The weaker Australian dollar is greatly assisting the export sector, but several trade challenges still remain, a new report finds.
The Australian Industry Group national CEO survey released yesterday found that an exchange rate of .75 US cents to the Australian dollar is the “sweet spot” for business growth.
The report tracks the positive impact of the lower dollar on Australian businesses and manufacturers in particular.
"Importantly, the lower dollar is clearly helping Australian economic growth transition away from its reliance on mining-related resources investment and output growth," AiGroup Chief Executive, Innes Willox, said.
Australia’s economy is now spread more evenly across sectors and geographies.
The new report Business Responses to the Australian Dollar – draws on responses from the CEOs of 248 businesses across Australia.
The CEOs believe the sustained lower Australian dollar has not only created greater trade opportunities, but it is having long-term and overall positive impacts on Australian-based manufacturing and services businesses.
However, at the same time the lower dollar has created a major negative – the rising cost of imports.
“Many businesses find it hard to pass on these cost increases in the face of intense competition and a generally weak inflation environment,” said Mr Willox.
The report found 43% of exporting manufacturers expect their export income to increase this year (up from a 24% actual increase in 2015). For services businesses, 25% of exporting businesses expect their export income to increase (up from a 19% actual increase in 2015).
"The lower dollar is a major factor in opening opportunities for exporters, with 61% noting that expanding overseas markets was one of their growth strategies,” Mr Willox said.
“For service businesses, 48% nominated expanding overseas markets as a growth strategy.”
Free Trade Agreements
These proportions are significantly higher than in recent years. The lower dollar has assisted businesses take advantage of opportunities created by Free Trade Agreements and the growing middle class markets in Asia – particularly in sectors like food and beverage manufacturing, agribusiness and tourism.
But opportunity itself is not enough to ensure the continuing success of Australian businesses, the report warns. Australia's international trade competitiveness could be better.
Many Australian businesses are still developing as exporters of high value-added goods and services and many are not as well integrated into global supply networks as a means of realising the value of more complex goods and services.
"Australian exporting businesses and those competing with imports need to be increasingly focussed on efficiency, reliability, innovation, collaboration and continuous improvement,” Mr Willox said.
“They need to be looking at delivering a more diverse and higher value array of goods and services and becoming more tightly integrated into global supply chains and global marketing networks.
"For many of these businesses, future success in the global economy requires end-to-end product development, close collaboration with customers, suppliers and competitors, making better use of our Free Trade Agreements and continually exploring new opportunities in existing markets and expanding into new markets."
- Almost all export and import competing manufacturers say they can remain competitive at exchange rates under $0.70 AUD/USD, however significantly fewer businesses estimated they will be competitive above this level in 2016, compared to previous years in which the dollar was higher.
- 83% of exporting manufacturers and 76% of manufacturers competing with imports said they can be competitive in 2016 between 71 cents and 80 cents, compared to 94% for both categories in the 2015 survey.
- Significantly fewer businesses believe they can be competitive in the 81 cent to 90 cents range in 2016, with 44% of exporting manufacturers and 35% of manufacturers competing with imports believing they can remain competitive, compared to 63% and 66% respectively in the 2015 survey. Only 11% of exporters and 16% of manufacturers competing with imports say they can remain competitive at the 91 cents to $1 range, compared to 29% and 24% respectively in the 2015 survey.
- The lower dollar is causing increases in some key inputs for businesses. Many businesses find it hard to pass on these cost increases in the face of intense competition and a generally weak consumer inflation environment that makes it harder to justify any price increases. The widespread use of imported inputs means that this is tightening margins across many businesses.
- Better opportunities now exist for Australian businesses in export markets and with import replacements. Australia is well exposed to growing markets in Asia, with better access to key markets through a number of Free Trade Agreements.