Navigating Australia’s economy in 2023 and beyond
It’s an exciting, yet uncertain time for the Australian economy. On one hand, we have a strong jobs market with record-low unemployment and pressure on wages to keep pace with inflation.
But on the other hand, there’s the threat of a recession and high-interest rates trying to curb inflation. It’s a delicate balancing act, and one that requires smart decision-making from business leaders.
In this article, we take a deep dive into the key issues facing Australian businesses in 2023. From the pressure to increase wages and the impact of high inflation, to the challenges of managing cashflow and improving profitability. We’ll also explore how technology and innovation are going to shape success in the year ahead.
Whether you’re a business leader looking to stay ahead of the curve, or an entrepreneur looking to start a new venture, this article will outline some of the opportunities for business success in 2023.
Key trends to watch out for in 2023
Stubborn inflation and further interest rate rises anticipated
The early part of 2023 has shown us that we must continue to brace for stubborn inflation and more interest rate increases. The December quarter saw annual inflation jump to a near 33-year high of 7.8 percent, below the Reserve Bank’s forecast of 8 percent. Economists are predicting that this will make interest rate hikes in coming months almost inevitable. However, due to the lag nature of interest rates’ impact on the economy, it may not be until the second half of 2023 that we see meaningful drops in inflation.
The energy crisis that was feared to occur in Europe due to war in Ukraine has now abated, thanks to a warmer winter and additional gas production from the USA. Despite this reprieve, the high-inflation and high-interest rate environment is expected to continue to challenge businesses in Australia. As always, it will be important for companies to keep a close eye on the economy and adapt their strategies accordingly.
Significant pressure for wage increases
As the Australian economy continues to navigate the challenging landscape of record high inflation and a higher interest rate environment, business leaders across the country will face increased pressure to lift wages for their employees. With real wages being significantly eroded by inflation, many are calling for salary increases to keep pace with the rising cost of living.
The current state of Australia’s economy, with unemployment at a 50-year low and inflation on the rise, is creating a perfect storm for wage pressures. Governments and unions are facing increasing pressure to match wage increases with changes in the Consumer Price Index (CPI), a trend that is expected to impact the entire commercial sector.
This pressure on wages is likely to have a ripple effect throughout the economy, as businesses struggle to keep up with the rising cost of labour. Some experts predict that companies may be forced to cut costs and shed workers in order to stay competitive, creating opportunities for innovative and well-run firms.
As the year progresses, business leaders will need to keep a close eye on the inflation and interest rate environment in order to stay ahead of the curve. With the potential for further interest rate hikes and continued inflation pressures, the need for salary increases to keep pace with the cost of living will only become more pressing.
WFH is here to stay – and now we want to only work 4 days too
Not only will we want higher wages in 2023, but we’ll want to work less hours for it too. One of the most significant and lasting legacies of the pandemic is the massive surge in flexible working. With employees reluctant to return to the office when pandemic restrictions were lifted, many have found that working from home has its benefits, such as no time wasted on lengthy commutes, as well as easier school runs and fewer distractions.
In light of this trend, many employers have had to do more to win over prospective job seekers, including offering alternative working arrangements such as generous leave entitlements and shorter working hours. A small but growing number of companies have even begun to experiment with a four-day workweek, with emerging evidence from a UK trial suggesting that this could make staff more productive.
In Australia, the momentum for a shorter working week is also building, with our largest health insurer, Medibank, confirming that a four-day workweek will be part of its experiments to simplify how the company operates, and Telstra CEO championing more flexible working environments and structures with Australia’s largest employer. This is shaping up to be the biggest workplace trend of the year, and it’s likely that more and more employers will come under pressure to shift to a four-day working week.
However, the pandemic-induced switch to remote working has not been without its challenges. Employers have raised concerns about the perceived negative effects on workplace culture, collaboration, and mentorship, and many have expressed a lack of trust in their staff. In a Microsoft study published last September, 85% of leaders said the shift to hybrid working meant they had little confidence that employees were being productive at home.
