What does 2015 hold for SMEs?

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As we recover from the Christmas and New Year holidays, many business people are reflecting on what 2015 may have in store.

2014 saw the beginning of a period of stable growth and business optimism in the SME sector has risen as a result. Investment and productivity are still low but I am sure these will recover as business optimism gets stronger. It’s been a bit of a mystery for economists as to how employment levels have been increasing throughout 2014 although productivity remains low. I think it is down to two things: a lack of investment (which is dependent of confidence and finance) and the skills gap. It is vital therefore that ways are found to provide growth capital to SMEs and I call upon whatever government comes into power in May to make this a priority.

Whilst the economy as a whole is looking brighter, there are clouds on the horizon.

Grexit

Once again, we are facing the serious possibility of a Grexit (a Greek exit) from the Eurozone. Greece is holding elections on 25th January and opinion polls show that the left-wing anti-austerity party, Syriza, is likely to win. If they do proceed with their manifesto policies, most commentators believe that this must involve an exit from the Eurozone. Reports are that banks and the EU are now prepared for such an eventuality but it seems to me that the real effect of this will not so much be Greece leaving but whether other countries are likely to follow suit.

General Election

We have a general election on 7th May and, as far as I can tell, it’s too close to call.

Although the Coalition has overseen an economic recovery, it has not effectively dealt with the amount of red tape strangling the SME sector and access to finance remains a serious problem.

With the Conservative Party in power, it looks like we will get more of the same, although they may make more progress with cutting business taxes and reducing red tape without their coalition partners blocking such policies.

They have also promised an in/out referendum over the EU in 2017 and, whatever your views about Europe, this will introduce uncertainty for businesses that rely on Europe either for sales or supplies, and probably instability in financial markets.

The Labour Party is saying the right things in general terms about wanting to listen to business and SMEs being the backbone of the economy but we have yet to see any real policy initiatives. Ed Miliband speaks of wanting balanced growth with those at the bottom seeing rewards but appears to want to do this by taxing the rich and increasing the minimum wage. Still, we will not have long to go before the manifestos are published.

Price Shocks

Commodity markets are expected to fall further at least for the first half of the year as China continues to slow down. Oil prices in particular are at a spectacular low while Saudi Arabia is using the fall in demand to clear some competition out of the way. However, there are many experts who believe that the lower prices get, the higher they are likely to jump as things normalise and any such jump may just occur at the same time as interest rates rise. Also, the geopolitical situation in the Middle East is far from looking comfortable.

Interest Rates

Surely, these must rise during 2015? I believe that the trigger may be the normalisation of the oil market, as inflation starts to increase. However, if the rise in interest rates is to be as gradual as Mark Carney hopes, then it needs to start sooner rather than later.

Overall

Overall, I am certainly more optimistic about the prospects for the SME sector than I was a year ago. For me, the biggest uncertainty is the general election in May.

What do you think?

Gary Cousins
Business Solicitor

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