No time to wallow

There’s no other way to put it – all in all 2011 has been a pretty horrible year for business and investors. The hangover from the credit party before 2008 really set in this year and that, combined with a series of natural disasters, such as the tsunami and earthquake in Japan and the Queensland cyclone and floods, meant there was little escape from the doom and gloom.

However, away from the hyperbole on the front pages or on television, Australians actually had less to worry about than the rest of the developed economy. With China chugging away on its path to development and its plan to bring millions more of its people out of poverty, Australia remained one of the biggest beneficiaries of its plans and the economy performed relatively well. The most recent figures from the national accounts show a 1 per cent growth in gross domestic product in the latest September quarter making a 12 month growth of 2.5 per cent. Meanwhile, business investment is up 22.7 per cent year on year.

We are not immune to global gloom, however, and the upside of the Chinese boom has been a high dollar and pressure on exporting industries as well as those sectors where a high dollar makes Australia a less attractive destination, such as education and tourism. It’s because of the weaknesses in these parts of the economy that other metrics, such as unemployment levels, have come under pressure – in November, the most recent figures from the Australian Bureau of Statistics showed a 0.1 per cent increase to 5.3 per cent and informal forecasts are that this will keep rising.

The focus for most of the year has been on Europe and how its nation states are coping with the staggering amount of debt they owe. BRW’s analysts believe Europe will sort out its issues in the first half of 2012.

Although German Chancellor Angela Merkel is dragging her feet, even she has acknowledged that the crisis in Europe calls for closer European integration, not a looser Europe.

The truth is that the focus on Europe has been distracting businesses from what it should really be paying attention to – and that is that we are moving into a relatively low-growth environment in large parts of the world. This is because there just isn’t the cheap credit available to fund growth in the way that it used to do and because the austerity programs that countries such as the United States and Britain are putting in place run the risk of cutting growth off at the knees.

The worst result of these two forces is that parts of the world could go into a deflationary spiral, where poor demand leads to a drop in the price of goods and services, spiralling into unemployment and even less demand.

What a low-growth environment means for business and government is that productivity has to be top of the agenda for next year.

While it’s hard for businesses that have seen margins decline this year and feel nervous about next year, this is the time to be investing in staff, technology and processes to boost productivity in what is likely to stay a tough environment for certain sectors next year.

For government it is also timely to be investing in infrastructure that will raise the nation’s productivity – even if it means the budget is not in surplus over the short term.

BRW

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