This IPitch guest article was kindly supplied by Marcus Turner Jones.
Business conditions in Australia are riding high at the moment. President Trump’s inauguration has boosted the global economy, which has been a shot in the arm for business confidence in Australia. The National Bank of Australia business conditions index reached a nine-year high in January, hitting +16.2 points. Business confidence hit a corresponding high of +9.8 points, which is in sharp contrast to the previous three years.
1. Australian economy growing
The global political situation is a strong influence on Australia’s economy, so it’s no surprise that President Trump’s promises to implement new tax plans to kick-start the US economy have had a positive effect on home markets. Despite some concern that Australia was heading into a recession, the Reserve Bank of Australia has rescinded its dire predictions of an economic downturn and issued a statement to say it believes the economy will grow at a rate of 3% during 2017.
It’s been a turbulent time for the Australian economy over the last few years. The country has a lot of natural resources, but with demand for raw materials from China falling, several large mines have closed and investment in the mining sector has dropped. The construction industry has also suffered in recent years, with growth tailing off sharply, particularly in the city apartment sector.
2. Employment figures rising
In response to economic growth, employment figures are on the rise. This positive news has boosted the value of the Australian dollar traded against other currencies. Analysts predict further rate rises could be on the cards if the business sector continues to remain buoyant moving forward into 2017. Unfortunately, although the Reserve Bank of Australia’s cash rate remains at 1.5%, recent currency hikes suggest that businesses and consumers may have to deal with a period of higher inflation over the next couple of years.
3. A boost in business lending
The current climate of positivity has led to a modest increase in business lending. Between December 2015 and August 2015, business lending was in negative territory, largely as a result of an ailing Australian economy. This pattern changed in September 2016, when loan commitments began to rise.
Figures published by the Australian Bureau of Statistics indicate the value of revolving credit commitments, which is short-term borrowing to cover working capital expenditure, rose by 1.6% in December 2016. Fixed lending rose by 2.4% in December 2016. These figures are higher than homeowner and personal finance lending, suggesting Australian consumers have less confidence in economic recovery than Australian businesses.
4. P2P lending boom
Lending options for businesses have increased in recent years. The P2P lending sector has been an interesting development, with some analysts saying P2P lending has reinvented the lending marketplace. It’s an evolving business sector, with new P2P platforms growing at a phenomenal rate, and not just in Australia. In the US, P2P lending has doubled every year since 2010, and a similar trend is unfolding in China and the UK.
In part, P2P lending has developed in response to the global economic recession. P2P lenders have much lower overheads, yet offer greater yields to investors. As risk-averse lenders cut back on small business lending, P2P lending has grown to fill the void. It’s now easier for a business to secure a loan via an online P2P lender than it is from a bank. P2P lenders are able to leverage recent fintech developments to offer instant lending decisions and quick cash.
5. Can businesses afford to borrow?
Concerns over whether businesses can afford to increase their lending commitments are, however, justified, given the uncertainties facing the global economy right now. President Trump may have great plans for implementing innovative tax measures and ‘Making America Great Again’, but we have yet to see whether his plans to boost the US economy will bear fruit. And like many other developed nations, Australia’s economy is aligned with the global economy, so ripples elsewhere have unwanted repercussions at home.
Australia’s small businesses have faced many challenges in recent years, not least stagnant economic growth and wide scale mines closers, but one issue that has been highlighted by the Australian Small Business and Family Enterprise is the problem of late payments. With business lending on the rise, it’s not an issue we can afford to ignore.
6. Late payment culture
The late payment culture is a problem affecting millions of small and medium-sized businesses in Australia. Research conducted by the Payment Times and Practices Inquiry discovered that 50% of small businesses say half of their invoices are paid late, with 70% of them experiencing cash flow problems as a result of late payment. This problem is compounded by an ingrained culture of asking for extended periods of credit, which can also negatively affect cash flow within small businesses.
With a period of rising inflation ahead almost certain, it would be wise for Australian businesses to be cautious with their borrowing commitments. Although recent figures suggest that Australia has dodged the recession bullet for now, we are not out of the woods just yet.