ACCI-Westpac Business Survey shows economy on a ‘tightrope’

ACCI-Westpac Business Survey shows economy on a ‘tightrope’

After a slower than usual start to the year, new orders lodged with Australian manufacturers rebounded, the latest ACCI-Westpac Survey of Industrial Trends has found.

Westpac economist Ryan Wells said that the improvement in demand marks a welcome turnaround from recent weakness, although there remain challenges and uncertainties in the outlook for manufacturers.

“The Westpac-ACCI Actual Composite improved materially heading into mid-year, lifting from 43.4 in the March quarter to 54.1 in the June quarter,” Mr Wells said.

“With a reading above the break-even threshold of 50, this indicates that conditions are improving in the manufacturing sector. Compositionally, a bounce in new orders and an increase in output were the key drivers, while respondents reported further declines in employment and overtime.

“The broader economic backdrop for manufacturers has been challenging over the past year, highlighted by stalling new orders growth. This culminated in a material decline in orders in March 2024, marking a slower than usual return to business from the summer holidays.

“That weakness was not expected to last though, and orders have posted a solid rebound in June 2024, with a net 20 per cent of firms reporting a rise.

“The Expected Composite moderated slightly, from 54.7 in March to 52.8 in June, indicating that firms still expect demand conditions to improve, albeit at a more modest pace.

“That said, supply-side issues remain a key concern of manufacturers. The improvement in labour availability last quarter looks to have been temporary, with a net 12.1 per cent of respondents finding labour ‘more difficult to find’, providing manufacturers with limited scope to expand the size of their workforce.

“Additionally, cost pressures facing manufacturers remain acute and incredibly volatile. The latest survey finds a net 71 per cent of firms reported a rise in average unit costs, the highest result since the cycle peak of a net 76 per cent in December 2022.

“While costs have eased slightly on a year-average basis, from a net 68 per cent in June 2022 to 51 per cent in June 2023, they remain well above the 2009-2019 average of 19 per cent.

“The mood of manufacturers about the general business outlook for the next six months has improved but remains deeply pessimistic. Those expecting a deterioration outnumber those expecting an improvement by a net 42 per cent in June, compared to a net 56 per cent in March.

“Profit expectations improved, following the bounce in demand. However, they remain well below average levels, as elevated and volatile cost pressures continue to loom over manufacturers. On balance, respondents neither expect an improvement or a deterioration in profits over the coming year.

ACCI chief executive Andrew McKellar says the survey results show the economy is walking a tight rope.

“The challenges we are already seeing for businesses will be compounded by inflexible, productivity-sapping industrial relations legislation over the coming months,” Mr McKellar said.

“More business investment is needed to lift productivity and drive economic activity.”

Mr McKellar urged the federal government to take immediate action to address stalled productivity.

“Lifting productivity has been identified as a key priority by the government and it must take decisive action to support Australia’s businesses immediately,” Mr McKellar said.

He also pointed to the recent minimum wage increase awarded by the Fair Work Commission as another burden for businesses to bear.

“The cost-of-doing-business pressures are mounting and significant wage increases through the annual wage review will heavily impact businesses,” Mr McKellar said.

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Maximising energy options minimises risk

Maximising energy options minimises risk

The Coalition has today formally committed to nuclear energy in Australia should it win government. This would be a significant change in energy policy in Australia.

The Australian Chamber of Commerce and Industry has a policy of fuel-source neutrality, meaning that it supports allowing all fuel sources to compete in providing our energy needs while meeting our emissions targets.

“Maximising energy options minimises the risk of being caught out down the track with higher cost electricity,” ACCI chief of policy and advocacy David Alexander said.

“Australian businesses need affordable and reliable energy over coming decades, and our energy costs will need to be competitive with other countries.

“We cannot know the future competitiveness of individual energy sources over future decades, but the way to ensure that we don’t get caught short down the track is to allow the full range of energy sources.”

Mr Alexander said ACCI recognises the burden high energy costs have on businesses and their customers.

“As we go down the path to net zero it is important that we focus on real-world consequences and keep costs minimised for business and the broader community,” Mr Alexander said.

Unions propose new barriers for young workers

Unions propose new barriers for young workers

A union’s proposal to eliminate junior wage rates would have severe implications for young workers, locking them out of an opportunity for their first job.

First jobs at junior pay rates are a crucial stepping stone in their development, Australia’s largest and most representative business network said.

ACCI chief of policy and advocacy David Alexander said it was an unrealistic proposal that will make it almost impossible for young workers to get their first job.

“Calls to abolish junior pay rates is another example of the usual ignorance of economics from unions,” Mr Alexander said.

“Having no junior pay rates would make hiring young people far less attractive to businesses.

“Taking on a worker with minimal experience requires extra risk and extra effort – they do not have the work or life experience that older adults have.

“This would be catastrophic for young workers, especially in retail, who would struggle to get a start in the workplace.”

