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Small and medium-sized enterprises (SMEs) in Australia saw an improvement in business conditions and confidence during the first quarter of 2025, according to the NAB Quarterly SME Survey for 1Q25.
This rise outpaced that of larger firms, which experienced a slight dip in overall business conditions as captured in the broader survey.
Notably, responses were collected prior to tariff changes announced in early April, which signalled cautious optimism for SMEs despite the persistent challenges and weaker sentiment relative to larger businesses.
The index measuring overall SME business conditions improved by 3 points to -1. The gains were most notable among the smallest firms, where conditions rose by 5 points to +1.
Mid-tier SMEs also improved, climbing 4 points to -3. Despite this upward shift, conditions remained in negative territory and weaker than those reported in the larger business survey, though the gap narrowed slightly over the quarter.
When looking at the subcomponents, trading, profitability, and employment conditions all recorded improvements, according to the survey.
However, profitability and employment indicators continued to hover below zero, highlighting ongoing challenges. Encouragingly, fewer SMEs cited labour as a major constraint on output and growth in labour costs moderated, although purchase costs edged slightly higher.
At the industry level, conditions improved broadly except in business services and finance. Business services saw a notable 10-point drop – its second consecutive quarterly decline – while finance dipped by 3 points.
Despite the fall, finance and transport reported the strongest conditions, with manufacturing remaining the weakest-performing sector.
Confidence among SMEs rose by 4 points to -8, still below the long-term average of +2. The increase was largely driven by property and construction sectors.
Positive sentiment was recorded only in the property and transport industries, the latter just above zero at +1.
Geographically, all states recorded an improvement in business conditions. Western Australia led the way with a 6-point increase, followed closely by Queensland with a 5-point rise. Nonetheless, NSW and Victoria continued to lag, each reporting a reading of -5.
Confidence also rose across all states but remained in negative territory overall. Victoria notably trailed the rest of the country at -15 index points.
[RELATED: Over one-third of SME customers used a broker in the last 12 months]
