SMEs will lead this recovery – and they’re still very worried: Gottliebsen

Two key ingredients driving domestic economies are consumer and business confidence and the power of the banking sector to finance them.

 

Last night we saw Wall Street jump on the back of better consumer confidence but it will require other ingredients to spark a meaningful US recovery.

 

Here in Australia, small enterprises are the engine room of Australian employment and prosperity and they are a litmus test as to what is happening in the community. If they are doing well, the nation prospers. That’s why a study by DBM Consultants, covering some 4,000 SMEs with annual turnover up to $50 million conducted in the three months to the end of April 2009, caught my attention. The DBM survey adds an extra perspective to the latest figures from the Roy Morgan research group.

 

DBM says 49 per cent of small enterprises plan to reduce or pay off their debt in the next 12 months.

 

Only 8 per cent are planning to increase the size of their business loans. The rest are either undecided or plan to maintain their current level of debt.

 

If businesses are planning to reduce debt it normally means they are scaling down activity, which in turn means that they will be shedding staff. They certainly won’t be hiring. Treasury is forecasting that unemployment will top 8 per cent in 2009-10 and the DBN survey confirms that this is likely.

 

Small enterprises have seen dangerous signs. Banks are now taking a much closer interest in the financial affairs of borrowers; interest rates for smaller enterprises have stayed high; the prime minister has been mentioning the global financial crisis regularly and the budget showed a big deficit.

 

In addition, they have watched large, high-profile companies put through the wringer by their bankers.

 

Roy Morgan CEO Michele Levine puts what is happening in the small enterprise sector into a total community context.

 

“The economic turmoil of the past six months has left a deep impression on many Australians,” she says. “Today more than half (51 per cent) of Australians now nominate economic issues as the most important problem facing both the world and Australia.

 

“Just over a year ago, in March 2008, only 23 per cent of Australians nominated economic issues as the most important problem facing Australia. This rose to 30 per cent by November 2008 and has steadily risen to 51 per cent over the past six months as worries about unemployment in Australia have jumped from 1 per cent to 11 per cent in the same time period.”

 

In both Australia and the US, recovery requires those small enterprises that are in sound shape to want to use the banking system to help expand their operations and the banks need to be willing and able to lend to them on reasonable terms.

 

This article first appeared on Business Spectator

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