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CFO Symposium
Adelaide
11 Feb 2015
The Australian
Economy in 2015
Julie Toth
Chief Economist
Australia’s economy now
“The Australian economy urgently
requires rebalancing”
(Ai Group, March 2014)
OECD Economic Survey of Australia:
Rebalancing to Sustain Growth
(Dec 2014):
“With the end of the mining boom,
Australia must look toward
non-resources sectors
for future growth”
Latest GDP growth is 2.7% p.a., which is below par.
Growth is strongest in mining & housing industries Growth in real GDP and major industry sectors, to Sep 2014, % p.a.
Source: ABS National Accounts
Industry detail: our 4 biggest industries are growing
bigger, but many others are struggling Real value added output: industry size ($bn) growth rates
Source: ABS National Accounts
Investment is the key: mining investment is past peak,
non-mining business investment is relatively weak
Source: ABS, CAPEX
Private sector capital expenditure (CAPEX), by major industry group
Investment mix is shifting: less $ for engineering,
machinery & Gov.. More on housing, buildings & IP
Source: ABS, National Accounts
National investment, by major category (real volume measures)
Housing construction is becoming a growth driver again.
Manufacturing & business services are in doldrums
Source: Ai Group Australian PMI, PSI and PCI, to January 2015
Ai Group performance indexes: manufacturing, services, construction
Why? poor confidence is holding back consumer
spending and business investment, despite cheap credit
Source: NAB and ANZ-Roy Morgan
Consumer and business confidence indexes
Lower Australian dollar helps, but manufacturing faces
many other local & global challenges (e.g. auto closures)
Sources: RBA and Ai Group
AUD Trade Weighted Index and the Australian PMI®
Lower Aust dollar (TWI below 70) tends to coincide with a more positive manufacturing sector (PMI above 50 points)
A big growth gap is still apparent between the mining
states (WA, Qld, NT) and the non-mining states
Source: ABS, State Accounts 2012-13, Nov 2013.
Annual growth in real Gross State Product (GSP), % p.a.
National employment growth has been subdued since
2011 and the unemployment rate is at a 12-year high Australian employment, labour force and unemployment rate (trend)
Source: ABS, Labour Force Australia, to October 2014.
In addition to unemployment, many people have
dropped out of the labour market altogether Australian labour force participation, males and females (trend)
Source: ABS, Labour Force Australia, to October 2014.
Where are the new jobs? The biggest employers are
health, retail, construction, professional services Australian employment numbers in major industries
Source: ABS, Labour Force Australia, to October 2014.
The global challenge: “Australia has become a more
expensive country in which to do business” WEF Global Competitiveness Indicators: Australia’s rankings, 2007 to 2014*
* WEF global competitiveness scores and rankings are constructed from 12 sets of indicators, 4 of which are shown here. Source: WEF Global Competitiveness Report, 2013-14.
Year Overall competitiveness
Flexibility of wages
Burden of Gov. regs
Technological readiness
Business Innovation
2007-08 19 87 68 17 22
2008-09 18 90 66 19 20
2009-10 15 75 85 20 20
2010-11 16 110 60 23 21
2011-12 20 116 75 22 22
2012-13 20 123 96 19 23
2013-14 21 135 128 12 22
2014-15 22 132 124 19 25
Labour market efficiency measures, Australia’s global ranking
Source: Ai Group, WEF Global Competitiveness Report, 2007-08 to 2014-15.
Relatively higher labour costs and poor labour
flexibility are eroding our competitiveness
Government related performance measures, Australia’s global ranking
Source: Ai Group, WEF Global Competitiveness Report, 2007-08 to 2014-15.
Government regulatory costs have also risen in
Australia, relative to global competitors
National minimum wage, purchasing power parity (PPP) basis
Source: OECD, Stat database, March 2013.
Not just a matter of the dollar or perception: relatively
high labour costs in Australia, in PPP terms
Average hourly labour costs in manufacturing, US$, 2012
Source: Conference Board international labor statistics database.
… and relatively high labour costs for Australian
manufacturing …
National multi-factor productivity growth, annual averages
Source: Productivity Commission calculations derived from the Conference Board Total Economy Database, PC 2014.
