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Secrets of the CFO

IN:SIGHT asked four leading economists to identify key business trends shaping the Australian economy during the next 12 months – here’s their five tips for the future.

Secrets of the CFO

Four of Australia’s leading economists agree; Australia is in for a bumpy ride. As falling commodity prices force a slow down in the resources sector, business needs new sources of growth, and luckily there are many to be found, if you know where to look.

The economists contacted by IN:SIGHT are Frank Gelber, from BIS Shrapnel, Cherelle Murphy from ANZ, James Glenn, from National Australia Bank, and Jason Murphy, publisher of the Thomas the Think Engine.

1 – Dollar goes down – exports go up

Describing the Australian economy as being “on the threshold of major cyclical and structural shifts”, Frank Gelber, Chief Economist at BIS Shrapnel says it’s time to see growth in non-mining industries, regions and states.

He sees opportunities across the services sectors in areas like tourism, education, finance and business, as well as agriculture and manufacturing, particularly secondary processing of food.

“Businesses needs to redeploy skills and labour, capabilities and marketing efforts away from declining industries and towards export and import-competing industries,” Gelber says.

2 – Banking on experience

James Glenn, Senior Economist, Australia & Commodities, at National Australia Bank, says low interest rates are hitting the economy in patchy and unexpected ways, boosting real estate prices on the one hand, but having little effect on consumer confidence.

“Confidence remains a big concern. So long as this lack of confidence persists, we are unlikely to see a meaningful recovery in consumer spending,” Glenn offers. “Consumers are looking for value for money, and are increasingly valuing “experiences” and other services when making spending decisions.”

As a result, Glenn says industries that focus on providing experiences such as education, restaurants and cafes, travel and health are all well positioned for growth.

3 – The age of infrastructure

BIS Shrapnel Infrastructure’s Frank Gelber also says infrastructure investment, which has been falling for some years, should stabilise over the next year and then pick up.

“This structural change will shift the focus of growth away from mining back to trade-exposed industries, regions and states,” Gelber says. “These structural and cyclical shifts present us with strong growth opportunities as well as significant risks. This highlights the importance of preparation and careful planning.”

4 – Get smart

Cherelle Murphy, Co-Head of Australian Economics, at ANZ says business will do well to take advantage of relatively attractive prices of key business inputs including labour, credit and fuel, and look for opportunities in and around expanding markets.

“International student enrolments are rising as the Australian dollar falls and the outlook for related student accommodation, retailing, transport and communications is improving,” Murphy says. “The lower Australian dollar is also driving increased tourism, with the hospitality sector a key beneficiary.”

In the longer term Murphy says the aging population and increasing female workforce participation will benefit companies involved in healthcare, childcare and domestic services.

5 – Stay safe

With interest rates are at historical lows, Jason Murphy, publisher of economics blog says businesses would still be wise to tread carefully when it comes to borrowing due to structural risks facing the economy as a whole.

“Despite the low cost of capital, the right thing to do for companies is not to over-stretch,” Murphy says. “A smart business will use the current times to prepare to expand, but without necessarily committing vast sums until the green shoots are clear of the mud. Pessimism will not drive a business to grand success, but may prevent it from failing altogether.”

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