BUSINESS POWERING WITH WILD RIDE AHEAD

Written on the 8 May 2012

BUSINESS POWERING WITH WILD RIDE AHEAD

AN ECONOMIC revival may be less than two years away, but BIS Shrapnel chief economist Frank Gelber (pictured) warns enterprises should not fall into the habit of under-staffing.

Brisbane’s property, retail and businesses employed by the mining sector are struggling to make ends meet. However, in the next few years, they will be run ragged due to the mining boom.

Investment in Queensland’s property market is tipped to be a primary driver of growth and looks to go off the scale, with house prices set to soar 20 per cent in the next three years. The housing market has bottomed out and already started to come out of it.

BIS Shrapnel predicts this investment will help reduce the national unemployment rate from 5.2 to 4 per cent by the year 2013, having a positive affect on Queensland’s above-average 5.7 per cent.

This is likely to lift interest rates to 8.2 per cent and boost retail turnover from 0.7 to 3.1 per cent by 2014. The State’s economy will be absolutely, bloody booming. Hang onto your hats – it will be a wild ride.

However, enterprises should not expect to cope with the upturn by simply working staff harder.

The zero growth in employment during the past 12 months is a stark reflection of the recessionary tendency for companies to rely on existing staff to drive productivity.

However, the Reserve Bank of Australia predicts staff capacity constraint issues will arise two years from now. Businesses will have to move away from cost cutting and maximise savings to cater for growth. They will eventually have to hire more staff to meet demand.

The corporate world needs to be more positiveminded and cast away the frugal corporate culture acquired during the downturn and a summer of disasters.

Tourism businesses should go one step further by driving a harder bargain.

Many operators neither offer good value for money nor invest enough capital for moderate growth. The industry is not building enough hotels and room rates are relatively high, preventing the state from becoming a good value-for-money destination.

The national gross domestic product (GDP) is about 2.5 per cent, which is neither spectacular nor ‘doom and gloom’. Income growth is twice that of the GDP and this is the product of a highly valued dollar. Never underestimate currency in terms of what it produces.

Australian industry’s decline since the 1970s due to the high dollar and overseas relocation is lamentable. Companies should try harder not to lose business to offshore competitors, otherwise we will keep losing local manufacturers.

To increase competitiveness, the United States has requested that the value of China’s currency be raised. The RMB is indeed undervalued and not only holding back China but also the US and Europe.

Australia should adopt an export-strengthening strategy previously employed by North America to counter the rise of Japanese manufacturing.

The US restored its manufacturing powerhouse status in the 1980s, because the US dollar fell and Japanese Yen rose.

Countries like Greece could similarly avoid a whopping great recession by depreciating their currencies where possible. The alternative is reducing wages and asset prices by 20 per cent, but human greed has shown this is an unlikely choice.

However, the high dollar still carries some good news. It shows Australia is an attractive place for investment – this is one of the reasons why the currency is worth so much.


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