During 2023 it’s likely that employers will be faced with the challenge of finding a balance between remote and in-person working. Some may look to invest more in technology that allows them to track employee activity, while others may work to sell the benefits of the office to employees who are content working from home. Whether or not this trend will continue to gain momentum remains to be seen, but one thing is for certain – the way we work has changed forever.
Cyber security fears go mainstream
Cybersecurity concerns are set to go mainstream in 2023, as more and more small to mid-sized businesses realize the severity of the threat they face.
While in 2022 Australia had some high-profile cybersecurity hacks such as Optus and Medibank, the challenges are only just beginning, and many small to mid-sized businesses are very exposed. Cybercriminals don’t discriminate by business size, and the consequences of a cyber-attack can be devastating for small businesses.
The rapid digitalisation of business operations and the increasing use of digital platforms to manage and process sensitive information has resulted in many small businesses becoming vulnerable to cyber-attacks. This makes it imperative for small businesses to take cybersecurity more seriously and take the necessary steps to protect themselves. This could include hiring a cybersecurity expert, investing in security software and training employees on best practices for cybersecurity.
With the increasing number of cyber-attacks, it is more important than ever for businesses to have a cyber security strategy and action plan in place. Regardless of the size of your business, the hackers want your data. Whether that’s your customer data, health records or credit card information. Small businesses need to be aware of the risks and take steps to protect themselves, their employees and their customers.
Strategies to take advantage of these trends in 2023
With 50-year record-low unemployment and a decrease in global immigration, the talent shortage in Australia is more pronounced than ever before.
One of the key strategies for attracting and retaining top talent is developing an Employer Value Proposition (EVP) that differentiates your company from competitors and encourages your team to stay. This can include offering competitive compensation and benefits, promoting a positive company culture, and providing opportunities for career development and growth. Additionally, companies can also look to target specific talent pools, such as recent graduates or experienced professionals in specific industries.
It’s also important to note that companies should also shift their mindset from being buyers of talent to sellers of opportunities. This means that companies should market their company as a great place to work and show how working for them can benefit the employee.
By developing an EVP, targeting specific talent pools, and offering remote work options, Australian business owners can navigate the ongoing trend of talent acquisition and retention, and position their companies for success in the long term.
Outsourcing to address talent shortage
Some workforce pressures relate to factors beyond those that can be remedied by increasing wages, offering more flexible working arrangements, or strengthening an employer’s brand.
As the baby boomer generation retires, there is a widening of workforce skills gaps. Population data indicates that these gaps won’t and can’t be filled by the generations that follow the boomers – there’s simply not enough of them.
Addressing talent shortage in an environment where the demand for talent far outweighs the supply will require business owners to re-think how they approach workforce management – and explore resourcing strategies such as outsourcing.
Mark Koziel, CEO and President of Allinial Global – the second largest accounting association in the world – recently visited Australia to spend time with the Bentleys team (Bentleys is a key Australian member of the Allinial Global association.) In an interview with ausbiz, Mark shared his perspectives on outsourcing and how it offers businesses the opportunity to access the skills they need. Mark explained that by outsourcing – particularly for processes and roles that aren’t core business – employers can get the work done with the level of expertise needed, and maintain their focus on what the business does best. In this talent-short market, outsourcing stacks up as an effective way to stimulate business growth.
Profitability over “growth at all costs”
Based on the above rising costs due to high inflation, higher interest rates, and increased wage growth pressure, we anticipate a trend of companies focusing on improving their profitability rather than “growth at all costs.” To achieve this, it’s crucial to gain clarity on your current financial performance by understanding your revenue, expenses, and net profit margins. Accurate and timely financial reporting is essential in this process. Once you have a clear understanding of your financial performance, cost-cutting measures such as reducing expenses, improving operational efficiency, and increasing pricing can be implemented.
