Four in five businesses surveyed said they were positive about the future despite current headwinds and challenging conditions.
What’s happening: Australian small businesses recorded their weakest quarterly sales growth in four years at 3.0% year-on-year in the June quarter, down from 5.3% in March and 4.5% in December 2024. All states experienced slowdowns, with even the strongest performer Western Australia dropping from 7.5% to 4.6% growth.
Why this matters: The data reveals that interest rate cuts are providing only temporary sales boosts rather than sustained recovery, challenging expectations that monetary policy relief would deliver lasting benefits to small businesses struggling with economic headwinds.
The promise of monetary policy relief is colliding with economic reality for Australian small businesses, as new data reveals that interest rate cuts are providing only temporary boosts to sales growth rather than the sustained recovery many had hoped for.
Australian small businesses recorded their weakest quarterly sales growth in four years, with new data showing significant variation across states and industries as economic conditions continue to challenge the sector.
Sales in small businesses grew 3.0% year-on-year in the June quarter, a slowdown from the 5.3% growth in the March quarter and the 4.5% growth in the December quarter 2024. The June result is the smallest quarterly growth since 2020. The long term average growth rate for this series is 7.8% y/y, meaning even the earlier quarterly results were not strong by historical standards.
Monthly performance throughout 2025 showed considerable variation. After a solid start to the year in January (+7.4% y/y), sales only rose 2.1% y/y in February but were up 6.3% in March. This was possibly an initial response to the decision by the Reserve Bank of Australia (RBA) to start cutting the official interest rate in February. Sales were particularly soft again in April and May, growing only 1.6% y/y in each month, before picking up again in June (+5.9% y/y), a month after another interest rate cut by the RBA.
All states record slowdown in growth
The state-based results show all States and Territories had a slowdown in sales growth in the June quarter, compared to the previous two quarters. This was particularly pronounced in Western Australia, where sales were 4.6% y/y in the June quarter compared to 7.5% y/y and 7.4% y/y in the previous two quarters respectively.
Despite this cooling, Western Australia was still the strongest performing state in the June quarter, followed by Queensland (+4.2% y/y) and South Australia (+3.4% y/y). Sales growth in Victoria (+1.8% y/y), Tasmania (+1.4% y/y) and the Australian Capital Territory (+1.0% y/y) was below the national average in the June quarter.
Government-linked industries show resilience
The industry results highlight that those small businesses most closely linked to government spending continue to do well. Health care and social assistance grew at 7-8% y/y for the past three quarters and public administration recorded 7.9% y/y sales growth in the June quarter after double digit growth in the previous two quarters.
In contrast, those sectors that are more dependent on household discretionary spending had a softer sales performance. Hospitality sales grew only 1.5% y/y in the June quarter, after only around 2% y/y in the previous two quarters.
Agriculture (+1.9% y/y), manufacturing (+2.1% y/y) and transport (+2.2% y/y) all recorded sales performances below the national average in the June quarter. These sectors all have some exposure to international supply-chains and trade, which are currently facing elevated levels of uncertainty, which could have been a contributing factor to the below-national-average performance.
Education (-1.2% y/y) was the softest sector likely due to ongoing declines in international students attending tertiary education in Australia.
Business owners remain optimistic
For small business owners, this data shows that recent months have been a little more challenging than they were in late 2024 and early 2025. In such circumstances it is more important than ever for small business owners to stay on top of cash flow, ensure they get paid as quickly as possible and keep an eye on costs.
A Xero commissioned poll in June of 306 Australian small businesses suggests they are feeling reasonably positive about the future of their business, despite the current headwinds. Four in five of the businesses surveyed in June said they were positive about the future of their business. This was similar to the May survey results.
When asked why they were feeling positive, the key reasons given were having more work available (38%), making more sales (34%) and having better cash flow (28%).
Economic outlook presents mixed signals
The outlook for Australian small businesses remains uncertain and business planning is difficult. On the one hand, the unemployment rate remains low and inflation is now within the RBA’s 2-3% target band – making further interest rate cuts likely later this year. All these factors should support consumer spending in the period ahead and reduce loan repayments for small business owners.
On the other hand, global economic growth expectations have been downgraded since the start of the year in response to changes in US trade policy. Direct impacts from US tariff policy on Australia are expected to be limited. The risk for Australia is what these tariffs do to the global economy, especially China. Any slowdown in global growth is likely to flow through the domestic economy and impact small businesses, even those not directly involved in exporting.
Keep up to date with our stories on LinkedIn, Twitter, Facebook and Instagram.
