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2009 set to be the toughest year in decades


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Contact:  Kanak Pillai
Corporate Affairs & Communications
Deloitte
Mobile: 0405 589 995
Tel: +61 (0) 2 9322 5664

Tony Melville
Australian Industry Group   
Mobile: 0419 190 347
Tel: +61 (0) 2 6233 0700

A new Australian Industry Group (Ai Group) – Deloitte survey of over 480 CEOs in the manufacturing, construction and services sectors, has found that 2009 is shaping up to be a tough year, with the ongoing impacts of the global economic and financial crisis placing business expenditure on key growth drivers at risk.

The global crisis has marked a major turning point in the fortunes of business. The National CEO Survey – Business prospects in 2009 found that while Australia has up until now fared much better than the rest of the world, it is starting to experience a significant slowdown.

Ai Group Chief Executive, Heather Ridout said 2009 is shaping up to be one of the toughest years in decades.

“The manufacturing and construction sectors are likely to see total sales and employment decline in 2009. While service income from sales and exports will continue to grow all three sectors are facing a very difficult and challenging year, in terms of maintaining sales, jobs and margins.

“While a spending spike over the Christmas-New Year period may have helped to put a temporary halt to the deteriorating economy, risks are tilted to the downside and policy-makers will need to take further action beyond that already taken. We should see interest rates come down in February and further fiscal action to support jobs and business profitability.

“In regards to the latter, businesses have indicated an intention to make substantial cuts to discretionary spending, in areas such as training, R&D and investment in plant and machinery, and refocus their energy more directly on coping with the expected decline in sales and demand and managing their cash flow.

“Given these expected cuts to business discretionary spending, it is vital that the Federal Government introduce additional measures directed at reinforcing the investments in future performance which are currently under jeopardy. As well, the Reserve Bank must continue to lower the cash rate,” Mrs Ridout said.

Deloitte Australia, Lead Partner – Automotive & Manufacturing, Tom Imbesi, says that executing sound business fundamentals of minimising risk, managing cash flow and bringing down costs are the main challenges for business in 2009. However Australian companies should observe the lessons of those who have used economic downturns to position themselves for future growth.

“There is no doubt that the current volatility is creating significant risk and driving big change but it also brings with it a window of opportunity to establish and strengthen business. In fact, studies of previous recessions have shown that companies who are able to take definitive action towards building value and growth are better placed to absorb the impacts of the slowdown and maximise returns in the medium term.

“While there is a natural tendency during a downturn to cut costs and reduce investment, this action often defers growth and causes opportunities to be overlooked. Our view is that companies should responsibly maintain their activities around growth, both organically and through merger or acquisition. Acquisitions are becoming realistically priced and given the credit squeeze mergers are likely to increase. History tells us that those companies who take these actions will be better placed to absorb the impacts of this major slowdown, as well as ensuring that they are the better placed to maximise returns into the medium term,” Mr Imbesi said.

Business Prospects in 2009: Key Findings

Over 480 CEO’s in the manufacturing, services and construction sectors participated in the survey, which was conducted in the first half of December 2008.  Combined, these companies had sales revenue of around $31.0 billion and employ almost 84,000 people.

Manufacturing

  • manufacturing sales and activity is forecast to decline in 2009, for the first time in 18 years
  • prospects are expected to deteriorate as manufacturers anticipate sales to decline by 3.1% to around $380 billion. Exports are also expected to decline by 5.3% to $84 billion. Employment is forecast to fall by 4.4% (44,000 jobs) to 1.06 million
  • consistent with this outlook, expenditure on new plant and machinery, R&D and training will also be cut in 2009
  • selling prices on average are forecast to rise by 4.9% and wages by 3.6% in 2009.

Construction

  • the outlook for construction is similarly weak, with sales expected to fall by 4.5% in 2009.  Total sales are forecast to be around $145 billion
  • employment, which has grown strongly in the sector over the last seven years, is expected to fall by 5.6% to 920,000
  • expenditure on R&D, training and investment in plant and machinery is also expected to fall substantially, as companies seek to cut costs to preserve margins
  • new products as a percentage of sales are forecast to decline in 2009.

Services

  • the outlook for services is more positive with growth set to continue, although at a reduced pace. Total sales are forecast to rise by 4.7% to $1,150 billion. Services exports are also expected to lift, by 2.2% to $52.5 billion in 2009
  • despite the modest sales outlook, employment is expected to fall by 0.6% or 40,000 jobs.  Expenditure on R&D is also expected to fall
  • selling prices are forecast to rise by 4.3%, consistent with recent trends, while wages are expected to rise by 3.6%
  • reflecting a relatively more positive growth outlook, the expected cuts to discretionary spending by the services sector are more moderate than those anticipated for manufacturing and construction.

For further information:
Heather Ridout
Australian Industry Group
Mobile: 0419 257 361
Tel: +61 (0) 2 9466 5504

Tom Imbesi
Partner
Deloitte
Mobile: 0410 604 222
Tel: +61 (0) 3 9671 7329

Last Updated: 

Contacts

Name:
Aya Ladewig
Company:
Deloitte Australia
Job Title:
Corporate Affairs & Communications
Phone:
+61 2 9322 7367
Email
aladewig@deloitte.com.au

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