Rate rise hold-off cold comfort for small firms

Interest rates have remained on hold at 4.75% for the eleventh consecutive month as economic uncertainty continues to dampen confidence, suggesting that small businesses still have plenty to worry about.

At yesterday’s Reserve Bank board meeting, governor Glenn Stevens said uncertainty is increasing over the debt crisis in Europe and the outlook for global economic growth.

On the local front Stevens said cautious consumer behaviour coupled with an earlier rise in the exchange rate has had a “noticeable dampening effect”.

“The indications are that the pace of near-term growth is unlikely to be as strong as earlier expected due both to local and global factors, including the financial turmoil and related effects on business confidence,” Stevens said.

“Taking into account all the recent information the path for inflation may now be more consistent with the 2–3% target in 2012 and 2013.

“This assessment will be reviewed on receipt of further data on prices ahead of the board’s next meeting.

“An improved inflation outlook would increase the scope for monetary policy to provide some support to demand, should that prove necessary.”

The news comes on the back of a Dun & Bradstreet survey which shows more than 50% of firms expect demand to slow during the next 12 months.

The survey, which looks at business expectations for the December quarter, is based on the responses of 1200 business owners and senior executives representing major industry sectors.

The report reveals that sales expectations have fallen more than 23 points during the past four quarters, with expectations particularly weak for durables manufacturing.

Employment expectations have recovered from the first negative index in two years but are still seven points below last year, with significant staff reductions expected in the retail sector.

Profit expectations have recovered from the first negative index in two years but remain more than 20 points below this time last year.

Dun & Bradstreet chief executive Christine Christian says the December projections are significantly below where they were at this time last year.

“It’s clear that global economic uncertainty is affecting the confidence of business and consumers alike, with knock-on effects for anticipated sales, profit and employment growth,” Christian says.

“Australian consumers are now saving at levels not seen since the 1980s … retailers cannot count on the usual flurry of Christmas spending to push them over the line.”

Christian’s comments are in line with a recent report by debtor finance provider Bibby Financial Services which shows that small businesses are facing increased pressure on profits.

“On almost all measures small businesses have greater pressures now than a year ago,” Bibby managing director Greg Charlwood says.

According to the latest Bibby Barometer, based on the responses of more than 200 companies, one in five small businesses will become insolvent if they lose their two largest customers or if their two largest suppliers demand cash on delivery.

A further 43% would be forced to downsize if either of those events occurred.

“A major concern is the high sensitivity small businesses have to bad debts. Almost a quarter of the business owners we surveyed had experienced a bad debt in the past 12 months,” Charlwood says.