As the Australian economy emerged from the pandemic in 2022, industry grappled with many supply-side challenges for their operations. Ai Group data reports that inflation, labour shortages and supply chain issues have emerged and we’ve seen them continue to deteriorate as the economy continues to slow.
Using the feedback in our Australian Industry Index monthly surveys, Ai Group’s Research and Economics team have developed a business conditions sentiment indicator (see below). It tracks what our members are reporting in terms of their principal opportunities and challenges. Scores above zero indicate positive sentiment (the issue is supporting business operations), and those below zero negative sentiment (it detracts from business operations).
Looking at our sentiment indicator over the last year, what we can see is a deterioration in the three main factors that impact Australian businesses.
Supply chain disruptions
Most businesses expected a better outlook for the supply chain in 2022 after substantial disruption in 2021. Unfortunately, these expectations didn’t eventuate. The number of businesses affected by the supply chain disruption in 2022 surged from 65% to 79%. Some were affected by global supply shortages, the invasion of Ukraine and there were instances of raw materials that weren’t delivered on time due to the Lunar New Year shut down.
The supply chain index was hit to the bottom twice for 12 months term; July 2022 and November 2022. After November, the supply chain pressure started to ease however declined further in May 2023 to -14.
Labour shortages
The tightest labour market conditions since the 1970s has been a feature of the post-pandemic Australian economy. Most Australian business face challenges recruiting suitable people to fill vacant roles. A limited applicant pool and mismatched skills has led to businesses recruiting people to train and upskill and has resulted in some businesses reporting lower productivity and a struggle to fulfil customer orders. Shortages of automation engineers, truck drivers, sales and business development staff were commonly reported to the Ai Group Australian Industry Index. Employment pressures were highest in August 2022 with the index falling to -39. Since then, the labour supply has eased and fluctuated with a notable deterioration in May 2023 to -29.
Demand conditions
In the first half of 2022 market demand was strong. In April 2022 it peaked at +25. From July 2022 however, demand dropped from positive to slightly negative around the neutral, and has since deteriorated as the economy slows.
Demand has had two troughs over the past year sinking to -21 in November 2022 and -23 in April 2023. Businesses reported falling demand in various terms but all with same meaning - sales were slow.
Rising interest rates, uncertainty about the outlook, low export orders, have featured in business feedback.
As the economy continues to shifts gears downwards increased concerns about demand conditions are emerging and labour shortages remain chronic. Industry will need to recalibrate it strategies to position for slower economic conditions across the rest of this year.
