Many small businesses have been through the trenches in 2024, experiencing a ‘perfect storm’ of rising costs and decreasing customer spend.
While it’s impossible to say for certain what will happen next and while every business is different, take a look at some statistics that have influenced SME performance over the last year, plus some economist forecasts.
2024: High inflation and interest rates
Inflation peaked at 7.8% in late 2022, prompting an extended period of rising interest rates as the Reserve Bank moved to bring rising costs under control.
Recent figures show annual inflation eased to a 3.5 year low in September 2024. However, the flow-on effect of price jumps and the resulting high interest rates has been a decline in household savings and consumer confidence. People are spending less, which has impacted small businesses.
The other factor putting pressure on SMEs has been the challenging labour market. Unemployment has been relatively steady at around 4 per cent this year and many employers have found themselves increasing wages in order to secure the talent they need to operate.
If you have noticed a drop in customers and a rise in overdue invoices over the last twelve months, you’re not alone. Fortunately, there is some light at the end of the tunnel.
What’s in store? 2025 predictions
This is what key economists and forecasters have to say about the next 12 months:
Economic growth:
Deloitte Access Economics is expecting economic growth in Australia of 1.2% for the 2024-25 financial year, accelerating to 1.9% in 2025-26. Price and wage growth is expected to drop below four percent, and then continue to decrease to around 2.4% by FY28-29.
Read more: https://www.deloitte.com/au/en/about/press-room/business-outlook.html
Interest rates:
As reported by the ABC, lower inflation won’t immediately lead to a drop in interest rates because prices aren’t falling in all sectors. However, we are closer than ever to feeling relief in this area.
The major banks are now expecting rates to drop from February 2025.
- Reports say ANZ is forecasting the RBA will slash the cash rate by 0.25 per cent three times.
- CBA and Westpac have suggested there will be four cuts to rates
- NAB is saying there may be as many as five interest rate cuts next year
If interest rates drop by one per cent, the average Australian mortgage holder will save around $4500 per year.
Jobs:
There are still widespread skill shortages and conditions are tougher in regional areas than cities for employers seeking talent, but recruitment rates have decreased across most states. The labour market is gradually softening and forecasts say the unemployment rate will rise slightly to 4.5% by the middle of 2025.
Read more: https://www.jobsandskills.gov.au/news/australian-labour-market-eases-what-it-means-jobs-and-wages
Your next steps
For SMEs, economic forecasts suggest a cautious year ahead.
While interest rate drops are forecast, they depend on a continuing slowdown of overall inflation. When they do change, households will initially be focused on paying down debts and adding to their savings. It will take a while for the pendulum to swing back to confident consumer spending and for the flow-on effects to reach small business.
Next year, a ‘slow and steady’ approach, with careful planning and cost control are essential. Building cash reserves, identifying and maximising key revenue drivers and staying on top of tax obligations will help put you in an optimal position.
If you’d like help as you prepare for the next chapter of Australia’s economic story, reach out to Mobbs & Co. As experienced and reliable tax accountants, we are here to support your business’s financial health and growth.
