CPA Australia Management accounting conference Australian economy Julie Toth Chief Economist Australian Industry Group. aigroup.com.

Transcription

1 CPA Australia Management accounting conference 2016 Australian economy Julie Toth Chief Economist Australian Industry Group

2 Events & opportunities for Australian business in : Global and local; economics; demographics; politics; technologies Economics Politics Slow growth rates Slow trade flows Low inflation Low returns Low productivity growth Risk aversion (favours USD, gold, housing, etc) Post-GFC recovery still ongoing in EU, US, UK Global shifts in trade, activity & wealth to Asia Commodity prices, volumes and cycles New technologies (digital, AI, energy, pharma) Australian Federal election: All calm for now? Brexit in UK & EU: When? How? Effects? US Federal election: Who? What next? China: regional power, global power Middle East conflict: intractable? contagious? Global population: changes & movements Regional trade agreements: TPP? Climate change: responses & agreements

3 Australian economy: the big headline numbers

4 3.1% GDP growth in Q Close to our long-run average (3.2%). No recession in 25 years (since 1991). Growth is slower, less volatile. Australian GDP growth to March Qtr 2016, % p.a. Source: ABS National Accounts

5 5.7% unemployment rate in 2016: trending lower since late Jobs growth improved through 2015, but weaker in 2016 to date. Australian employment, unemployment and labour force trends Source: ABS Labour Force Australia

6 1.0% inflation rate in Q % private sector wage inflation in Q1. Both slower since GFC (2007) & commodity price spikes (2008) Australian inflation (CPI) and wages (WPI) growth rates, % p.a. Source: ABS CPI and WPI

7 Low inflation + slow growth = low returns and low interest rates (but Australian returns and rates are still higher than elsewhere) Central bank target cash rates, major economies Source: RBA

8 Australian economy: Growth, rebalancing and competitiveness

9 Drivers of Australian growth? Mining investment mega-cycle now fading fast. Housing investment cycle is up in some locations again Australian investment spending, per quarter Source: ABS National Accounts

10 Drivers of Australian growth? Lower dollar is supporting recovery in non-mining exports and import replacements (e.g. in manufacturing) Australian TWI and Ai Group Australian PMI exports index Source: RBA and Ai Group Australian PMI

11 Drivers of Australian growth? Lower dollar is supporting recovery in non-mining exports and import replacements (e.g. in tourism) Australian short-term arrivals and departures for holiday purposes (trend) Source: ABS

12 Impediments to growth? rebalancing is assisted by the lower AUD, but Australia is still said to be a difficult place to do business WEF Global Competitiveness Indicators: problematic factors for doing business in Australia * WEF respondents were asked to select the five most problematic factors for doing business in their country and to rank them between 1 (most problematic) and 5 (least problematic). The score corresponds to the responses weighted according to their rankings. Source: WEF Global Competitiveness Report, and Ai Group.

13 and not integrated enough into global industry supply chains. In manufacturing, Australia ranks 21 st as a good place to do business Global manufacturing exports for top 10 manufacturers: size and type Source: Deloitte Global Manufacturing Competitiveness Index 2016

14 Rebalancing in 2016: mining & finance are largest, still growing. Some but not all others are recovering (IT, real estate) or growing (health) Australian industries, value-added output, $bn and % growth p.a., Mar Qtr 2016 Source: ABS National Accounts

15 Manufacturing rebalancing in 2016: recovery in some sectors. More food & beverages, health-related & building products. Less heavies. Australian manufacturing sub-sectors, average Australian PMI indexes, to July 2016 Growth/recovery pockets Food & beverages Groceries Pharma. & medical items Cosmetics, toiletries, vitamins, health supplements Packaging for all of these items Building materials Industrial textiles Furniture & furnishings Source: Ai Group Specialist machinery

16 Implications of rebalancing? same six industries dominate, but their relative mix has changed radically. Alters what/where/how we work Largest Australian industries, value-added output, % of GDP Source: ABS National Accounts

