Economic update for small businesses: a more stable outlook ahead

As a small business owner, being informed about the economic landscape is crucial for making sound strategic decisions and being able to adapt to changing conditions. Here’s a snapshot of the current economic climate and what it might mean for your small business.

Economy is still growing: albeit at a slow pace

The Australian economy grew just 0.1 per cent in the second quarter of 2024. Although this is very flat growth, it at least indicates that the economy is still moving forward.

Looking ahead, forecasts suggest the economy will grow by 0.5 per cent in the third quarter, which may indicate an economic recovery is ahead. This could be good news for Australia’s small businesses, who should consider planning to introduce initiatives to generate their own growth.

Local interest rate outlook: no change imminent

The Reserve Bank of Australia (RBA) has indicated it does not expect to cut the official cash rate in the near term. But, with global central banks moving towards easing, the RBA may eventually follow.

“The current guidance from the RBA to leave rates on hold is qualified by the possibility of changing circumstances, leaving room for adjustments to the cash rate, should economic data weaken, or in the event of a financial shock,” says AMP’s chief economist and head of investment strategy, Shane Oliver.

According to Oliver, the public sector’s role in boosting inflation is a concern.

 “Strong public sector spending, particularly in areas like the National Disability Insurance Scheme and aged care, is contributing to faster wage growth and higher consumer prices in government-administered sectors. This is counteracting the RBA’s efforts to cool inflation, potentially keeping interest rates higher than they would otherwise be,” he says.

Implications for small businesses

For small businesses, the current economic climate presents both challenges and opportunities.

• While the RBA has not indicated immediate rate cuts, the broader global trend towards easing could eventually lead to lower borrowing costs for businesses. This could be an opportunity to refinance debt or invest in expansion.

• Volatility in the economy is expected to continue. Businesses should prepare for potential ups and downs and consider diversifying their revenue streams. Sound cash flow management is essential in this environment.

• The strong growth in public sector spending may present opportunities for businesses in sectors like healthcare and social services. But it’s also contributing to inflationary pressures, which could impact operating costs.

• It’s more important than ever for small businesses to have robust strategic planning in place. This includes cost control and contingency planning for potential downturns.

The Australian economy is navigating a transition period influenced by the volatile global economic backdrop. Small businesses should stay informed, be adaptable and focus on financial resilience to weather the current economic climate and seize opportunities for growth.

Against this backdrop, ensuring your insurance cover is up-to-date and your assets are properly valued is essential. That way, if you need to claim on your insurance, you have the peace of mind your policy settings are correct and you’re giving your business the best chance of recovery.

Important notice

This article is of a general nature only and does not take into account your specific objectives, financial situation or needs. It is also not financial advice, nor complete, so please discuss the full details with your Steadfast insurance broker as to whether these types of insurance are appropriate for you. Deductibles, exclusions and limits apply. You should consider any relevant Target Market Determination and Product Disclosure Statement in deciding whether to buy or renew these types of insurance. Various insurers issue these types of insurance and cover can differ between insurers.