It is certainly a confusing economic landscape at present in Australia. Unemployment is now over 5.1%. The Reserve Bank has left interest rates at 4.75%. The Australian dollar compared to the US dollar is now about 97cents. Retail spending in stores is well down. Value of housing has dropped in most cities and, because of the uncertainty, people seem to be hanging onto their money. Internationally the USA, Japanese and European economies are performing very poorly and certain countries have huge debt problems. All of this uncertainty affects Australians SMEs in various ways. Keeping an eye on the various economic indicators, thinking how these events might affect your business, is something you might consider doing every month or so. There are seven main economic indicators that may have some effect on SME operations in Australia.
Activity Indicators:
1. Gross Domestic Product (GDP)
2. Consumer Price Index (CPI)
3. Producer Price Index (PPI)
Inflation Pressure:
The Reserve Bank sets an inflation target each year and tries to use interest rates as a mechanism to control inflation.
Interest Rates:
Interest rates are the main lever that the Reserve Bank has to control money supply within Australia. Basically, the Reserve Bank’s decisions affect the pricing of loans, leases, hire purchase, debtors’ financing etc, that is provided by banks.
Exchange Rates:
The high Australian dollar, as compared to the US dollar rate, was probably warmly accepted by importers but it has caused severe problems to many exporters. In the last month the value of the Australian dollar -v- USA dollar dropped from $1.07 to around 97c thus taking some of the benefit from importers and making life a bit easier for exporters. How does the movement in the exchange rate affect your business? Should you be taking foreign exchange cover to lock in a rate at the date of purchase or sale? The movement in exchange rates can affect market performance of businesses e.g. high exchange rates discourage international tourists from coming to Australia. If you are a manufacturer or supplier of products to tourism businesses, exchange rate movements can have a significant effect on your business.
Budget Policy:
This is the Federal government’s domain and obviously the Federal government can play a major role in economic activity by introducing special support programmes, government grants, change in taxation rates and introducing the Carbon Tax etc.
Industry and Environmental Policy:
The government also controls this area and is obviously under pressure at present to produce some benefits for the manufacturing industry following Blue Steel’s decision to sack about 1,200 employees. The political reality is that environmental policies are receiving additional government support at present. Individual SME operators find it difficult to attract direct government assistance, but if you are affected you should monitor whatever government assistance is offered.
Relevant Global Conditions:
This is the last of the economic indicators. Australian banks have to borrow billions of dollars offshore each year therefore problems that are being experienced in countries like Ireland, Portugal and Greece and the poor economic performances in the USA and Japan all have a bearing on the pricing of money.
The extra pricing is reflected in the interest rates and banking costs that are imposed on small businesses in Australia.
Unfortunately, there is not much that SMEs can do to change the course of any of these indicators, but there might be some strategies that you can develop to minimise the effect that some of these economic indicators may have on your business.
