Australian Small Businesses:
Brace for Ongoing Inflation and Economic Strains Ahead
The economy is facing a turbulent period, with inflation remaining stubbornly high, stretched government budgets, and a pressing productivity challenge. If you’re running a small business or advising one, understanding these dynamics is essential for planning what comes next.
Based on insights from Acuity’s article “Australia’s economic headwinds”, written by Professor Richard Holden and published on 29 November 2024:
- Persistent inflation above target: Underlying inflation (trimmed mean) hit approximately 3.5% in the September quarter — a full percentage point above the RBA’s 2.5% goal. The RBA doesn’t expect inflation to return to target until late 2026.
- Budget pressures limit rate relief: Both federal and state governments have followed expansionary fiscal paths, increasing spending by around 1% of GDP in each of the last two federal budgets. This limits the Reserve Bank’s ability to cut interest rates anytime soon.
- Productivity stagnation is a real obstacle: Productivity growth in Australia has flatlined over the past five years. Without improvements—especially through automation and better practices in sectors like construction and aged care—living standards are unlikely to rise.
- Structural deficit looming: As commodity prices fall from previous peaks, the underlying structural deficit resurfaces. It’s estimated at around 2% of GDP (about A$50 billion per annum), with demands from programs like the NDIS and rising defense costs compounding the issue.
Why These Issues Matter to Small Businesses
| Economic Factor | What It Means for You as a Small Business Owner |
|---|---|
| High Inflation | Rising costs for supplies, wages, and rent—profit margins may shrink. |
| Tight Monetary Policy | High borrowing costs — business loans and mortgages remain expensive. |
| Low Productivity Growth | Harder to grow revenue unless you invest in efficient tools and systems. |
| Structural Deficit | Likely to result in future tax or spending changes—stay agile and informed. |
Your Action Plan
- Reassess Pricing and Costs
- Check which inputs are inflating fastest—suppliers, utilities, payroll—and explore ways to adjust pricing or renegotiate terms.
- Review Borrowing Options Carefully
- Avoid locking in high-interest loans unless absolutely necessary. Consider alternative financing or government small business support options.
- Invest in Efficiency—or at Least Monitor It
- Look into software, automation, or workflow improvements that help you do more with less—especially important for sectors like construction and healthcare.
- Look into software, automation, or workflow improvements that help you do more with less—especially important for sectors like construction and healthcare.
- Prepare for Fiscal Shifts
- Keep an eye on upcoming budgets and policy changes. If deficits drive tax or regulatory changes, it may impact cash flow or compliance requirements down the line.
Source: Australia’s economic headwinds by Professor Richard Holden, Acuity (published 29 November 2024) acuitymag.com