Australian industry leaders are concerned about the year ahead, with uncertainty, inflation and weakening demand the main risks for 2024.
At a webinar last week that explored the findings of the Ai Group Australian Industry Outlook for 2024 report, Ai Group Chief Executive Innes Willox said concerns about regulation, global and domestic volatility, labour shortages and supply were impacting on sentiment.
“The stark reality is that 40 per cent of businesses expect things to go backwards this year, compared to 27 per cent who think they'll do better,” Mr Willox said.
“However, there is still a lot of optimism out there . . . with a strong sense from businesses that they will be able to navigate the period ahead.
“They'll make the changes that are necessary. They'll adapt to the circumstances and focus on productivity and productivity-enhancing measures to help them get to the other side of this difficult and volatile patch we're facing.
“It promises to be a year of significant challenge and change, but there are also some significant opportunities for business.”
Based on the insights of more than 320 senior leaders of businesses large and small across the country, the report found:
“Strategic plans are focused on what can be controlled within the business,” Ai Group’s Senior Research Analyst, Colleen Dowling, said.
“Many industry leaders have told us they're going to increase business efficiencies and invest in technology and their workforce capability.
“Improving productivity and efficiencies is seen as key to success this year.”
While there is some cautious optimism, there is an expectation that business conditions, as a whole, won't be as good as they were last year, Ms Dowling said.
“Expectations are generally lower than what they were when we did this survey in late 2019 — prior to Covid-related disruptions,” she said.
“Broadly, revenue and employment are expected to increase and gross profits are also positive, but these expectations are all lower than last year.
“We’ve asked about gross profit margins since 2016, and this is the lowest reading we've seen.”
Industry leaders are uncertain about geopolitical factors, the slowdown in global growth, inflation and the cost of borrowing.
Most concerning are geopolitical risks involving the Middle East and Ukraine and Russia which are affecting shipping times and costs and oil supply, said fellow webinar panellist Amber Rabinov, Head of Macro Research and Strategy at AustralianSuper, Australia’s largest superannuation fund.
“A second concern on the geopolitical front are national elections, with about two-thirds of the world's democracies going to the polls this year, including the US in November,” she said.
“We’re also watching closely the ongoing geostrategic competition between the US and China, particularly with regards to how targeted trade economic policy restrictions unfold.”
Ai Group’s Ms Dowling said such global uncertainty had huge implications on business strategies – staffing levels and investments, both the amount invested and the focus of investment.
“Input costs and industrial relations are other big issues for industry and are also overwhelmingly negative,” she said.
“Almost all businesses that mentioned these issues consider them a substantial concern for this year.”
Falling demand, inflationary pressures and tight labour markets were identified as the greatest barriers to growth in the year ahead.
“Supply chain disruptions have dominated business concerns over the past few years, but they've fallen away,” Ms Dowling said.
“We've seen a dramatic shift from supply-side constraints to demand-side within the space of a year.”
Expectations for a slower 2024 have led industry to focus their investments on consolidation.
“There's a sense of preparedness in these plans,” Ms Dowling said.
“Industry leaders are looking to focus on the things they can control. That's their mitigation strategy for managing the things they can't.
“Improving productivity is key to achieving this.”
Process improvement is the most popular strategy, along with staff training to upskill and train existing workforces.
Among technology investments, cyber-related ICT is the highest priority, reflecting the growing challenge of industrial cybersecurity.
When it comes to growing a business in a challenging environment, the top two priorities leaders identified were:
A larger proportion of businesses will focus on developing new Australian markets than those who prioritise international markets.
Increasing employment is a growth strategy for a much smaller group of businesses.
Diversifying or changing supplies is also well down the list.
“This is, again, an illustration of how the supply story has changed,” Ms Dowling said.
“There have been improvements to supplies, but disruptions or shortages have become 'business as usual' in the operational sense for the past few years.”
Nearly 90 per cent of businesses expect to face staff shortages this year, owing to an ongoing imbalance between labour demand and supply, largely stemming from the impact Covid had on population and the workforce.
Retraining or upskilling existing employees is the top strategy for managing this.
Improving efficiency by changing operational processes and increasing wages and benefits will also be deployed.
“There is a jobs vacancy crisis in Australia at the moment,” Jeff Wilson, Ai Group’s Director of Research & Economics, said at the webinar.
“We have 424,000 vacant jobs across the country — more than double the normal rate," Dr Wilson said.
"That means 2.7 per cent of all jobs in Australia are vacant. If you're a business with 100 employees, you’re short of three people.
“In some industries, particularly those affected by skills shortages — anything that uses digital manufacturing, construction and licence trades where you can't just bring workers in — those vacancy rates are even higher than the national average.
“Some industries are reporting vacancies of up to five per cent. We’ve had some members talking about shortages of, say forklift drivers, of ten per cent.
“Our outlook isn't expecting to see that back into normal levels again for the next two years.”
AustralianSuper is also cautiously optimistic about the outlook for 2024.
“The good news is that from a top-down or aggregate perspective, the economic outlook is looking more positive as we move through the early months of 2024,” Ms Rabinov said.
“Market calls of impending recession, particularly in the US, have quietened down.
“Following more than two years of high inflation, prices growth has softened faster than expected as we moved into the end of 2023.”
Ms Rabinov said it was notable that economic activity in the US was displaying encouraging resilience.
“Additional savings built up over the Covid period are being spent, and there is stronger-than-expected fiscal support for the economy,” she said.
The inflation situation in the UK and Europe is trending similarly, while Australia’s more conservative approach to managing Covid has resulted in a later recovery in activity, translated through to a later peak in inflation and in turn, a later policy response by the RBA in terms of tightening or lifting interest rates.
“Therefore, prices growth is taking a little longer to come down to the RBA’s two to three per cent target range than in comparable developed market economies, but it does remain on track to follow through on this lead that we've got from offshore.
“For now, it looks like the developed markets have dodged the recession that was feared last year, and we're now entering a period of muddling through — expecting growth of around, or a bit below, trend.
“Overall, reasonably modest growth implies a cautiously brighter outlook.”
Ai Group welcomes the invaluable contributions of leaders to our annual Australian Industry Outlook survey. Your feedback becomes the evidence base we use to advocate on your behalf. Our report provides unparalleled insights into the thinking of Australian industry, including ongoing challenges and opportunities. This year's Ai Group Australian Industry Outlook report was produced with the generous support of AustralianSuper.
Wendy Larter is Communications Manager at the Australian Industry Group. She has more than 20 years’ experience as a reporter, features writer, contributor and sub-editor for newspapers and magazines including The Courier-Mail in Brisbane and Metro, the News of the World, The Times and Elle in the UK.
