The new MYOB Business Monitor: SME Performance Indicator, released by MYOB today at the Australian Conference of Economists, reveals the small business sector is waning in terms of economic performance compared to GDP. The newly calculated SME Performance Score is -2.0 (where maximum deviation from GDP is benchmarked at +5/-5) for May 2024, providing early insight into the economic health of the nation.
The SME Performance Indicator, authored by Impact Economics and Policy, is determined by the calculation of gross value added (GVA) for businesses with 1-19 employees, aggregated for the whole Australian small business sector. GVA is a measure of the value of goods and services produced in an area, industry or sector of an economy. The deviation of GVA from real GDP provides the SME Performance Score of small business health1 relative to the Australian economy.
The lead indicator of SME economic performance draws on more than 17 million observations of 200,000 businesses, at an anonymised level, and provides the most comprehensive and up to date data on the performance of Australian small businesses.
Paul Robson, CEO of MYOB, said the recent period of softness highlights the challenging conditions that small businesses have been facing for an extended period.
“The SME Performance Indicator tells us how the small business sector is performing compared to the Australian economy, and the industries most impacted give us insight into why this might be down compared to GDP.
“The SME Performance Score, tracking the deviation of SME performance to GDP, is at -2.0 for May. This has been in negative since the end of last year, reflecting the economic environment SMEs are operating in. Small businesses have less of a cashflow buffer than larger enterprises, and the cost of borrowing has had a significant impact on them, as has interest rates and cost of living pressures causing households to reduce their non-essential spending. Our findings suggest this has particularly affected the retail industry.”
Industries most impacted
The industry data in the SME Performance Indicator paints a detailed picture of which industries are being impacted the most. Agriculture GVA was up 14% for the 12 months to June 2023, kept afloat by record-high production across a range of crops and livestock. SMEs in health spiked by around 40% during the height of the COVID-19 pandemic as demand for health services surged.
B2B IT small businesses in the information, media and telecommunications industry have been buoyed, with GVA rising by 20% since the end of 2021. Elevated cost pressures may be providing the drive for businesses to upgrade their IT systems to lift productivity. Construction has been down 5% over the past 12 months.
For retail SMEs, however, the impact of cost-of-living pressures is evident with minimal growth since the end of 2021. The combined effects of mortgage rate rises and elevated inflation has forced households to pull back on non-essential spending. Retail GVA is down 10% over the last 2 years. With trading conditions expected to remain challenging for some time, retail GVA will likely remain soft.
“As a champion of small business for more than 30 years, MYOB is in unique position to provide Australia’s economists with this new, powerful level of insight. Ninety-seven per cent of Australia’s businesses are small businesses. These 2.5 million firms employ 42% of workers – the largest share of any business type – and represent nearly a third of total economic activity in Australia every year,” Paul said.
“Small businesses are more sensitive to the business cycle and quicker to respond to changing economic circumstances than other business types. Businesses like MYOB can also keep track of what hurdles these businesses are facing and ensure we’re providing support for this crucial sector.”
Dr Angela Jackson, Lead Economist at Impact Economics and Policy and Women in Economics National Chair, said MYOB’s SME Performance Indicator offers a direct insight into the health of Australian small business and provides early insights into broader economic trends.
“The indicator provides an authoritative new resource for decision makers in the private sector and government, leveraging data to provide valuable insights on the performance of the small business sector and its role in the economy,” Dr Jackson said.
“The recent downturn in economic activity, and the flattening in April and May, suggest the small business sector may not make a positive contribution to Australian GDP growth in the June quarter. This is due to pressures on small business across key sectors.”
State performance
Western Australia GVA is up by 19% since the beginning of 2020, stronger than the other major states. This is likely due to the indirect impacts of elevated commodity prices on demand within the Western Australian economy – where higher incomes from commodity exports have supported both household consumption and public sector spending. Since the end of 2019, household consumption in Western Australia has grown at double the pace than consumption in both New South Wales and Victoria (13% versus 7%).
“It’s clear from the depth of this data that MYOB’s SME Performance Indicator can help economists predict measures such as GDP, wages growth, jobs growth and consumer spending. Small business provides about a third of the economy’s value. In 2021 it added over $500 billion in value, compared with $344 million for medium-sized businesses and $711 million for large businesses,” Dr Jackson said.
“The data is unlike anything available at present. It provides a comprehensive and timely picture of the state of Australia’s economy and will help governing bodies like the RBA to make critical decisions.”
The MYOB Business Monitor: SME Performance Indicator can be found at: myob.com/au/media/sme-performance-indicator.
ENDS
For further comment or other information please contact:
Selina Ife, MYOB, selina.ife@myob.com
Sarah Green, Character + Distinction, sarah@ofcharacter.com
About MYOB
MYOB is a leading business management platform with a core purpose of helping more businesses in Australia and New Zealand start, survive and succeed. MYOB delivers end-to-end business, financial and accounting solutions direct to businesses employing between 0 and 1000 employees, alongside a network of accountants, bookkeepers and consultants. For more information visit myob.com or follow MYOB on LinkedIn.