No, the sky hasn’t fallen

The health of the Top 1000 – BRW’s annual look at the 1000 largest public, private and government organisations in Australia courtesy of research by IBISWorld – provides a unique insight into the health of the economy, combining as it does the performance of these three sectors. This year, what it tells us is that reports of the local economy’s decline may well have been exaggerated.

Despite all the bad news from Europe and the US, the Top 1000 posted a reasonable performance last financial year. While the Australian stockmarket ended 2011 down 15 per cent, the revenue of the Top 1000 companies rose 5 per cent (to $1814 billion), while profit jumped nearly 28 per cent to $157.4 billion. The revenue rise is stronger than the previous year, which was 3.4 per cent, and 746 of the Top 1000 had revenue increases compared with 589 the previous year. The rise in profit was down on the previous year but is still healthy. Consumers and businesses should take comfort in these figures; we are often told that there are many reasons Australia should escape a global recession and here is more data that backs that up.

Behind the top-line figures, there is no doubt that it is mining giving the local economy a healthy glow. Revenue in the mining sector jumped 31.5 per cent to $221 billion, while mining profitability rocketed 115 per cent to $56 billion. Because of the way mining tilts the economy and inflicts damage on certain sectors by pushing up the dollar, the success in the mining sector is often displayed in negative terms – for example, a mining boom will mean the end of local manufacturing capability as manufacturers send operations offshore to get around the high dollar.

However, it is worth remembering that the mining sector does not work in isolation and companies in a range of supporting sectors, such as machinery, transport, storage and freight, are also benefiting. It’s precisely mining’s affect on other industries that has given the Top 1000 such positive figures for the period. The two other largest sectors – finance/investment and insurance – also grew over the period. The latter, as it includes superannuation, is set for stronger growth as superannuation contributions increase.

The question on everyone’s lips is what does this year hold for our economy given the huge debts sitting in America and Europe and the likelihood of a slowing in Asian growth? The Top 1000 figures, being historical, do not hold the answer. However, they do point to the disparity between perception and reality. Sentiment was as poor during the previous year as it is now – as shown by the sideways tracking of the local bourse for most of 2011. However, despite that poor sentiment, the economy actually performed pretty well and the largest enterprises provided strong growth.

It just goes to show that sentiment is such a fundamental a driver of economic performance – if we think that we are going to have a recession then it’s likely we will have one. Thinking that we won’t have one isn’t enough to avert a downturn on its own – BRW doesn’t advocate blind optimism, the economy is choppy and businesses need to be planning carefully as to how to navigate the next year. However, remaining positive while taking proactive steps around business planning is by far the best option.

Kate Mills

BRW

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