Manufacturing lags behind in economic recovery

Two recent studies surveying the manufacturing and wholesale sector reveal business-owners feel they are lagging behind other industries in Australia’s economic recovery.

The first survey, called and commissioned by St. George Bank, interviewed 1,000 businesses in 11 different indus tries. Of these, 85% of manufac turing and wholesale businesses felt different sectors are recover ing at different speeds.

In fact, 40% of the manufactur ing and wholesale sector said their industry is lagging other industries in the nation’s recov ery, followed by the professional and business services sector (31%) and the transport and storage sector (30%).

According to St.George Bank head of leisure and hospitality, Paul Cook, the good news is that most businesses across the spectrum of industries sur veyed believe our economy is in recovery.

“What this means is that they’ve taken a hit, and they’re now seeing positive signs in terms of growth and turnover. That’s what we want to see,” Cook told .

The manufacturing and whole sale industries together form one of St.George Bank’s ‘preferred sectors’. The Bank provides finance for finished goods and works in process, along with for eign exchange lines and letters of credit.

The research was commissioned as a way for St.George to gauge the financial readiness of manufacturers around Australia – not just St.George clients but other businesses too – to invest in their businesses in the immediate future.

A second piece of research, called from June this year, also commis sioned by St.George Bank, sug gested not only that Australian manufacturers are recovering at a different speed to other indus tries, but that manufacturing locations around the country are bouncing-back at varying degrees.

“We did a survey of what keeps our clients awake at night in rural areas as a result of the GFC. The two main responses were maintaining their cash flow and liquidity (50%), and the sec ond highest at nearly 35% was the ability to fund the business for growth,” Cook said.

“Less than 10% said they are worried about finding workers with the appropriate skills for their industry, and a third were concerned about bad debts.”

According to the report, Australia is recovering from the financial crisis on a state-by- state basis. For Cook, not all businesses are enjoying the same “rate of turnaround”.

“Some states are fairing better and are more positive,” Cook said.

“In South Australia, they hard ly blink an eyelid when you talk about the GFC, like it didn’t even occur down there. In Victoria it definitely did, but at a less extent that Queensland, Western Australia and New South Australia – our heartland. Western Sydney hasn’t faired as well as the businesses in Victoria. It’s a fragmented recovery.”

St.George Bank head of coporate and key segments, Ian Sanders, says immigration and resources play a large hand in the country’s fragmented recovery.

“Rising incomes, increased immigration and the resources boom have all put positive upward pressure on business, while the domestic economy is also suffering a lag effect post the stimulus boost. This is why we are seeing multiple speeds of recovery within the same econo my,” he said.

“What is interesting about this research is it shows that business leaders are very much aware that significant differences exist between sectors of business in Australia and that some sectors are leading others.”

The Bank’s research also found businesses are considering a relatively mod est growth target for the finan cial year ahead, even though many companies suffered declin ing revenue for the past year or two.

Though the manufacturing and wholesale industries are among the most likely (66%) to record a drop in profit since the GFC, the sector is forecasting an average growth in revenue over the 2010/2011 financial year – though at a modest 8.5%.

On average, businesses across sectors are forecasting revenue to lift by 8.3% over the period, which is still below the average year-on-year long-term growth of 9.0%.

Sixty per cent of manufactur ing and wholesale businesses are expecting a better 2010/11 financial year.

Sanders offers the following advice: “There is no doubt the past year has had a significant impact on businesses and the way they are operating both now and in the future. The manu facturing and wholesale sector has opportunities to capitalise on the growth of China and India as global economic conditions stabilise.”

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