Effective cashflow management is also crucial for the long-term success of any business. To improve cashflow, business owners should stay on top of their cash inflows and outflows, forecast potential shortfalls, and implement best practices for working capital management such as optimizing inventory and accounts receivable processes. By taking these steps, companies can free up cash for growth and meet other financial obligations.
The year of AI for everything
The use of AI and other advanced technologies has the potential to significantly improve business productivity and efficiency – and displace jobs. Since ChatGPT exploded in popularity in late 2022 and at the time of writing is courting multi-billion dollar offers from Microsoft, we anticipate that AI will play an even larger role in the business landscape, with more companies looking to leverage its capabilities to gain a competitive edge. From automating repetitive tasks to analyzing data and driving business insights, the potential applications of AI are vast.
One example of how businesses can use AI to improve productivity is through the implementation of chatbots for customer service. By using natural language processing and machine learning, chatbots can quickly and accurately answer customer inquiries, freeing up human agents to focus on more complex issues. Another example is the use of AI in supply chain management, which can optimise inventory levels, reduce lead times, and improve delivery performance.
While the benefits of digital transformation and AI are clear, there are also challenges to consider. One key challenge is the need for a skilled workforce to implement and manage these technologies. Additionally, there are concerns about data privacy and security, as well as the potential for job displacement. To address these challenges, companies must invest in the necessary resources and develop a clear strategy for implementing digital transformation and AI.
Sustainability still in the spotlight
Sustainability isn’t a new trend, but it’s not going anywhere in 2023. Both consumers and the government demand that companies take an active role in protecting the environment and addressing social and governance issues.
One of the key ways that businesses can demonstrate their commitment to sustainability is by implementing environmentally-friendly practices in their operations. This can include reducing energy consumption, reducing waste, and using renewable energy sources. Additionally, companies can also look to source materials and products from suppliers who are committed to sustainability.
Another important aspect of sustainability is addressing social issues. This can include ensuring fair labour practices, promoting diversity and inclusion, and supporting local communities. By taking an active role in addressing social issues, businesses can improve their reputation and attract customers who are looking for companies that align with their values.
It’s also important to note that the government is increasingly setting regulations and policies that encourage or even require companies to become more sustainable. This means that companies that don’t adapt may face penalties and fines. By staying informed about the regulations and policies, businesses can ensure they are compliant and avoid any legal issues.
The recent changes to Australia’s workplace laws support progression in this area and should be reviewed closely to ensure that your business policies are in line with the amendments.
Get closer to your customers
As the economy shifts and businesses look for ways to improve profitability, one key strategy for success in 2023 is to get closer to your customers than ever before. In a market that is becoming increasingly crowded and competitive, understanding and meeting the needs of your target market is crucial for staying ahead of the curve.
One way to achieve this is by investing in research to gain a deeper understanding of what matters most to your customers. This could include conducting surveys, focus groups, or customer interviews to gather insights into their pain points, preferences, and buying behaviours. By understanding your customers on a deeper level, you can develop products and services that better meet their needs, and create marketing strategies that resonate with them more effectively.
Another way to connect with your customers is through innovation. By continuously updating and improving your products or services to meet the evolving needs of your customers, you can stay ahead of the competition and differentiate yourself in the market. This could include developing new features, introducing new technologies, or launching new products or services.
All in all, by getting closer to your customers than ever before, businesses can improve profitability in 2023 by developing products and services that meet their needs, creating marketing strategies that resonate with them, and staying ahead of the competition with continuous innovation.
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A special thank you to the Bentley’s CEO Tony Sacre for preparing this article.
All material contained herein is written by way of general comment. No material should be accepted as authoritative advice and if you wish to act upon the material contain herein, you should contact The MBA Partnership for properly considered professional advice which will take into account your own specific conditions. No responsibility is accepted for any action taken without advice by readers of the material contained herein.