CONFIDENCE among small and medium businesses dropped this quarter, rebalancing from a five year high last quarter to register a net balance score of +38 (previously +44) according to the latest Sensis Business Index (SBI) survey.

The Index, which reflects the views of 1,000 small and medium businesses from across Australia, revealed three times as many SMBs (57%) were confident as those who were worried (19%). Despite the dip, the net balance score of +38 is 11 points higher than this time last year. 

While business confidence went down, current perceptions of the economy stayed the same and the 12 month outlook jumped, registering a positive score of +5, eight points higher than last quarter and only the second positive reading since December 2014.

There were confidence gains in Tasmania, Queensland and South Australia, while there were falls in NSW, the ACT, Victoria, the NT and WA. NSW is again the most confident location, despite a five point fall to +53.

Sensis Chief Executive Officer, John Allan says: "The national figures tell a positive story overall, but belie the turmoil some locations are experiencing with Western Australia (+10) and the Northern Territory (+9) languishing well below the national average."

"Tasmania recorded the most improved score with a 22 point jump thanks to improved business conditions, while Victoria suffered a drop of 15 points to sit below the national average with declining sales and increased cost pressures impacting business confidence," he said. 

"Overall, the businesses feeling positive had strong beliefs in their own business strengths and identified with being an established, solid business while those who are worried cited decreasing sales and an unfavourable business, economic or industrial environment.

"It is pleasing to see sales and profitability performances improve this quarter; the sales result (+5) is particularly encouraging as it is the first time since March 2008 that we have seen consecutive positive quarters."   

With the survey beginning two weeks after the Federal election, it found SMBs were indifferent to the return of Malcolm Turnbull's Coalition Government, with its approval among SMBs the same as last quarter on +2.

"We normally see a jump in positive sentiment towards the incumbent after an election, signifying relief at a return to 'business as usual'. This time we've seen significant variability across the states with Tasmania and the Northern Territory the most supportive, and the other states either dropping back or not changing at all," says Allan.

Businesses were asked if they thought Malcolm Turnbull would survive a full term as Prime Minister. While nearly half (48%) of all businesses said he would, a third (33%) did not.

Confidence in the policies of state and territory governments displayed similar results to last survey, with the ACT, Tasmania and the Northern Territory registering positive net balances.

NSW had the biggest decline while views of the Victorian Government also deteriorated and the South Australian Government retains bottom position.

In other results, business confidence across metropolitan and regional locations was varied. Confidence of SMBs in capital cities fell 15 points to +35, while regional confidence rose by eight points to +43 and is now in front.

Regional NSW, Victoria, WA and the Northern Territory are more positive than their city counterparts, with Hobart and Brisbane the most positive capital cities overall.

"Better sales and profitability performances in regional NSW and the NT and a better view of the Federal election result in regional Victoria and the NT, relative to the cities, are the major influences driving these results," says Allan.

At an industry level, Retail Trade has been improving steadily in recent times. It saw the biggest improvement this quarter and is now close to the national average. Hospitality has taken top spot, recording the best result for prices.

"Not surprisingly, as the Australian dollar continues to defy the Reserve Bank's attempts at depreciation, the Manufacturing sector is struggling and is the least confident sector," said Mr Allan.

"As we head into the crucial Christmas retail period, expectations are very strong for all of the indicators, with sales and profitability particularly positive."

Small and medium businesses comprise 99 percent of all businesses operating in Australia.

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