Turmoil continues in federal government, and it’s not the ongoing leadership challenges that is a  concern to Australian business. Regardless of whoever the Prime Minister is, our leaders are faced with the challenge of delivering unpopular policy for the long-term good of the country. If some tough decisions are not made this year, the economy will suffer and business confidence will continue to fall, which will push up unemployment numbers.

One of the world’s leading market strategists Gerard Minack recently commented that with Australia’s once-in-a-century commodity boom (unsurprisingly) reversing, there is a serious risk of a recession in 2015.

What does this gloomy forecast mean to the Australian manufacturing sector?

I think that the pressure on management to cut costs and deliver products more efficiently will continue. On a brighter note, the falling Australian dollar is creating opportunities that need to be leveraged as import costs start to increase. The businesses set to gain the most are the manufacturers who have survived the challenges of the past five years and have fine-tuned their businesses to offer superior value to their clients in the form of shorter lead times and better quality products than cheaper imports. It’s never too late to transform your business, and tough times are often the ideal time fora large-scale transformation to begin.

It’s no surprise that the global manufacturing sector is undergoing significant change. Businesses need to be more innovative and become more responsive to compete with cheaper imported goods. This is certainly possible; it just requires wholesale change.

The manufacturing sector continues its recovery in the USA, which is a good sign for Australian manufacturers. In recent years, manufacturing production in the USA increased faster than GDP growth. The conversation around re-shoring persists due to rising labour costs in emerging countries, particularly in sectors with low labour requirements.

General business confidence

Most surveys of banks and industry bodies indicate that 2015 will be a tough year for businesses, and this is the sentiment of businesses that we talk too as well. Order books are down and the margins aren’t what they use to be. The benefit of the recent free border agreements seems to be good for some industries but not for others. Hopefully the more liberal international trading conditions will help innovative and value-adding businesses to open up more opportunities in export markets.

The price of iron ore is now forecast to fall to US$50 and the slowing growth of the Chinese market will continue to challenge Australian exporters.

 

Ray Edwards
Corporate Partners