Business confidence is on the rise but an uprising is not near, SME survey

Vince Farrugia (Director General)

Small businesses' confidence is on the rise for the second semester in a row but remains well below its pre-crisis levels, according to an EU-wide survey recently conducted by UEAPME, the European craft and SME employers' organisation, and its members. Since last autumn, the proportion of entrepreneurs expecting a positive or neutral economic environment has grown to 64.7%, 10 percentage points above expectations one year ago but still considerably under the levels recorded before the downturn.

This back-to-back raise in business confidence suggests that the economic situation has somewhat stabilised for the time being, although SMEs remain overly cautious about a possible recovery. Employment expectations in manufacturing and construction are significantly lower than in the services sector, according to UEAPME's "Craft and SME Barometer". Pessimists still outweigh optimists in all areas, the survey also found.

Small businesses seem to be confident that the worst is behind them, but they are quite uneasy about the future. Whether a stagnant, low growth period lies ahead or a real recovery is possible remains uncertain and depends on how the economic picture will evolve. What is clear, on the other hand, is that the situation will take different shapes across economic sectors. Service providers are likely to be in the black relatively soon, while the manufacturing and construction sectors are in for a bumpier ride.

The survey recorded few differences between SMEs according to their size class, but significant dissimilarities appeared among different sectors. The construction industry had reported some progress in the previous semesters, mainly due to government sponsored works at that time. Since then, the improvements have lagged the pace of all the other industries, hinting at the long-term unsustainability of public support and at the still existing overcapacities in the sector. Employment expectations remain negative in the construction sector due to the lack of private demand to match the available supply.

Manufacturing is currently and based on expectations the SME sector reporting the worst confidence levels, as the industry is hard-hit by the crisis in the automotive and investment goods sectors. However, employment was fairly stable in the sector, with car scrap plans offsetting growing losses in investment and consumer goods as the downturn expanded.

Both the personal and business services sectors, while still recording negative balances, advance towards stability at a much faster pace than manufacturing and construction and predict better results for the current semester on employment.

The employment outlook across sectors seems to suggest that SMEs as a whole are not hiring at the moment. Increases in the unemployment figures, however, appear to be steadily shrinking compared to the previous semesters. When it comes to investments, the survey recorded negative expectations in all sectors, although a clear difference emerged between forecasts for the previous semester and the actual results, which were significantly higher than foreseen. SMEs' behaviour on investment at the moment seems to be induced rather than expansionary.

Positive news on business confidence and a relative optimism in the services sectors are offset by the sorry state of construction and by a teetering manufacturing industry, not to mention of course the overall negative outlook on employment and investments. The recession may be behind, but an upswing does not seem to be near.

"The integration of the Maltese economy within the single European market, given also the fact that Malta's economy is one of the most open and subject to international influences, once again indicates that Malta's economic performance moves very much in line with what happens in the rest of the EU zone, most especially when considering the effects on SMEs.

The figures published in the barometer and the trends reflecting the performance and expectations of small and medium business in the EU is more or less the same as registered by GRTU in its regular surveys among its members. Malta as a whole is slowly lifting itself out of the recession, but this is not easily marked once the performance of SMEs in all sectors represented by GRTU is taken into consideration.

GRTU is particularly concerned that important measured we pressed for like the micro-credit investment scheme and the electricity bills support scheme as well as the working committee that should have been working to propose economic remedies for the serious problems met by craft and small and medium business in the construction industry have not yet materialized. I strongly regret that people in Government do not have the same urgency when it comes to the implementation of schemes supporting SMEs as they have when it comes to billing and their insistence on payments due to Government and Government owned entities.

We regret also that so many private, as well as public, investment that could go a long way to alleviate the current drops in national output, particularly those related to the construction industry, continue to find such opposition from people who hardly have any knowledge of how vital maintaining employment is and for the excess capacity in the economy to be utilized so that we can once again enjoy the rates of economic growth that alone can ensure- better jobs and enough to help us manage better our environment and quality of life" Vince Farrugia GRTU Director General.

The Craft and SME Barometer is issued twice a year by UEAPME prior to the EU summits in spring and autumn. GRTU Malta Chamber of SMEs is the Maltese National SME organisation member of UEAPME. The Craft and SME Barometer also represents the views of GRTU members participating in the survey. UEAPME is the employers' organisation representing the interests of European crafts, trades and SMEs at EU level. It incorporates 82 member organisations from 34 countries representing more than 12 million enterprises, which employ around 55 million people across Europe.