… that is not matched by stronger productivity growth
Australia’s economic outlook
RBA Governor Glenn Stevens (Feb 2015):
“Growth will probably remain a little below
trend for somewhat longer, and the rate of
unemployment peak a little higher,
than earlier expected. The economy is
likely to be operating with a degree of
spare capacity for some time yet.
…The Australian dollar has declined
… [but] it remains above most
estimates of its fundamental
value, ... A lower exchange rate
is likely to be needed to
achieve balanced growth”
Where to from here? Australian growth likely to stay
slow; unemployment to drift higher (‘lagging indicator’) Government forecasts for the Australian economy
Sources: ABS various data; RBA Statement on Monetary Policy; and Australian Treasury, Mid-Year Economic and Financial Outlook.
RBA (Feb 2014) 2013-14 (actual) 2014-15f 2015-16f
GDP growth, % p.a. 2.7 2 - 3 2.75 - 3.75
CPI rate, % p.a. 3.1 1.5 - 2.5 2.5 - 3.5
Treasury (Dec 2014)
GDP growth, % p.a. 2.7 2.5 3.0
Household consumption, % p.a. 2.7 2.5 3.0
Dwelling investment, % p.a. 7.5 8.0 5.5
Business investment, % p.a. -9.1 -4.5 -3.0
Employment growth, % p.a. 0.8 1.0 1.75
Unemployment rate, % 6.0 6.5 6.5
Terms of trade, % change p.a. -7.2 -13.5 -3.75
Inflation (CPI), % p.a. 3.1 2.5 2.5
Wages (WPI), % p.a. 2.6 2.5 3.0
CAPEX intentions indicate further decline in mining &
manufacturing spending, small recovery in other sectors
Source: ABS, CAPEX
CAPEX intentions, by type and major industry (as of Dec 2014*)
By type of asset 2013-14 (actual), $mn 2014-15, $mn 2014-15, % p.a.
Buildings & structures
106,800
95,871
-10.2
Equipment, plant & machinery
51,158
50,598
-1.1
By industry
Mining
90,393
76,100
-15.8
Manufacturing
9,229
7,958
-13.8
Other selected Industries
58,336
63,406
3.5
Total new capital expenditure
157,958
147,845
-6.4
* CAPEX estimate 4, Dec 2014, nominal dollars.
Building approvals suggest steady housing construction,
but non-residential construction work will decline
Source: ABS, Building approvals
National building approvals, residential and non-residential (by value)
What do CEOs and CFOs expect in 2015? Better than
2014, but less optimistic than at the same time last year Change in general business conditions, % of respondents, 2013 to 2015*
* Percentage of businesses who nominated each type of growth impediments in their top 3 ranking. Source: Ai Group, CEO Survey: Business Prospects. 2015
What do CEOs and CFOs expect in 2015? conditions
poor; jobs outside services down; but sales & CAPEX up
* Percentage of businesses who nominated each type of growth impediments in their top 3 ranking. Source: Ai Group, CEO Survey: Business Prospects. 2015
What bothers CEOs and CFOs in 2015? Biggest
concerns are customer demand and labour costs Expected impediments to business growth, % of respondents, 2013 to 2015*
* Percentage of businesses who nominated each type of growth impediments in their top 3 ranking. Source: Ai Group, CEO Survey: Business Prospects. 2015
CEO and CFO priorities in 2015? Business strategies in
manufacturing focus on new products and new markets CEO growth strategies in manufacturing
* Percentage of businesses who nominated each type of growth strategy in their top 3 ranking. Source: Ai Group, CEO Survey: Business Prospects. 2015
Government priorities for generating growth?
“The Australian economy urgently requires rebalancing”
Source: Ai Group, 2015.
Ai Group identifies six policy areas as the most urgent
economic priorities for our Governments in 2015:
1. Tax and Federation reform;
2. Skills and education resources: especially for ‘STEM’ skills;
3. Workplace relations & workforce participation;
4. Innovation (collaboration, R&D) and infrastructure;
5. Energy and climate policy;
6. Trade policy.
