Australian importers and exporters have had a tough couple of years thanks to subdued global growth, volatile currencies and a mining-dominated Australian economy.
However, HSBC is seeing signs that there are better times ahead for internationally active Australian SMEs.
Every six months HSBC releases its Trade Confidence Index, which gauges the short-term trade outlook of almost 6000 SME exporters and importers across 23 markets, including Australia.
After a two and a half year slump, Australia’s Trade Confidence Index, released this week, shows a sharp uplift in Australian businesses’ trade confidence, with nearly half Australian respondents expecting trade volumes to rise over the next six months – up from 40 per cent six months ago.
This bullish business sentiment amongst Australian traders suggests the long awaited re-balancing of Australia’s economic growth away from mining investment is beginning to happen.
At a sector level, construction and wholesale/retail importers appear to be the most optimistic about their six-month trade outlook.
Amongst construction companies, the historically low RBA interest rates and increasing house prices have driven a 30 per cent pick-up in building approvals in the past year which is leading to a rise in the importation of building materials as construction begins.
Similarly, the 6 per cent rise in retail sales over the past year reflects a pick-up in demand for consumer goods which HSBC expects will flow through to higher imports for both wholesale and retail businesses.
From an exporting perspective, the low Australian dollar, improving UK and US economies and China’s focus towards more consumer-led economic growth, is starting to have a positive impact on Australian businesses with interests abroad.
The uptick in business and trade sentiment holds true among HSBC’s SME customer base. HSBC client, Australian Fashion Labels, is a case in point.
The Adelaide-based company, that designs affordable but high-end ladies fashion, began distributing within Australia in 2007 before expanding into US, UK, Japan, Germany and Hong Kong.
Strong links with Asia
By 2012, 50 per cent of its sales were outside of Australia. Over the remainder of 2014 and next year, Australian Fashion Labels will begin rolling out its own stores in the US and UK to take advantage of the returning consumer confidence in both markets.
Closer to home, HSBC’s Trade Confidence Index reveals Australian businesses’ strong links with Asia. The report finds 90 per cent of Australian respondents currently trade with Asia and nearly three quarters see it as the most promising region for trade over the next six months, compared to the global average of 42 per cent.
The focus of Australian businesses to the markets at our front door makes perfect sense. Asians have more than tripled their financial wealth since 2001 to just over USD 80 trillion, with the trajectory likely to continue. Tapping into the growing consumer market in areas like education, tourism, financial services, infrastructure and agriculture will be paramount for Australian SMEs’ continued growth.
Strong trade outlook
HSBC client, GR Engineering, a Perth-based consulting and contracting services business for the resources and mineral processing industries, has being making significant inroads into Asia. In recent years they have taken advantage of the strong relationships built with many Australian mining companies who are now pursuing opportunities in the region.
The strategy has yielded good results and has positioned them for a strong international trade outlook over the coming six months and beyond.
Developed market growth, particularly in the US and UK, is finally showing signs of coming out of its multi-year slumber. The momentum in these markets, along with the sustained growth of Asia and China, will be a boon for the Australian economy and SMEs particularly.
Australian SMEs will be well advised to start preparing their business in areas like sales orders, counterparty contracts and risk management strategies now before growth kicks in to full swing.
Andrew Skinner is head of global trade and receivables finance, HSBC Australia
Source: Fairfax Media