21/02/2012 - 09:55

Small business feeling crunch of global crises

21/02/2012 - 09:55


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Uncertainty about the European debt crisis and the introduction of a carbon tax in Australia is hampering the confidence of small businesses, while the number of small firms going bankrupt jumped by 48 per cent over the past 12 months, new research shows.

The Australian Chamber of Commerce and Industry survey found small business expectations for the performance of the economy over the next 12 months fell to 39.7 index points in the December quarter, from 40.9 points in the previous period.

The index, released today, is now at its lowest level since March 2009, around the peak of the global financial crisis, after recording its eighth consecutive fall in a row.

"Instability in Europe is certainly playing out in overall confidence levels, while the prospect of new taxes is also having a negative impact," Mr Evans told reporters in Canberra.

Mr Evans said small businesses were also reporting very poor trading and demand conditions.

"In a sense, we believe small business in Australia is in hibernation mode," he said.

"Clearly, from this survey and other statistics, small business on the whole is not borrowing, small business is not investing and small business is not hiring."

Small business sectors of hospitality, housing construction and retail were experiencing very weak demand, Mr Evans said.

Overall, consumers have become more cautious about spending in the past two years, as shown by a slowdown in the growth in the average credit card balance.

In the 15 years to December 2009, the average credit card balance rose around 17 per cent a year.

But it has only risen 1.5 per cent annually in the period since, central bank data shows.

"Clearly, we have seen higher levels of savings and we are seeing the impact of that structural change from online retailing," Mr Evans said.

He said small businesses were also showing an aversion to racking up debt since the global financial crisis.

"We are going to see a different appetite for debt even as the economy recovers to trend growth, the willingness of small business to take on higher levels of debt," he said.

Meanwhile, Mr Evans said the current speculation about the federal Labor leadership would not be helping business confidence.

"While there is ever political turmoil, that is playing out in reducing overall confidence levels," he said.

Business was also concerned about the flow-on effects of new taxes, such as the carbon emissions tax due to implemented from July 1, 2012.

"It is not popular and it is bad policy," Mr Evans said.

Meanwhile, analysis released today by Dun & Bradstreet showed the number of small businesses going bankrupt jumped by 48 per cent over the past 12 months.

Nationally, insolvencies across all sectors rose 42 per cent year-on-year, with the number of new businesses falling by 11 per cent over the same period.

Dun & Bradstreet chief executive Christine Christian said Australian business failures had grown over 30 per cent over the last three years.

"There is an increasing risk that the global economic slowdown will intensify the upward trend in insolvencies," Ms Christian said.

"Despite recent rate cuts, there is a palpable lack of confidence in the current operating environment.

"This is obviously one of the side effects of long-standing global uncertainty and can often be enough to deter businesses from entering the market, irrespective of actual conditions."

Ms Christian said the strong Australian dollar was continuing to act as a constraint on profits. 

"This could lead to an increase in business failures in 2012."


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