A quick look at news headlines over the past 10 months (since we published our Business Outlook for 2021) reveals the turbulence the Australian economy has experienced. On June 1, Reuters published “Australia’s economy booms to pre-pandemic levels as consumers, businesses spend”. 6 weeks later, a Reuters headline read “Australia faces first economic contraction in a year on Sydney lockdown”. Optimism in the economy has yo-yoed along with the lockdowns, too. So, how should Australian businesses be feeling about business growth in the new economy? Let’s find out!
The Current State of Australia’s Economy – And Where We’re Headed
The State of Savings
In June 2020, the amount of household income being saved by the average Australian ballooned to 22%. This is drastically higher than the average household saving ratio in the 7 years prior to 2020, where it hovered between 3.5% and 7.9% – and had been trending lower more recently. By June 2021, the saving ratio had dropped to 9.7%, due to a combination of rising household consumption and a drop in disposable income. We would expect to see this figure continue to drop, though it will likely remain above pre-pandemic levels while any uncertainty about future lockdowns and/or restrictions persist.
Interest Rates are Very Low
Interest rates in Australia have been trending lower over the past decade, but are at a historic low at present – and they’re predicted to remain very low in the coming years.
GDP Growth is Still Unpredictable
Earlier this year, the OECD projected Australia’s GDP growth for 2021 to be 5.1% and 3.4% in 2022. This was recently revised down to 4.0% growth in 2021 and 3.3% in 2022, as a result of the lockdowns in NSW, Victoria, and the ACT.
The vaccine rollout and promise of decreasing restrictions in the future will continue to increase certainty. With that increased certainty comes increased business and consumer confidence in the economy, which will likely drive consumer spending and business growth.
Sharp Accounting’s Market Outlook For Business Challenges & Opportunities Ahead
With the average household saving ratio remaining relatively high and consumer appetite for services ramping up, there are plenty of opportunities for businesses looking to grow. However, there are two notable challenges looming for Australian businesses:
Supply Shortages Likely to Persist
Supply chain issues have been almost inescapable during the pandemic. Retail, construction, technology and mining businesses have all been hit hard, and this trend looks set to continue into the future. To compound issues, shipping is taking longer than usual, and factory workers are unable to keep up with demand. If you haven’t already, now is a good time to consider (and improve) your supply chain strategy. This might include taking steps to:
- Diversify your supply chain.
- Invest in supply chain technologies.
- Increase supply chain transparency.
- Build better relationships with your suppliers.
Labour Shortages Likely to Increase
We aren’t expecting to see an influx of migrants filling the historically high number of vacancies in Australia once our borders reopen. Instead, we predict that there will be a gradual return to pre-pandemic levels of migration taking place over a number of years.
During the pandemic, the lack of migration has resulted in fewer Australians being unemployed, as well as a significant increase in the number of jobs available. It is widely predicted that Australian businesses will feel the impact of the labour shortage caused by our closed borders for years to come.
To counter this, businesses should develop strong strategy documents to work out likely staffing requirements over the coming years. In doing this, you are able to identify opportunities to develop new skill sets in your current staff to fill likely gaps in the coming years (which can help to decrease staff turnover). You also give yourself more time to find, hire and train the right team members, since you’ve planned for the hire – instead of just responding once the need arises.
If you need help building out your business planning or financial forecasting, get in touch. Sharp Accounting’s team would be thrilled to help. We work with you to develop resilient business plans that drive growth and mitigate uncertainty in the new economy.
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