Business forecasts strong despite ‘major concerns’ over international outlook

New research shows that Aussie businesses are still pessimistic when it comes to the global and domestic economic outlook. Despite this, confidence indicators suggest they’re hoping this year will be more productive than the last.

“Cautiously optimistic” is how Fifth Quadrant’s managing director, James Organ, described the 2024 outlook among small to medium enterprises (SMEs). Despite uncertain market conditions, particularly surrounding input costs, SMEs are as yet resilient, found Fifth Quadrant’s most recent Business Sentiment Index.

The outlook for the coming year is largely positive as 33 per cent of SMEs are expecting increased revenue across January, and 37 per cent are looking to grow over the coming year. This might not sound exceptional, but the good news is more about resilience. Only 20 per cent of surveyed SMEs are operating at a loss, while half are reporting profits.

“The resilience suggests effective cost management and operational efficiencies, enabling many companies to maintain profitability despite revenue challenges,” explained Fifth Quadrant.

So, what are the challenges?

The major concern voiced by SMEs concerns rising input costs as a consequence of inflationary pressures, which many expect to continue this year.

Recent forecasts have suggested that, while inflationary pressures should ease somewhat this year, the relief will likely be far more modest than the Reserve Bank of Australia (RBA) has been suggesting.

Alan Duncan, director of the Bankwest Curtin Economics School, for example, expects “modest improvements” in cost-of-living pressures, adding, however, that inflationary easing will reach “nowhere near” the Reserve Bank of Australia’s target of 2 to 3 per cent inflation.

In his opinion, global economic uncertainties and persisting domestic challenges (most notably, housing prices and rents) make this prediction a pipe dream.

“The overall economic outlook among SMEs remains cautious, with prevailing pessimism regarding global and Australian conditions,” said Fifth Quadrant.

Confident nonetheless

Despite persistent pessimism regarding economic conditions, Fifth Quadrant said their data suggests that confidence is up from last year, “underpinning a level of positivity for the coming year”.

Indeed, SMEs are more confident in their abilities to meet loan repayments, dovetailing with 20 per cent of SMEs looking for additional funds to “kick start operations in 2024”, said Fifth Quadrant.

More good news: fewer companies are planning to downsize or exit this year than last year – now at only 13 per cent of surveyed SMEs, while 18 per cent expect to increase their workforce across the next quarter alone, and one-third foresee higher wages.

Research from Robert Half shows the hiring trends are even more significant when considering all businesses, large and small, as 50 per cent of Australian employers expect to add new permanent positions this year, while 30 per cent said the same of contract roles. This was unpacked in a recent HR Leader article.

These confidence indicators persist despite a “modest decline” in capital investment and marketing expenditures early this year, according to Fifth Quadrant.

“In summary, many SMEs will be hoping for a brighter 2024 after another year of significant challenges,” concluded Mr Organ.