17 Implications of rebalancing? Big eastern states picking up again, WA and NT slowing from peaks as mining investment tapers off Australian states, annual growth and forecasts, % p.a. Source: ABS State Accounts and Deloitte Access Economics Business Outlook (July 2016)

18 Implications of rebalancing? Jobs growth in services (health, education, professions) & construction. Losses in industrial sectors Employment growth by major industry, 5 years to May 2016, 000 Source: ABS Labour force quarterly detail

19 Australian economy: Incomes and investment

20 Lower AUD is mostly a positive for non-mining exporters, but lower commodity prices also mean lower terms of trade Australian dollar, terms of trade and commodity prices Source: RBA and ABS

21 and a lower terms of trade has led to lower aggregate earnings and income per capita (since 2012), despite rising output volumes Australian GDP (output) per capita and disposable income per capita Source: ABS, National Accounts

22 Lower export earnings and incomes are mainly being felt as shrinking corporate profits, but also as weaker wages growth Australian aggregate incomes growth, by type of income Source: ABS, National Accounts

23 Shrinking corporate profits are most evident in mining (the boombust roller-coaster). Profits are flat at best in other industries Australian aggregate corporates profits, by major industry, $bn per qtr Source: ABS, Business Indicators

24 Slow earnings growth helps explain businesses reluctance to invest. Low interest rates but also low returns, high risk, high hurdle rates Annual private sector capital expenditure (CAPEX), by major industry Source: ABS, CAPEX

25 RBA research into business investment hurdle rates suggests a long delay in adjusting to the new normal of low inflation & low returns Average hurdle rates in Australian business, 2015 Frequency of hurdle rate changes in Australian business, 2015 Source: K. Lane and T. Rosewall, Firms Investment Decisions and Interest Rates, RBA Bulletin, June Qtr 2015

26 What is in the investment pipeline? Moving back to a mix of roads, rail, energy, electricity, telecoms, healthcare projects Major construction projects pipeline, by sector Source: ANZ Research

27 Australian economy: outlook and policy priorities

28 Australia s rebalancing is still playing out, with global and local risks. Stable, careful policy settings required (plus business investment!) RBA (Aug 2016) RBA and Treasury forecasts for the Australian economy (actual) Sources: ABS, RBA, Treasury. f = forecast. p = projection (actual) f f f p p GDP, % change p.a Inflation (CPI), % change p.a Treasury (May 2016) GDP, % change p.a Household consumption, % p.a Dwelling investment, % p.a Business investment, % p.a Employment growth, % p.a Unemployment rate, % Terms of trade, % change p.a Inflation (CPI), % change p.a Wages (WPI), % change p.a

29 Policy priorities for industry and government in 2017? productivity ; innovation ; digital economy ; trade agreements Business priorities Government policy priorities Sales growth Finding new customers and/or investors Rates of return on investment Product development Production costs, input costs, energy costs Profit margins and profitability Access to global markets and supply chains Access to the digital economy / gig economy Skills and training (STEM, literacy, numeracy) FX volatility Tax reform (company tax, super, R&D) Innovation policy Industry policy (end of automotive industry) Energy markets (national electricity market) Skills and training (STEM, VET, apprentices) Trade policy (regional trade agreements) Infrastructure (transport, NBN, digital access) Regional development Population and immigration Climate change: responses & agreements

30 Want more information or a quick update? Stay up to date with Ai Group Economics Australian PMI, PSI and PCI (monthly) Ai Group Economics Weekly (every Friday) Ai Group Economics Factsheets on inflation, wage trends and other topics (regular) Australian Construction Outlook (twice per year) Australian CEO Business Prospects (annual, Jan) World Economic Forum (WEF) Global Competitiveness Index (annual in Sep) Federal and State Gov Budget updates for business Free web downloads and subscription service at: