Directors Remain Pessimistic as Survey Shows Negative Outlook on Australian Economy

Although there was a slight improvement, the DSI remains in negative territory at -19.2.

Based on a survey of 1,000 members, the AICD found that the cost of living (40 percent) has surpassed labor shortages (35 percent) as the most pressing economic challenge for directors in the first half of 2024. This is followed by concerns about productivity growth (33 percent) and inflation alongside interest rates (28 percent).

The Australian Bureau of Statistics reported a 4.1 percent increase in the consumer price index (CPI) in the 12 months leading up to the December 2023 quarter, lower than the 7.8 percent in 2022. During the same period, all five living cost indexes rose by 4 percent to 6.9 percent.

The shift in directors’ sentiment also indicates an improvement in the labor market conditions since the early days of the COVID-19 pandemic recovery, attributed to increased labor supply following the government’s reopening of borders and resumption of migration flow.

However, 85 percent of respondents still believe that skill shortages persist in the workplace, with a third of directors suggesting that the labor issue could be addressed through the adoption of artificial intelligence systems and automation.

Concerns persist about high interest rates, with 41 percent of directors reporting a negative impact on their businesses.

“The Reserve Bank of Australia keeping interest rates steady for now has not alleviated cost pressures, and there is uncertainty about the future direction,” he added.

Deterioration in Trust in Government

The study also highlighted a decrease in directors’ trust in the government, with over half of those surveyed expressing skepticism about the government’s understanding of businesses.

“Perceptions of federal and state governments remain mostly negative,” noted AICD.

“57 percent believe that compliance and regulation are the main factors affecting their board’s risk appetite.”

The Institute also pointed out that the government’s recent mandatory climate reporting policy raised concerns among directors.

Approximately 37 percent of respondents expressed worries that the complexity of the reporting requirements would further burden their businesses.

“Directors are also feeling the weight of regulation and uncertainty surrounding non-financial aspects such as cybersecurity, AI governance, and the introduction of the government’s mandatory climate reporting regime,” added Ms. Rigotti.

Under the bill, companies will need to report metrics and targets related to climate, including greenhouse gas emissions, as well as information on governance and risk management in relation to these targets.

If passed, the legislation will initially apply to large listed and unlisted Australian companies starting from Jan. 1, 2025.

In a later phase, the requirement will extend to companies with an annual turnover of $50 million (US$33.1 million) or those with 100 or more employees.