Many business owners will wish for better economic times this festive season, but just what Santa will deliver remains unclear, making it difficult for businesses to plan for the future.

A Scrooge-like economy has forced many Australians to pull in their belts. Many household budgets have been stretched to breaking point and some consumers are struggling to pay their rent or mortgage bills. These cost-of-living pressures have also impacted businesses, in the form of reduced consumer spending and increased costs of operation, to name a few.

But, according to ScotPac’s recent SME Growth Index, these factors have done little to dent the resilience of Australia’s businesses. ScotPac’s research found that a healthy 56% are forecasting positive revenue growth to March 2025, 60% are preparing to invest for business growth and 94% are gearing up to source new capital to support their plans.

All eyes on interest rates

In November, Australia celebrated a year since the Reserve Bank of Australia (RBA) last hiked up interest rates. The RBA left the cash rate at 4.35%, despite a fall in headline inflation to 2.8% in the third quarter of 2024, largely due to government rebates on electricity. Sadly, underlying inflation, which removes the effect of short-term price volatility, hovered at 3.5%.

In its November meeting minutes, the RBA board said inflation remained too high to consider cutting rates and it would “need to observe more than one good quarterly inflation outcome” before feeling confident that it was on track to achieve its 2% to 3% inflation target.

The RBA doesn’t expect inflation to return to this target until 2026 and many economists predict it will not cut rates until the first half of 2025.

Some predict cuts will happen after the federal election, due on or before May 17.

Among them is Luci Ellis, Westpac’s chief economist.  “An earlier start in February or March is still possible, but it is no longer more likely than a May start date,” she says.

“A later start date is also a risk scenario, if inflation does not decline as the RBA is currently forecasting, let alone our own marginally more dovish expectation. That said, the longer the RBA Board waits, the faster they will need to move thereafter, as it would then be more likely that they have hesitated too long.”

Sparks of economic life

Westpac senior economist Matthew Hassan notes that the gloom that descended on Australian consumers 2½ years ago is finally starting to show more convincing signs of lifting.

He says the consumer mood has become “considerably less bleak”, buoyed by the additional cash in hand as tax cuts, other support measures and changing expectations for interest rates.

The Westpac–Melbourne Institute Consumer Sentiment Index rose 5.3% in November, reaching 94.6, its highest level in months. It is now up 14.4% from its mid-year lows, with consumers reporting some relief from financial pressures and greater optimism about the economy.

Only 35% of consumers plan to cut back on holiday spending this year, a fall from last year’s 40%. And, just over half expect mortgage rates to hold steady or decrease in the next year.

NAB’s monthly business survey found that business confidence is also rising. It jumped in October and is now back around average and at its highest level since early 2023. Overall, NAB says its survey continues to paint a picture of resilient activity levels in the economy and a trend easing in price and cost pressures.

Also encouraging is the slowing in annual wage growth to 3.5% in the September quarter, a big drop from 4.1% in June.

Innes Willox, CEO of the Australian Industry Group, believes this dip will lower employment cost growth for businesses struggling with weak economic conditions and take some of the heat out of pressures on underlying inflation.

“Much of this easing can be attributed to the relatively moderate increase in minimum and award wages handed down by the Fair Work Commission in June,” he says.

So, what does this mean for businesses?

Hassan expects better news on inflation and the wider economy – particularly relating to productivity and the domestic cost pace – to ease many of the RBA’s concerns.

That said, it may not be smooth sailing from here.

According to Hassan, there’s still significant uncertainty around the path of inflation and other aspects of the economy.

“More generally, the medium-term recovery process looks likely to be a slow one,” he says.

“The RBA’s easing cycle is expected to be gradual and modest. Household disposable incomes will be slow to recover the ground lost over the last 2½ years, with less support available from saving reserves accumulated during COVID and an additional headwind coming from slowing population growth.”

Taking control of your financial future

Given all the economic uncertainties as we approach the festive season, it’s hard for business owners to plan for the future. However, one important step you can take right now is to get your “holiday cash flow” to avoid the strains often experienced at this time of year.

These could include increased customer demand, higher operational costs, larger inventory levels and delays in customer payments. You might also need to cover extra staff hired and special promotions.

In addition to forecasting and planning, some strategies you could use to manage your holiday cash flow include early invoicing, shortening your customer payment terms, negotiating longer payment terms with suppliers and avoiding tying up cash in excess inventory.

Also look for opportunities to reduce your costs and consider short-term financing solutions options like lines of credit or invoice financing to plug cash flow gaps during peak periods.

Financial facilities to improve cash flow

If you’re looking to stabilise your business in the current economic climate, there are many challenges that prevent potential obstacles to success. With cash flow pressures set to ease in the immediate term, it’s a good time to explore your options – and there are several funding options designed to help businesses remain stable and grow, even in challenging economic conditions.

Ease cash flow concerns with ScotPac

ScotPac has been helping Australian businesses survive and thrive with fast and flexible finance solutions for decades. Our commercial funding options include:

All our facilities are designed with the needs of Australian business owners top of mind. Plus, they’re all completely customisable, so you can benefit from a tailored funding solution that suits your business’s needs.

To find out more about our Invoice Finance, Trade Finance, Asset Finance or Business Loan solutions or to discuss your goals for your business, get in touch with ScotPac’s lending specialists today.