CEOs predicting a weak year in business

Chief executives across various sectors are expecting weak business conditions for 2014, according to the latest annual Business Prospects report from the Australian Industry Group.

Thirty seven per cent of CEOs expect business conditions to improve in 2014, 35% expect them to deteriorate and 28% expect conditions to remain unchanged.

In manufacturing, the report found 40% of CEOs are expecting another year of contraction and around one third are anticipating an improvement. Around 32% intend to invest more, while 31% will cut expenses.

In the mining sector, 46% of CEOs were expecting business conditions to deteriorate, with 46% looking to increase expenditure and 38% planning to cut it.

CEOs in the services sector were most optimistic about business conditions, with 44% expecting them to improve and around 75% expecting sales revenue to rise.

Construction sector CEOs are moderately optimistic, with 30% expecting a lift in business conditions and 57% a higher sales revenue.

Across the board, the report found 21% of CEOs think lack of customer demand is the most common growth problem for the year.

Wage pressures were nominated by 15% of respondents as a prime area of concern, followed by business regulation at 11% and the exchange rate at 10%.

A key growth strategy for 20% of CEOs in mining, manufacturing, services and construction sectors was to improve sales for their current range of products.

Reaching out to new customers was a strategy for 21% of construction firms, 16% of services firms, 15% of mining services firms and 14% of manufacturers.

Ai Group chief executive Innes Willox said 2014 will continue to see modest growth in production, sales and employment, as the economy struggles to rebalance against low investment in resource projects and lower commodity prices.

“While low interest rates have begun to have an impact in some sectors and while competitiveness has improved with the lower Australian dollar, we are still some way from the required rebound in the non-mining sectors of the economy,” he said.

“In particular, business investment in the non-mining sectors is set to improve only marginally in 2014 from very low levels.”

Pitcher Partners partner of Business Advisory and Assurance Adrian Fitzpatrick told SmartCompany that while he can understand CEOs are nervous, he thinks that all industry sectors need to innovate more than ever in order to find new products.

“To do very little in this market is likely to result in negative growth and diminishing bottom lines,” he says. 

He thinks the fall in the Australian dollar will help a little, but says manufacturers in particular “will need to be innovative and invest in the latest technology to drive down costs, borrow at historically low rates to do so if necessary, and look for new markets with innovative, cost-competitive products”.

“We have seen recently that the Government won’t just hand out taxpayer funds, but that there is a push for an ‘investment allowance’ which might give manufacturers the confidence and financial incentive to re-invest; to maintain and increase competitiveness in a tough environment.”


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