Business conditions stable in May

27 May 2021

According to the ABS, most Australian businesses reported stable trading conditions in May, with more than three quarters (78 per cent) experiencing either no change or an increase in revenue.

ABS Head of Industry Statistics, John Shepherd, said the latest Business Conditions and Sentiments Survey showed that while fewer than one in ten businesses (8 per cent) expected their revenue to fall in June, some businesses were still recovering from the effects of the COVID-19 pandemic.

“This can be seen in the amount of cash on hand that businesses reported. While 43 per cent of businesses told us their cash on hand could cover three months or more of business operations (compared to 42 per cent in February), 25 per cent reported that their current cash on hand was lower than usual for this time of year.

“Conditions such as decreased demand, decreased revenue and restrictions over the year have impacted cash reserves.”

The survey also found that since the end of March, 20 per cent of businesses have stopped accessing support measures such as wage subsidies, the renegotiation of property rent or lease arrangements and deferred loan repayments.

Of the 20 per cent of businesses no longer accessing this support, 23 per cent have been impacted to a great extent.

The ABS results are consistent with the results of the Westpac Melbourne Institute Leading Index also released this week, which indicates the likely pace of economic activity relative to trend three to nine months into the future, eased from 3.31% in March to 2.85% in April.

While the pace of gains has moderated, this is coming from an extremely strong starting point after the Index growth rate hit record highs late last year. April’s read may be down on those peaks, but it is still above all other growth rates recorded since the early 1980s.

The signal is consistent with Westpac’s growth forecasts for the Australian economy. Westpac expect GDP to post a very strong 4.5% gain in 2021, moderating marginally to a 4% pace in the first half of 2022. The moderation mainly reflects the cycling of a very strong initial bounce coming out of last year’s COVID lockdowns.

The Reserve Bank Board next meets on June 1. The minutes of the May Board meeting confirmed that the Board will decide on the next stage of its Yield Curve Control (YCC) and Quantitative Easing (QE) policies at its July meeting. Westpac expects the Board to extend the QE policy to a further $100 billion beginning in September and to switch the target bond in the YCC policy from April 2024 to November 2024.