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Plant, machinery sales will slump rapidly: Ai Group

While Australia up until now has fared better than the rest of the world through the economic slowdown, local business will fall rapidly in 2009 with plant and machinery expenditure set to decrease, according to a survey of over 480 CEOs in manufacturing and construction.

The new Australian Industry Group (Ai Group) — Deloitte survey says 2009 is shaping up to be “a tough year”, with the ongoing impacts of the global economic crisis placing at risk business expenditure on key growth drivers.

The National CEO Survey — Business prospects in 2009 found that while we have fared better than the rest of the world so far, we are beginning to experience a significant slowdown in business and revenue.

The global crisis has marked a major turning point in the fortunes of business, says the survey.

The survey found that manufacturing sales and activity is forecast to decline in 2009, for the first time in 18 years. Prospects are expected to deteriorate as manufacturers anticipate sales to decline by 3.1% to around $380 billion.

Exports are also expected to decline by 5.3% to $84 billion, while employment is forecast to fall by 4.4% (44,000 jobs) to 1.06 million.

Most important to the process and control industry, expenditure on new plant and machinery, R&D and training will also be cut in 2009.

In terms of construction, expenditure on R&D, training and investment in plant and machinery is also expected to fall substantially, as companies seek to cut costs to preserve margins.

Ai Group chief executive, Heather Ridout, said 2009 is shaping up to be one of the toughest years in decades, with employment, sales and income to fall.

“The manufacturing and construction sectors are likely to see total sales and employment decline in 2009. While service income from sales and exports will continue to grow all three sectors are facing a very difficult and challenging year, in terms of maintaining sales, jobs and margins,” she said.

“While a spending spike over the Christmas-New Year period may have helped to put a temporary halt to the deteriorating economy, risks are tilted to the downside and policy-makers will need to take further action beyond that already taken. We should see interest rates come down in February and further fiscal action to support jobs and business profitability.”

Deloitte Australia, lead partner — automotive and manufacturing, Tom Imbesi, says that local business needs to execute well thought-out plans for the year to help minimize risk and maximize cash flow.

He also said we should look to those in crises before us who used the economic downturn for their own growth benefits.

“There is no doubt that the current volatility is creating significant risk and driving big change but it also brings with it a window of opportunity to establish and strengthen business. In fact, studies of previous recessions have shown that companies who are able to take definitive action towards building value and growth are better placed to absorb the impacts of the slowdown and maximise returns in the medium term,” he said.

“There is a natural tendency during a downturn to cut costs and reduce investment, this action often defers growth and causes opportunities to be overlooked. Our view is that companies should responsibly maintain their activities around growth, both organically and through merger or acquisition.

“Acquisitions are becoming realistically priced and given the credit squeeze mergers are likely to increase. History tells us that those companies who take these actions will be better placed to absorb the impacts of this major slowdown, as well as ensuring that they are the better placed to maximise returns into the medium term.”

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