In this market update, Prological highlights the key trends and realities that are set to impact Australian business and supply chains in the second half of 2024, including government investment, economic realities and sustainability ambitions.
A stalling economy
Apart from the pandemic, Australia’s economic growth has stalled to the weakest since the recession of the 1990s. Inflation and 13 official interest rate hikes have taken their toll, with official figures showing the economy grew by 0.1 per cent from January to March, and 1.1 per cent over the year.
The recent economic data paints a complex picture of Australia’s financial landscape. While the Reserve Bank’s strategy of slowing economic growth through interest rate hikes has shown some success in curbing inflation, concerns about potential economic stagnation persist.
A significant 3.6 per cent salary increase for award wage and minimum salary earners, effective from July 1st, hopes to more than offset the past year’s inflationary pressures. This, coupled with scheduled tax cuts, will provide a substantial financial boost to many Australians.
While these measures are expected to stimulate spending, the Reserve Bank remains cautious about their potential impact on inflation, which explains their conservative approach to potential interest rate reductions.
Political uncertainty as major elections loom large
The global political landscape is poised for significant changes, with potential shifts towards right-wing leadership in Europe and America, which could have far-reaching consequences for international relations and trade dynamics.
In Europe, a trend towards more conservative governance is already evident and expected to continue. French President Emmanuel Macron recently called snap parliamentary elections after his centrist alliance was trounced by Marine Le Pen’s far-right movement in a European parliamentary vote. Right-wing parties in Germany, Spain and Italy are all gaining ground, reflect inga broader shift towards right-wing and nationalist parties in Europe.
The upcoming US elections add another layer of uncertainty, with potential policy changes that could affect international agreements and alliances.
Of particular concern to Australia is the questioning of the AUKUS agreement by potential advisors to a future US administration, raising doubts about the stability of this crucial defence partnership. The man vying to become Donald Trump’s next security adviser, Elbridge Colby, suggested he would not have advised the United States to agree to AUKUS and questioned the benefits of the plan.
The new push for Australian-made
In his budget speech, Treasurer Jim Chalmers said the global economy was facing its biggest transformation since the Industrial Revolution. Part of Australia’s response to this supposed change is to boost domestic manufacturing and support the transition to net-zero emissions, launching “A Future Made in Australia” strategy.
Funding includes research and development support and commercialisation grants for small and medium-sized enterprises (SMEs), and while these efforts are welcomed, their impact on the broader supply chain landscape may be limited.
While these initiatives may lead to some creative manufacturing elements returning to Australia, particularly in areas such as materials handling equipment, storage solutions, and warehouse infrastructure, the overall impact on supply chain volumes is expected to be minimal.
The most optimistic projections suggest we may see more Australian-made products on roads, railways, and warehouses, but this is unlikely to significantly alter the broader supply chain dynamics.
To read Prological’s full Industry Outlook for Q2, click here.
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