The Shop Distributive and Allied Employees Association has submitted the proposal to be debated as a resolution at the ACTU congress in Adelaide.

The union has already proposed resolutions to increase the minimum annual leave days for employees from 20 to 25 days and to introduce a four-day working week.

Mr Alexander said these proposals were as unrealistic as axing junior pay rates.

“Mandating a four-day work week across the economy ignores the unique settings of particular industries or workplaces and would suffocate the already-flatlining productivity rate,” Mr Alexander said.

“Compelling employers to provide another week of leave for employees would be a similarly damaging step.

“At a time when every economist points to declining productivity, the union movement is coming up with ideas to make it worse.

“As we saw in yesterday’s national accounts figures, productivity has stalled, and until we see a real lift, economic growth will remain stubbornly low or even become negative.”

“Proposals like these will only harm our economy more and must be rejected.”

GDP figures show tough going for business

GDP figures show tough going for business

National accounts figures for the March quarter released today shows a feebly performing economy, reflecting the difficult conditions facing business according to the Australian Chamber of Commerce and Industry.
“The continuing shrinkage of GDP per capita is a clear indication that conditions are moving in the wrong direction,” ACCI chief of policy and advocacy David Alexander said.
“The figures only serve to highlight the need for significant economic reform to lift productivity in the economy.”
Data from the Australian Bureau of Statistics (ABS) shows the economy as a whole barely grew over the March quarter at 0.1 per cent, with a revised annual figure of just 1.1 per cent.
The deterioration of the economic situation continues to be masked by strong population growth.
GDP per capita went backwards by 0.4 per cent, the fifth consecutive quarter in which this measure has been in reverse.
Productivity levels continue to stagnate, with the national accounts showing GDP per hour worked declining from 0.5 percent growth to zero in the March quarter.
The national accounts show new business investment fell by 0.7 per cent this quarter.
Cost of doing business pressures are mounting, and businesses margins are being squeezed, with gross operating surplus of private corporations down 7.3 per cent in the year to 2024.
“Businesses need more confidence that policy settings are supportive of investment,” Mr Alexander said.
“More support is needed to drive business investment, which is essential to restoring productivity growth and reigniting the economy.
“The large-scale industrial relations changes enacted over the last two years are making the economy less flexible and productive, with the full effects to impact on business over coming months and years.”
ACCI responds to Annual Wage Review outcome

ACCI responds to Annual Wage Review outcome

The Australian Chamber of Commerce and Industry acknowledges today’s decision by the Fair Work Commission to raise the national minimum wage and modern award minimum wages by 3.75 per cent.

“This tests the acceptable limits for businesses. The outcome is slightly above current inflation and well over the Reserve Bank’s target range for inflation,” ACCI chief executive officer Andrew McKellar said.

“This decision is not in line with the trajectory needed to shore up the Australian economy, but it does not pose a significant inflation threat so long as productivity is addressed.

“Over the past year, productivity has been flat at best. For the outcome of 3.75 per cent to be justified, it is essential that there is renewed growth in productivity as an urgent priority. This must be central to bargaining at an enterprise level.

“This decision is further evidence of wages being de-linked from underlying productivity, which is not an economically prudent approach.”

The Fair Work Commission has ignored the extreme claims of the union movement.

“This decision is a repudiation of the irresponsible five per cent demand from the ACTU,” Mr McKellar said.

“Such an increase would have dangerously burdened the economy. It posed an unacceptable risk to inflation, and would have seen interest rates higher for longer.

“Bringing inflation under control is central to the economic well-being of all. So long as inflation remains elevated, the buying power of every dollar diminishes.

“Small businesses are grappling with significant increase costs as a result of the increased compliance burden and wages remain a concern in such an environment.

“It is inevitable that businesses will need to pass increased costs through to consumers. Many small businesses are in a position where they simply cannot absorb any more.

“Regulatory costs are going to increase further the impact of the governments industrial relations changes continue to flow through to the economy in such an environment business will need to pass on additional costs.”

New company tax conversation is welcome

New company tax conversation is welcome

The call from Industry Minister Ed Husic for a new discussion about corporate tax rates is a welcome development, the Australian Chamber of Commerce and Industry said today.

“Australian businesses will embrace the need to reconsider corporate taxes. Lowering the corporate tax rate or introducing investment allowances are critical measures that can drive business investment, spur economic growth and ultimately benefit all Australians,” ACCI chief executive officer Andrew McKellar said.

“Businesses need the ability to free up capital and invest, especially given the sluggish productivity growth over much of the past decade.

Corporate tax reform or investment allowances would incentivise businesses to upgrade technology, enhance productivity and create jobs.

“Ensuring that businesses can invest in growth while also improving wages on the back of productivity gains and job security is the right approach.

“ACCI looks forward to engaging constructively with the government on this crucial issue and we thank the government for raising it. An approach that enhances productivity and ensures sustainable economic growth would be a win-win for all Australians.”