Business morale in Australia is still rather down in the dumps, according to the latest poll assessing the business confidence index, for the month of May. This even in spite of the recently lowered interest rates, which continued the policy of the central bank that has been slashing the official cash rate every other few months for almost two years now. On the one hand, the current business confidence levels are being influenced by consumer confidence, which remains low in many sectors, most notably in wholesale and retail. And with consumers buying less than before, it’s only natural that business owners should grow more and more worried about cash flows and covering overheads, before they can even come to consider profits. Add to this anxiety-inducing landscape the issue of a struggling small business sector and you’ll get the impression that the Australian economy is nowhere near as stable as the politicos would want the public to believe it is.
Confidence down in May
The business confidence survey, completed by one of Australia’s Big Four banks for the month of May, says the index has stagnated at -1. The index remains unchanged from the previous month, even though some improvements were recorded in the manufacturing business. Those improvements can be chalked up to a lower currency exchange rate – a tricky factor, when considering that it’s the same one to have caused stagnation in the mining sector. The country’s mining industry remains the most pessimistic one, with commodity prices still low and mining projects still low on funding. Historically, the business confidence level in Australia averages out at 5, from 1989 to the present day, which makes current levels stand out as worryingly low.
Aside from worries over fewer investment intentions in the mining sector, it’s important to note that the month of May brought on two important developments on a macroeconomic level in Australia. For one thing, the currency exchange rate for the Australian dollar has dropped to historically low rate, lower than the level of the United States dollar. For another thing, the Reserve Bank of Australia finally decided to lower the official cash rate to the previously predicted level of 2.75. This is also an unprecedentedly low rate, one that is likely to drive interest rates on banking products lower than ever before, yet it still remains insufficient, where business confidence is concerned.
Small franchise businesses at risk
Franchising in Australia is worth $202 billion, yet this profitability doesn’t warrant its security, it seems. This according to a recently published review, supported by the Federal Government, which proposes 18 amendments to the current Franchising Code. One of the amendments addresses the alleged issue of contract extension refusals, which franchisors have been known to dabble in. Such a situation obviously puts the franchisee at risk, after having spent large amounts of money and effort, in order to build up a business. Costs are becoming an increasingly important issue for small businesses in Australia, especially since many of them are both in debt and owed money, in a cycle of debt that makes them look for innovative cost cutting solutions. One such solution, that of virtual offices, can prove useful for small businesses in IT, yet franchises, which are often active in retail, may yet have to look for ways out of the cycle of debt.
The protective measures included among the amendments to the Code have yet to receive the full support of the Small Business Secretary in Parliament, yet the current holder of this chair, Bernie Ripon, has reiterated his allegiance to the cause. According to him, small businesses are something of a backbone for the Australian economy and they do, indeed, require more protection, in order to continue their growth.