By Shane Wright
Two-thirds of the customers of the nation’s small and medium-sized businesses have changed their spending habits in response to cost-of-living pressures, putting off purchases, seeking cheaper alternatives or abandoning shopping altogether.
As an OECD report warned the Australian economy would slow over coming months and rely more heavily on government spending to grow, a special survey of firms with fewer than 200 employees found many struggling to make ends meet because of the pressure being felt by their customers.
Small and medium-sized businesses are reporting big changes in the spending habits of their customers as cost-of-living pressures bite.Credit: Jim Rice
The MYOB business survey of more than 1000 firms across the country, carried out over recent weeks, found 28 per cent reported customers were buying fewer products or services.
Another 20 per cent said customers had moved to cheaper goods and services while the same proportion noted people had put off purchasing anything altogether. In some cases, customers were waiting until products were offered at sale prices.
The widespread nature of the pressure on consumers was evident, with the survey picking up few differences between small and medium-sized businesses and similar purchasing patterns between capital cities and regional areas.
About a third of South Australian and West Australian businesses reported customers buying less, while just 6 to 7 per cent of firms in Victoria and NSW reported an increase in sales.
The survey results correspond with retail sales data from the Australian Bureau of Statistics this week, which showed a 0.4 per cent fall in March. Across almost every sector, the value of sales is falling in real terms, while the volume of goods and services being bought is also dropping.
MYOB general manager for small and medium-sized enterprises, Emma Fawcett, said 67 per cent of businesses had reported their customers had changed their spending patterns in some way.
She said the May 14 federal budget had to deliver measures that helped consumers deal with cost-of-living pressures.
“This trend is placing a strain on SMEs’ revenue streams and overall sustainability,” she said.
“With a significant percentage of their customer base scaling back on, or putting off, purchases, Australia’s 2.5 million small businesses will be forced to look at their cash flow, wages and planned investments for growth.”
The Reserve Bank has lifted official interest rates to 4.35 per cent in a bid to tame inflation, which is also hitting workers who have suffered a large increase in their total tax bill.
In its global economic outlook released on Thursday, the Paris-based Organisation for Economic Co-operation and Development forecast economic growth in Australia to slow to just 1.5 per cent this year before improving to 2.2 per cent.
Household consumption, which accounts for about two-thirds of economic activity, is expected to grow by just 0.9 per cent this year, while government consumption is tipped to expand by 2.2 per cent.
Globally, the OECD is expecting world growth to slow to 3.1 per cent this year and then marginally improve to 3.2 per cent in 2025. Growth in America is forecast to slow from 2.6 per cent to 1.8 per cent, while across the eurozone it is tipped to lift to 1.5 per cent from 0.7 per cent.
The OECD, which assumes Australia’s official interest rates will start to fall sometime in the final three months of this year, said budget policy would be supportive of the economy due to the start of the stage 3 tax cuts from July 1.
It noted population growth, which has helped the economy grow over the past year, would slow.
“A tightening of visa requirements in 2024, including on international students, is anticipated to weigh on further increases in population growth and education exports,” it said.
Treasurer Jim Chalmers said geopolitical tensions, such as those playing out in the Middle East, had the potential to compound inflation pressures and weak growth.
“While we’ve made substantial progress in getting the budget in better nick, having delivered the first surplus in 15 years with a second one in prospect, we know that pressures on the budget are building, not easing,” he said.
“That’s why the May budget will continue our record of responsible fiscal management, provide cost-of-living relief without adding to inflation, and lay the foundations for growth through a Future Made in Australia.”
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