Survey Reveals Directors’ Pessimistic Outlook on Australian Economy

Survey Reveals Directors’ Pessimistic Outlook on Australian Economy

Amidst new policies and economic uncertainty, a recent survey conducted by the Australian Institute of Company Directors (AICD) has unveiled a pessimistic outlook among top management regarding the Australian economy. The Director Sentiment Index (DSI), a statistical measure of confidence, remained in negative territory at -19.2, although there was a slight improvement. The survey, which sampled 1,000 AICD members, pointed out that the rising cost of living has now surpassed labor shortages as the most pressing economic challenge for directors in the first half of 2024.

According to data from the Australian Bureau of Statistics, the consumer price index (CPI) increased by 4.1 percent in the year leading up to the December 2023 quarter, although it was lower than the 7.8 percent rise in 2022. The survey revealed that directors are also concerned about productivity growth and inflation, along with interest rates. All five living cost indexes showed an increase between 4 percent and 6.9 percent during the same period.

While there has been some improvement in the labor market conditions since the early days of the COVID-19 pandemic recovery, with increased labor supply due to the reopening of borders and resumed migration flow, 85 percent of respondents still believe that skill shortages persist in the workplace. Interestingly, one-third of directors suggested that adopting artificial intelligence systems and automation could help solve this labor problem.

Another major concern highlighted by the survey is the impact of high interest rates on businesses, with 41 percent of directors reporting a negative effect. Mark Rigotti, the Managing Director and CEO of AICD, expressed uncertainty about the future, stating, “It’s been a difficult period to navigate and the way forward from here is not instantly clear.” The survey indicates that holding interest rates steady has not been enough to alleviate cost pressures, leading to increased uncertainty about the direction of the economy.

The survey also revealed a decline in trust among directors in the government, with more than half expressing doubts about the government’s understanding of businesses. Compliance and regulation were cited as the main factors affecting boards’ risk appetite. The government’s recent mandatory climate reporting policy was also a concern for directors, with 37 percent of respondents worried about the complexity of reporting requirements adding additional burden to their businesses.

In late March, the Labor government introduced legislation that will make it compulsory for companies to disclose climate-related information in their annual reports starting next year. Companies will be required to report metrics and targets related to climate, including greenhouse gas emissions, as well as information on governance and risk management. If passed, the legislation will initially apply to large listed and unlisted Australian companies from January 1, 2025, and later extend to companies with an annual turnover of $50 million or more, or those with 100 or more employees.

The AICD survey sheds light on the concerns and challenges faced by directors in the Australian economy. From rising costs of living to skill shortages and high interest rates, the outlook appears pessimistic. Additionally, the decline in trust in the government and the uncertainties surrounding new policies, such as mandatory climate reporting, further compound the challenges faced by directors. As Australia navigates its economic recovery, it is clear that these issues will need to be addressed to restore confidence and stability in the business landscape.