Australian small businesses are currently weathering the storm from the Middle East crisis and back-to-back rate hikes, but experts warn the worst is yet to come.
Fresh figures by accounting software provider Xero shows Australian small businesses continued their strong momentum, with a 7.2 per cent year-on-year increase in sales for the first quarter of 2026.
This is roughly in line with the longer term average of 7.9 per cent quarterly growth.
Surprisingly in the month of March sales momentum accelerated up 10.9 year-on-year, despite it being the month when fuel prices jumped due to the US/Israel and Iran conflict.
According to the ABS, transport prices added 9.2 per cent to costs, primarily due to a 32.8 per cent surge in monthly automotive fuel prices.
Before the start of the war on February 28, about a fifth of the world’s oil and gas supply was shipped through the Strait of Hormuz, but various blockages sent the price of fuel skyward.
At the same time, these businesses received a secondary blow, as the Reserve Bank of Australia lifted interest rates twice in the quarter by a total of 50 basis points, taking the cash rate to 4.10 per cent.
Xero economist Louise Southall told NewsWire March’s spending data followed a strong lead in at the end of 2025.
“Certainly the picture at the moment is small businesses have made a solid start to the year,” she said.
“For the first four weeks (since the conflict started) people are still spending in small businesses. There still seems to be a bit left over after they fuel up their car, which is great news.”
Despite the strong start to start, Ms Southall warns there is still so much uncertainty due to the Middle East crisis.
“People sometimes miss small businesses cop a double blow from an inflation spike – in this case a fuel price spike – because they get hit on both the cost side and also the demand side,” she said.
Despite the strong start to the quarter, Ms Southwall is also flagging the transport and logistics industries have been impacted, which could flow through to other parts of the economy. .
“We can see that small businesses that provide passenger and freight services have already been impacted by higher fuel prices,” she said.
“We are now watching closely to see if and how this inflationary impact bleeds into small businesses providing other goods and services in the coming months and how higher prices could affect overall business activity.”
Xero – who based the results on real anonymised and aggregated spending data and monitored ABS statistics – says much of the growth was in construction, healthcare and financial services.
“Construction has been a sector that gathered momentum last year into this year due to government policies at both state and federal levels are really focusing on improving housing supply,” she said.
“Looking ahead, they can be heavily impacted by the second round of the fuel price spikes, so we will have to see how higher interest rates play out on the demand side and how that interacts with supportive supply side policies in that sector.”
Meanwhile, the healthcare sector has mainly been driven by the National Insurance and Disability Scheme (NDIS).
Ms Southall said Australian small businesses have fared better to the initial oil price crisis, continuing a strong run for locals over other countries including the US, UK, Canada and New Zealand.
“Australia didn’t rate interest rates as much as other countries did, so as a result of this we didn’t have the same economic slow down as say New Zealand has had.
“Also if we look at somewhere like Canada, they are heavily impacted by US trade policy, which we have been protected from.”
