SME may 2026: SMEs under pressure from all sides as confidence continues to deteriorate

Updates to this research are published monthly.

SME May 2026: Revenue performance is becoming increasingly polarised, with 25% of SMEs reporting growth, the highest level since November, while 38% reported a decline, one of the highest levels recorded. This highlights a widening gap between businesses still finding growth and those under increasing pressure.

Short-term revenue expectations remain deeply negative, with only 15% expecting revenue to improve over the next four weeks. This reflects the combined impact of weaker confidence, cost-of-living pressures, higher interest rates and ongoing global uncertainty.

Profitability is also under pressure, with the proportion of SMEs making a profit continuing to trend down from its October high. As costs continue to erode margins, SMEs appear to have exhausted many efficiency levers and are increasingly focused on discontinuing unprofitable products and services.

Labour demand in continued decline, but skills gaps remain

Labour demand continues to soften, with job vacancies falling from 22% in FY24 to 11% in FY26. However, a serious mismatch remains, with critical sectors such as Health & Education and Construction still finding roles difficult to fill.

SMEs invest tactically, as low confidence persists

Business sentiment remains weak. Economic expectations are still near historic lows, negative sentiment toward the Trump Administration is entrenched, and satisfaction with the Federal Government has fallen to its lowest level in 13 months, confirming the Budget has missed the mark with SMEs.

Investment behaviour is increasingly tactical, while marketing spend has fallen to its lowest net score in the past 13 months. Demand for additional finance has also dropped to its lowest level in 13 months, confirming SMEs are pulling back from new borrowing as confidence weakens.

Conclusion

Overall, SMEs are being hit from all angles, with weaker revenue expectations, rising cost pressures, softer hiring demand, tighter margins and reduced appetite for borrowing. The Federal Budget has done little to address these pressures, with satisfaction falling to its lowest level in 13 months and reinforcing the view that SMEs are largely being left to navigate the current environment on their own.

Please click the link below to access the full report including subgroup analysis by industry sector, size of business and state. Fifth Quadrant and Ovation Research publish monthly updates of this SME market research here. For any questions or inquiries, feel free to contact us here.

SMEs remain resilient

These findings are based on the Fifth Quadrant SME Tracker, a monthly study of Australian small and medium-sized businesses launched in April 2020. Each wave includes a minimum of 400 business owners and financial decision-makers from SMEs with up to 500 employees, with results weighted by industry, state and business size to reflect the national SME population.