Overseas fears add to local business woes

TRADING conditions for small business are at their lowest level since the GFC on worries of a Europe debt crisis and US downturn.

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ESCALATING worries over the European debt crisis and the possibility of a US economic slowdown add to a list of woes that are hurting Australian small businesses.

The Australian Chamber of Commerce and Industry's (ACCI) latest small business survey, released today, showed trading conditions in the June quarter fell to their lowest level since the depths of the global financial crisis.

Chamber chief executive Peter Anderson said small business conditions continued in a declining trend due to an appreciation in the Australian dollar, the prospect of rising interest rates and taxes, and weakness in consumer confidence and spending.

"Escalating fears on European debt crisis and the possibility of economic slowdown in the US over the recent weeks will exacerbate the already lacklustre small business confidence," he said releasing the survey.

The survey, together with last week's labour force data that showed an unexpected rise in the jobless rate, underscores the need for the Reserve Bank to resist lifting interest rates, despite inflationary pressures, he said.

"Any further impost in current trading conditions, such as the prospect of labour cost rises or higher energy prices is likely to further dent small business confidence and consumer sentiment."

The survey's small business conditions index declined to 42.3 in the June quarter from 43.2, remaining below the crucial 50 point level that separates expansion from contraction.

The index is at its lowest level since March 2009 and is 5.5 points below its five-year average.

Profit growth remained at a contractionary 37.5 points in the quarter, the lowest since September 2009, and businesses expect this pace to decline further over the September quarter 2011.

Wage growth is expected to increase over the September quarter, with its index remaining more than eight points above the crucial 50 mark.