New Xero data: Australian small business growth cools as interest rate rises and fuel prices bite

Melbourne, Australia - 30 July 2026 - Australian small business momentum slowed in the June quarter as higher interest rates and elevated fuel prices started to flow through the economy, according to new Xero Small Business Insights (XSBI) data.

Following a strong start to the year, small business sales growth eased slightly to 6.5% year-on-year (y/y) in Q2 2026, down from a two-year high in Q1 (+7.9% y/y) and below the historical average for the series (+7.9% y/y).

June quarter at a glance:

• Sales were strongest in April, rising 10.7% y/y, before slowing sharply to 4.0% y/y in May and 4.8% y/y in June
• Discretionary industries recorded some of the weakest sales growth, including hospitality (+2.1% y/y), retail (+3.4% y/y) and arts & recreation (+3.5% y/y)
• Mining (+14.0% y/y), utilities (+13.1% y/y) and construction (+10.8% y/y) continued to outperform other industries
• The Northern Territory (+8.4% y/y) and Queensland (+8.2% y/y) led state and territory sales growth, while the ACT recorded the slowest growth at 3.4% y/y
• Jobs growth slowed slightly to 3.0% y/y, down from a 3.3% increase in Q1, with June recording the weakest monthly result of the year at +2.0% y/y
• Wage growth remained subdued, rising 2.4% y/y, compared to a 2.7% y/y increase in the previous quarter
• Small businesses were paid faster, waiting an average of 22.9 days for payment, while late payments improved to 6.0 days. However, these improvements largely follow typical end-of-financial-year payment patterns.

Louise Southall, Economist at Xero, said the June quarter reflected the economy shifting towards a more uncertain second half:

"After a strong start to the year, pressure started to show in the small business economy in the June quarter. Consecutive interest rate rises and elevated fuel prices have taken the heat out of the economy. Growth is still positive, but those macroeconomic pressures are now weighing on both consumer spending and business confidence," Southall said.

"Looking ahead, wider economic forecasts line up with what we're seeing: ongoing global uncertainty and the situation in the Middle East are likely to keep weighing on small business sales and hiring for the rest of the year. For small business owners, it's more important than ever that they stay close to their numbers."

Mining, utilities and construction outperform discretionary industries

Mining (+14.0% y/y), utilities (+13.1% y/y) and construction (+10.8% y/y) were standout industry performers, while hospitality (+2.1% y/y), retail (+3.4% y/y) and arts & recreation (+3.5% y/y) saw the slowest sales growth.

Southall said: "We're seeing a two-speed economy. Businesses exposed to discretionary consumer spending recorded the sharpest slowdowns in sales growth between the March and June quarters, as tighter household budgets impact small business sales. Mining, utilities and construction are far less impacted, with continued outperformance likely driven by price impacts alongside genuine demand."

Businesses more cautious about hiring

While sales continued to grow, the data suggests small business owners are taking a more measured approach to expanding their workforce. Jobs growth eased to a 3.0% y/y increase during the quarter, with June recording the weakest monthly employment growth of the year at 2.0% y/y.

"Hiring is often one of the first decisions small business owners delay when uncertainty rises. Jobs are still growing, but the softer June quarter result suggests businesses are thinking carefully before adding to headcount," Southall said.

Northern Territory and Queensland lead state and territory performance

The Northern Territory, which is being reported in XSBI for the first time, recorded the strongest sales growth nationally at 8.4% y/y. Queensland followed closely at 8.2% y/y, supported by continued strength in high-performing sectors such as construction and mining, while the ACT recorded the slowest growth at 3.4% y/y.

Australia's slowdown reflects global trends

Australia's moderation in growth mirrors trends seen across other developed economies. While New Zealand recorded the strongest June quarter performance (8.6% y/y sales growth), largely driven by agriculture, Australia (6.5% y/y), the UK (3.6% y/y) and the US (4.0% y/y) all experienced similar easing in momentum as higher interest rates and global uncertainty weighed on business activity.

To find out more about how Xero Small Business Insights is constructed, see the methodology.

ENDS

Media Contact:

Xero Australia | Nick Lyon | [email protected]

About Xero:

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Disclaimer

This media release includes and is in parts based on assumptions or estimates. It contains general information only and should not be taken as taxation, financial, investment or legal advice. Xero recommends that readers always obtain specific and detailed professional advice about any business decision. The insights in this release were created from the data that was available as at the date it was extracted. Data used was anonymised and aggregated to ensure individual businesses can not be identified.