Disaster looms for 10,000 small businesses

ABOUT 10,000 small businesses are expected to fold this year as consumers stop spending the global slowdown worsens.

Dun & Bradstreet

ABOUT 10,000 small businesses are expected to fold this year as consumers stop spending amid growing fears of extensive job losses from the worsening global slowdown.

The forecast comes as new construction data highlights the patchwork nature of the Australian economy, with the value of engineering works linked to the mining boom rising while residential and commercial building work falls.

A 5.9 per cent jump in the value of engineering work in the June quarter was all but wiped out by a 5 per cent slide in building work.

The net result was a tepid rise of 0.7 per cent in total construction activity, exposing a deep fissure in the economy.

The downturn is hurting small businesses, with the latest research from Dun & Bradstreet revealing that small operators in the retail, finance and service sectors have recorded the highest failure rates.

Almost 3000 businesses collapsed in the June quarter under the strain of the spending slowdown -- the highest level in 12 months.

Dun & Bradstreet chief executive Christine Christian said New South Wales was hit hardest with 1200 firms folding, while Victoria was second with 615 companies collapsing -- a 26 per cent increase on the previous quarter.

"Cashflow is the mitigating factor, particularly for small businesses who feel the effects a lot faster than larger companies with cash reserves," Ms Christian said.

Dun & Bradstreet has also downgraded 75,000 firms as they are more likely to experience "financial distress" during the next six months.

The move coincides with 41,000 start-up companies entering the market, but most of these preferred an online presence over the uncertainty of bricks-and-mortar trading.

Most economists tip the weaker-than-expected construction sector will have weighed on the economy and diluted any rebound in June quarter economic growth.

March quarter gross domestic product (GDP) fell 1.2 per cent -- the first backward step in economic growth since the December quarter of 2008.

The continuing construction slowdown is causing the greatest damage in NSW and Victoria with the housing and commercial sectors facing a major struggle as investors shy away from borrowing to fund new projects.

ANZ senior economist Julie Toth said the weak growth in construction illustrated that the gap was widening in Australia's two-speed economy.

"Further weakness in the non-mining sectors is expected to overwhelm and keep Australian growth below trend," she said.

"Any net job losses from the giant construction sector would be of particular concern to policymakers."