Optimism among Australian SMEs declined as private business owners assessed the domestic economy for 2011, according to new research.

Grant Thornton Australia today announced the findings of the 2011 International Business Report (IBR). This research reveals a 41 percent drop in optimism among Australia's privately held business owners over the last year.

"While Australia's optimism is still well above the global average at 38 percent, the survey highlights a significant decline which is a far cry from last year's soaring confidence of 79 percent. Increases in interest rates, declining property market values, current export conditions, and employment rates have contributed to the decline in confidence among Australia's privately held business owners," said Tony Markwell, National Head of Privately Held Business, Grant Thornton Australia.

"The decline in consumer spending as interest rates increased last year has shaken the confidence of Australia's privately held businesses making them err on the side of caution when looking ahead to 2011.

"Last year expectations were high as most business owners believed that Australia had, for the most part, managed to avoid the global financial crisis. With soaring confidence in 2010, many businesses were not prepared for the mildly bumpy ride experienced throughout the year as the affects of the crisis trickled through to our economy."

Uncertainty in the property market has also contributed to the decline in optimism among Australian business owners. "Declining property values are putting businesses under pressure as banks and financiers look to secure their investments," said Mr Markwell.

He said Australia's privately held business owners hold concerns about the challenges faced by the economy's export sector.

"Confidence in Australia's exports is down from 16 percent in 2010 to just seven percent this year and is a major contributing factor to the overall decline in optimism. Many Australian exporters have suffered over recent months as the Australian dollar has continued to strengthen against the US dollar.

"This sentiment is likely to persist as indications show the American dollar will continue to lose dominance on the global stage for quite some time," said Markwell.

Closer to home, Mr Markwell anticipates that recent floods in Queensland, northern New South Wales and Victoria will take their toll on some businesses and many will do it tough over the coming months.

However, said Markwell, "there are some sectors that will experience growth over the coming months. Industries like construction, manufacturing and building suppliers will be in high demand as those affected by the floods begin the long process of rebuilding. We expect that retailers will also experience a surge as businesses and households replace their lost assets."

Employment was another contributing factor to the decline in overall optimism with Australian privately held business owners reporting confidence levels at around 30 percent, slightly down from 2010 results of 47 percent.

Given Australia's healthy economic conditions, the 2011 IBR reveals that while Australia's optimism is still above global average, our privately held businesses are adjusting last year's high expectations to more conservative levels in 2011.