Australia-National Outlook 2023:
The Australian economy remained remarkably resilient through 2022 and finished the year in relatively good shape, largely due to a consumer-led post-pandemic spending recovery. GDP growth in 2022 was 3.5% despite eight cash rate increases in eight months by Australia’s central bank, the Reserve Bank of Australia (RBA), to curb inflation which is running at just under 8 percent per annum.
Unemployment levels were at record low levels of 3.5 percent, as evidenced by a very tight labour market. Employers struggled to find workers across most sectors, particularly in hospitality, health and aged care, agriculture, construction, and professional services.
Unfortunately, that same consumer-led recovery is ‘rapidly running out of road’ according to Stephen Smith, Deloitte Partner and author of Deloitte’s flagship Business Outlook report published in December.
Mr. Smith’s views, supported by the consensus of major business and bank leaders, government officials, and economists, is that 2023 will be a much more difficult year for Australia, and these difficulties will continue into 2024. The key points in the forecasts are:
- GDP growth of less than 2%, with some predicting just 1%. (The OECD forecast is 1.5%, in line with the RBA forecast.) A further reduction in GDP is expected in 2024.
- Inflation will moderate by the third quarter as the full impact of the RBA cash rate increases implemented in 2022 is felt by consumers and businesses, and a degree of belt-tightening ensues.
- Energy prices will remain high, thus creating a drag on Australian household spending and the economy as a whole.
- Australia will, however, narrowly avoid a recession despite the headwinds created by declining global economic factors, inflation, ongoing acts of aggression against Ukraine, supply chain disruptions, and a slowing Chinese economy.
- Unemployment is expected to rise to between 4 and 5%.
- Demand for Australian commodities will remain strong, especially in the mineral and LNG sectors.
- The industrial workplace relations landscape will become more challenging with the implementation of new enterprise bargaining frameworks by the new Federal Labour Government. These frameworks are perceived as tipping negotiating power in favour of trade unions, which clearly concerns employer groups and erodes business confidence to a degree.
Nevertheless, business confidence remains reasonably upbeat. According to a recent survey report from Australia’s peak industry body, the Australian Industry Group (AIG), employers have gone into 2023 with cautious optimism. Australian CEOs surveyed across all sectors of the economy by AIG expect business conditions and performance to improve again following the strong results of 2022. Despite the headwinds facing the Australian economy, business leaders are undertaking ambitious investment plans to adjust to the new market realities of the post-pandemic era.
However, according to AIG, CEOs also identify three challenges which will define their priorities in 2023:
- Historically tight labour markets have exacerbated chronic staff shortages, particularly for skilled roles. 90% of CEOs expect to be affected by staff shortages in 2023. They intend to invest in staff training and development to grow their in-house skills.
- Continuing inflationary pressures have crimped business margins and eroded profitability. Investment in process improvements and technology is already underway to mitigate the effects of cost pressures on balance sheets.
- Supply chain disruptions have persisted through 2022. 88% of businesses will invest in supply chain resilience in 2023 by improving their logistics practices, cultivating new suppliers, and adjusting their product offerings to manage this ongoing challenge.
CEOs are deploying these strategies to fortify their businesses in the face of the challenges expected in 2023. In an environment of skills and labour shortages, a necessary response will be to invest in broader workforce strategies and reachbeyond human resource strategies to bring about operational changes.
They will also help future-proof Australian business and the national economy against the major global economic uncertainties and challenges of the mid-2020s.
The impact of the global economic headwinds will be felt unevenly across the Australian commercial landscape, with winners and losers. Retail, finance, and construction sectors will likely feel the headwinds more acutely than other sectors.
The Australian manufacturing sector is targeted for a makeover instigated by the new Australian Federal Government, which seems to have woken up to the fact that manufacturing sovereignty is important! Covid-driven disruptions to supply probably had something to do with this insight.
One might say it is about time. A once-mighty Australian industrial manufacturing sector, which accounted for 30% of GDP in the 1960s, now contributes less than 6%. It is not surprising to learn that Australia sits at the bottom of all OECD countries in manufacturing self-sufficiency.
Prime Minister Anthony Albanese’s Labour Federal Government has committed to making significant initiatives and investments in manufacturing, including:
- Creating a ‘Future Made in Australia Fund’ and committing AUD 115B to it.
- Committing AUD 1B to an Advanced Manufacturing Fund, partnering with industry focused on the following sectors and targets:
- Value-added processing of natural resource commodities
- Agriculture & food processing
- Medical science & technology
- Low-emission advanced technology in manufacturing
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