Will 2013 be Australian industry’s gap year?

The Australian Industry Group's annual outlook report – Business prospects in 2013: Australia's gap year? – highlights the impact of the structural changes and significant challenges the Australian economy is experiencing and will continue to experience throughout 2013.

Ai Group Chief Executive, Innes Willox said: "With the mining investment boom slowing and with other sectors struggling, there are no obvious candidates set to pick up the slack. The report poses the question: will we make the most of 2013?".

The survey – which is based on responses from 350 business leaders across manufacturing, construction, services and mining businesses – found that over half of all CEOs (52%) expect general business conditions to deteriorate in 2013 and a third expect no change.

Only 16% of CEOs surveyed expect conditions to improve in 2013. More than half of CEOs in manufacturing (56%) and construction (52%) expect business conditions to deteriorate in 2013, relative to 2012.

In services, 42% expect deteriorating conditions, while in mining, 47% expect conditions to worsen.  Indeed, some key parts of the economy are looking at a severe deterioration.

This will come on top of a tough year in 2012 for many businesses – 58% of all CEOs said 2012 had brought worse business conditions for them than 2011.

Willox said: "Australia looks set for a lull in growth in 2013. The concerns of our CEOs for the Australian economy in 2013 can be grouped around three key themes: slowing demand across the economy; the high value of the Australian dollar and the challenge of global competition; and rising business costs.

"The big question is: can we make the most of this ‘gap year’?  We should use this year to reinvigorate productivity growth and establish the foundations for a more resilient and diversified economy.

"We have the opportunity this year to build capabilities; to get on the right track with reforms to education and training; to lift business innovation; to make sensible changes to workplace relations arrangements and to commit to a phased improvement in Australia’s tax arrangements.

"This election year is an ideal opportunity for political leaders to take the initiative and commit to agendas that build the longer-term drivers of a growing and prosperous economy," Willox said.

Key expectations of CEOs surveyed for Ai Group report:

Input cost increases, especially for energy. Input costs will rise for half of all businesses, but 8% are expecting input prices to fall. 82% of CEOs expect their energy charges will rise further in 2013.

Flat sales revenue. Sales revenue will improve for 39% of businesses, but decline for 40% of businesses. 21% expect sales revenue growth to be flat, relative to a year ago.

Lower levels of employment. Employment will expand in a quarter of businesses, but more than a third (37%) plan to reduce employment and 38% plan no change to their employment numbers.

Rising unit labour costs that will not be fully offset by improved productivity. 44% of CEOs expect their unit labour costs to increase further in 2013, relative to 2012.

Around 13% of CEOs expect them to go down.

On labour productivity, one third of CEOs (33%) are expecting to see an improvement in 2013. Of more concern, 13% say they expect labour productivity in their own business to fall in 2013, relative to 2012 and over half (54%) expect to see no improvement in 2013.

Reduced capital investment. Capital investment expenditure will rise for a quarter of businesses, but decline for 31% of businesses and remain unchanged for 44% of businesses.

Slightly higher R&D spending. R&D spending will increase for 21% of businesses, decline for 17% and remain unchanged for 61%.

Static export incomes. Export income is expected to rise for 18% of businesses, decline for 16% and remain unchanged for 65%. This reflects the high Australian dollar and lack of growth in export volumes since 2011 for Australian manufactured goods and services.

Increased use of imported inputs. Imported inputs will increase in 30% of businesses and reduce in 11%. 58% of businesses will not change the value of inputs they import. This may reflect an acceptance among business CEOs that the dollar is likely to stay higher for longer into 2013.