Australian small and medium-sized enterprises (SMEs) are facing a challenging economic landscape, as outlined in KPMG's Quarterly Economic Outlook released in July 2024.
The report projects sluggish economic growth coupled with rising operational costs, factors that could significantly compress profit margins and impede business expansion for SMEs.
Key projections from the report include GDP growth hovering around the mid-1% range for the remainder of 2024, with unemployment expected to rise from the current 4.2% to 4.7% by mid-2026. Although wages growth remains high, it has peaked and is anticipated to soften, while inflation is projected to decrease from 3.8% to 2.7% by the end of next year. The cash rate is expected to remain unchanged throughout 2024, with a potential rate cut in the first quarter of 2025.
Dr. Brendan Rynne, KPMG’s Chief Economist, highlighted that the Australian economy narrowly avoided recession this year, with 0.1% growth in the March quarter and an annual growth rate of just 1.1% over the past 12 months. Excluding the pandemic period, this represents the weakest growth in over twenty years.
Households continue to struggle with increases in the general cost of living, evident in the fall in the household saving ratio in the first half of 2024. This is due to gross disposable income lagging behind the rise in consumption costs, although prices for goods are expected to soften in line with easing domestic demand.
Renters have faced strong rent rises, while those with mortgages manage higher loan repayments. These factors suggest that headwinds to household consumption will persist in the second half of 2024, as interest rates are now expected to stay higher for longer. Inflation remains sticky, while households draw down on their savings buffers.
The gradual slackening in the labour market will reinforce downward pressure on household consumption. The Reserve Bank of Australia will also be concerned about stagnant levels of productivity growth being outpaced by wages growth, although this is now starting to soften.
For SMEs, these economic indicators necessitate a cautious approach to financial planning and investment. Businesses are advised to closely monitor cash flow, explore cost-saving measures, and consider diversifying revenue streams to mitigate the impact of economic headwinds.
In conclusion, while the economic outlook presents challenges, proactive financial management and strategic planning can help Australian SMEs navigate this period of uncertainty and position themselves for future resilience and growth.
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