Latest research by East & Partners reveals that nearly one in three enterprises are not sensitive to Reserve Bank of Australia (RBA) interest rate increases.Last month East interviewed a large structured sample of 2,507 enterprises
Australia-wide. With the May interest rate rise still fresh in their minds, 31.6
percent of all enterprises spoken to said their businesses were not sensitive to
interest rate increases. There is, however, substantial variation in this
finding according to enterprise size, State and industry.
Using East’s core market segmentation, a resounding 60.1 percent of Corporates
said they were not sensitive to interest rate increases along with 38.1 percent
of Commercial or “middle market” enterprises.
Smaller enterprises are considerably more attuned to interest rate rises, with
only one in four SMEs reporting they were not sensitive to rate rises. Micro
Businesses felt most vulnerable to the increasing cost of credit – almost 90
percent of enterprises spoken to reported being either very sensitive or
somewhat sensitive to continuing interest rate hikes from the RBA.
Businesses in the growth States of Queensland and Western Australia reported
being most dismissive on rate increases while their NSW and Victorian
counterparts appear to be a lot more worried about rate rises. In NSW and
Victoria, one fifth of businesses see increasing interest rates as having an
impact on their demand for credit. By contrast, fully two thirds of business in
Queensland and Western Australia (66.9 percent and 72.5 precent respectively)
note their business development plans are not sensitive to continuing interest
rate increases.
The impact of monetary tightening is likely to be most felt in the Manufacturing
and Retail industries where about one third of enterprises see rate rises having
the greatest impact on their business borrowing. The booming Mining sector,
however, is unconcerned about rate rises with 70.9 percent of enterprises
reporting they are not sensitive to interest rates.
Whilst many of these findings may have been reasonable a priori expectations,
the impact of RBA’s interest rate rises is not shared equally across the economy
which is why they are so often dubbed a ‘blunt instrument’ in the economic
management toolkit.
It seems highly probable that the Reserve Bank will lift the rates again before
the end of the current year. While this move may well act to depress household
spending, East’s research suggests that the direct impact on Australia’s
businesses is likely to be muted.
Earlier this year JP Morgan / East & Partners Australian Corporate, Commercial
and SME Banking Survey quantified the healthy and growing appetite for borrowing
among Australia’s small and medium businesses. The latest research by East &
Partners confirms this finding, revealing that many businesses will continue to
borrow even as interest rates rise.
While Manufacturing and Retail industries may moderate their borrowing plans,
the Mining industry – spurred on by record commodity prices – will continue to
borrow largely unabated. And while businesses in NSW and Victoria may be chary
of further rate rises, business in the booming economies of Queensland and
Western Australia will not scramble to waylay their borrowing plans in spite of
the increasing cost of credit.
|
||||||||||||||||||||||||||||||||
|
||||||||||||||||||||||||||||||||||||
|
||||||||||||||||||||||||||||||||||||
For further information, please contact:
Zoran Knezevic
Financial Markets Analyst
East & Partners
T: 02-9004 7848
M: 0409 129 599
E: zoran.k@eastandpartners.com
Note:
East & Partners core research employs a market segmentation of enterprises based
on the annual turnover. This approach yields four distinct enterprise segments –
Top 500 Corporates (A$340m plus), Commercial Markets (A$20-340m), SMEs (A$5-20m)
and Micro Businesses (A$1-5m)