Ready your business activity for these forecast challenges
Planning business activity in the immediate future is likely to be challenging because of higher-than-usual inflation and interest rates.
Business owners can-expect lower than usual growth for at least the next financial year, with the outlook in the next two years being particularly poor for business investment, concurrent with falls in both housing investment and export growth.
These forecasts arise from research conducted on behalf of Australian business owners who employ almost 800,000 people.
The researchers say they have no quarrel with authoritatively expressed opinion that declining economic growth is close to bottoming out.
However, they believe it will recover to just under 2% in the current financial year and to just above this figure in 2025-26.
The Australian Industry Group (AIG), which is coordinating the research, notes that the labour market has yet to weaken, despite deteriorating business conditions. AIG points out that employment levels have shown very little easing for more than a year and will remain well below normal.
The Group forecasts combination of a slowing economy, high inflation and a tight labour market will prove challenging for employers to manage for the next 12 months.
Skill shortages and hiring difficulties – especially for professional and trade roles – are expected to continue with wage growth that is accelerating at its highest rate in two decades, boosted by recent large increases in award and minimum wages.
Wage growth is forecast to remain elevated for the next two years and employers in all industries must expect to contend with above-normal wage increases during this period when there’ll be below-normal economic growth and industry performance.
The background story
After 13 successive interest rate rises, inflation continues to be a drag on the economy.
While it’s been widely predicted there’ll be a rate cut if not before the end of the year, then probably by February 2025, there are nonetheless increasing indications there could be further delay that will negate improvement in real incomes necessary to stimulate spending.
Persistent inflation has reduced real incomes and spending power resulting in weak growth of household consumption, a situation exacerbated by the extinction of savings buffers built up during the pandemic.
The Australian Bureau of Statistics (ABS) reports economic growth slowed during 2023-24 while GDP per capita has gone down for the sixth successive quarter.
Michelle Marquardt who heads the price statistics section of the ABS, says, that excluding the pandemic period, annual financial year economic growth this year has been the lowest since 1991-92 – the year that included the gradual recovery from the 1992 recession.
Spending on food, health and transport which has dominated non-discretionary spending, is slowing. Thus, businesses exposed to the consumer sector of the economy must expect continuing hard times.
The retail industry –groceries excluded –has been in recession since the previous financial year, and businesses in mining, manufacturing, construction, wholesale trade and administrative services – because they have been hurt by surging materials and wage costs – now face contraction.
Health care and other government-connected businesses are predicted to continue performing above average levels of most businesses because of the on-going rise of spending by federal and state governments.
Sources of challenges
Inflation remains well above the RBA’s preferred range of 2%-3%.
Treasury says it’ll take another year to return to that, and the RBA says it’ll probably take two years.
In any case AI Group researchers warn SMEs that interest rates are going to take longer to fall than many owners appear to expect, so that they will be facing consequences of an extension of borrowing cost pressures and cost-of-living impacts on households.
The Group notes there’s no sign of weakening in the labour market despite deteriorating business conditions.
Record low unemployment during the past 18 months is forecast to be maintained -- or at least to a level that’s well below normal -- and it’s this, combined with a slowing economy and continuing inflation, that will prove challenging for employers to manage in coming months.
Dealing with the challenges
Macks Advisory’s advice is that in these uncertain times it is vital that business owners pay particular attention to fundamentals they’re aware of but may have been ignoring. They should be scrutinising cash flow and keeping it in check with forecasting, reining in costs, ridding themselves of excess inventory, and ensuring customers pay on time.
It may also pay owners to focus on the surest sources of revenue, on providing the best possible experiences for customers, and on researching technology proven to have saved time and cut costs for businesses like theirs.
If they haven’t done it for a while, business owners should also turn for advice to their accountants, industry organisations, local business associations, banks, non-bank lenders and brokers, making sure to check on support and other benefits that may be available from governments federal, state and local.
For survival or growth
There are means of expanding a business that may also be harnessed to enable mere survival. We’ve found it extraordinary that although many businesspeople are aware of these facilities, they fail to investigate them as a remedy for financial difficulty before it’s too late, and any possibly of finding a timely, satisfactory solution has disappeared.
For example, there’s:
- Invoice financing a form of short-term borrowing businesses use to unlock the value of accounts receivable by selling unpaid invoices to a third-party financing company at a discount, in exchange for immediate cash.
- Trade finance represented by a financial instrument or product used by companies to facilitate international trade and commerce – making it possible or at least easier for importers and exporters to transact business through trade.
- Asset finance which is a flexible alternative to bank loans for providing significant cash flow benefits to businesses looking to purchase or lease equipment. It takes account of a company’s balance sheet assets including short-term investments, inventory and accounts receivable, to borrow money or get a loan that requires the borrower to give the lender a security interest in the assets.
