mid-market business confidence continues, this will have positive effects for the rest of the economy, said Skander Malcolm, the CEO of GE Capital, Australia and New Zealand.

Just under a quarter (23%) of Australian full-time employees work in a mid-market company, even though such companies comprise just 1.4% of Australian businesses by number. A third (37%) of all business revenue is contributed by the mid-market, making the sector of vital importance to the overall economic conditions which affect all Australian businesses.

“During the downturn of 2011, CFOs reported substantially lower expectations for growth in revenue and staffing. Concerns about economic environment and the need to manage costs overtook growth-related goals like finding and keeping talent,” Malcolm said in a statement.

“However, in March 2012, mid-market CFO sentiment turned around with fewer concerns about the barriers to growth, reflecting an improved outlook.”

“Overall, the biggest concern facing mid-market CFOs remained the economic environment with more than 40% of CFOs rating this as their top concern, up eight points from 33% at the end of last year. Growing revenue and managing costs were also among the top concerns of CFOs and likewise increased in importance during the period from September 2011 to March 2012.”

Not all CFOs were equally optimistic, with significant variations between states and industries.

Surprisingly, mid-market retail traders had a strong growth outlook. So did the construction and property sector.

The second most-confident sector (after “business and property”) included the “other industries” grouping, which includes the resources and services sectors. Western Australia and Queensland were far more upbeat about their prospects than those in other states.

Manufacturing suffered the largest fall in growth outlook.