Melbourne lockdown: UBS calls for SME support extension

Current outbreaks and the lockdowns designed to halt them will bring on a second wave of business failure and unemployment without more SME support, UBS says.

The stringent Stage 4 lockdown measures being applied in Melbourne will shutter more businesses unless more help is forthcoming, UBS believes. Picture: Getty Images

Investment bank UBS says it’s likely Victoria’s small business sector will need more help, saying many SMEs had already been pushed to the brink before the Stage 4 lockdown.

In a report released on Tuesday, UBS said there were indications SME performance worsened over June after Melbourne re-entered lockdown, pointing to ABS data showing SME revenue as having decreased 33 per cent since the pandemic began.

UBS research analyst Jonathan Mott noted that 4 per cent of that decline occurred since mid-June. Revenue was now only 6 per cent above the trough recorded on 19 April, while the proportion of SMEs expecting revenue to be “slightly or significantly worse in four weeks’ time” was 29 per cent, a level of negative sentiment matched only at the pandemic’s beginning.

Foreshadowing what was to come, the growth of negative sentiment over June was highest in the hospitality and construction sectors, which on Monday had their operations strictly curtailed by stage four coronavirus restrictions in Victoria.

Another indication of bearish sentiment was contained in the recent RBA credit aggregates, Mr Mott said. They showed business credit contracted 0.8 per cent in June – the largest contraction since the June 1992 recession. That occurred “despite the government and regulators urging banks to support lending to households and businesses”, Mr Mott said.

Mr Mott also said that surveys of SME sentiment showed that almost a quarter of all firms receiving COVID support expected that they would close when assistance measures expired, while a third said they would lay off staff.

“We believe the most disappointing data from the ABS shows that 24 per cent of businesses that are currently accessing COVID support – such as JobKeeper, loan deferrals, rent deferrals – expected to close when support was no longer available,” he said.

“These statistics are consistent with ACA Research data which indicates that 36 per cent of SMEs are ‘very concerned’ about business survival and a further 36 per cent ‘quite concerned’.

When including SMEs which were not receiving support, 10 per cent expect to close when support measures were no longer available, with that figure rising to 23 per cent for the vulnerable accommodation and food services industry.

Mr Mott said that further support would be needed to stave off widespread unemployment growth and business closures.

“With 56 per cent of Australians employed by SMEs, further support appears necessary to avoid a second wave of business failures and unemployment,” Mr Mott said.