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. 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.