Four speed economy?

A lot of commendatory in the last two years that Australia has a two speed economy – the mining sector in high gear, and most other parts of the economy stuck in first, or even neutral.

But a new survey of more than 500 chief executives across the manufacturing, services and construction sectors suggest we could actually be in the middle of a four-speed recovery, with local and global factors impeding these industries in different ways.

The survey, by the Australian Industry Group and accounting firm Deloitte, highlights the sharp differences in the outlook of the three sectors:

• Manufacturing. Marginal improvement in industry conditions over the rest of 2011, although the high Australian dollar and resource-boom related labour pressures will hurt. Sales growth tipped to be weak, employment and capital investment to fall.
• Construction. Strong performance expected thanks to work from the resources boom and pent-up demand for projects that were held back during the GFC.
• Services. Strong year tipped across the sector as consumer spending improves. However, capital investment and spending on research are expected to remain flat.

AIG chief executive Heather Ridout says the survey points to an economy that is growing in an “unbalanced” way and wants the Government to take this into account when it looks at measures to improve workforce participation and skills, encourage innovation (particularly through the R&D tax credit scheme, which the AIG doesn’t like), build infrastructure and improve the competitiveness.

It’s a fine sentiment, but I strongly doubt whether Ridout is going to see much action there this year. The Federal Budget in May is likely to be very low on any major spending initiatives, and big on cuts.

But entrepreneurs need to look at these types of surveys closely when trying to assess the prospects of various sectors.

Clearly, selling anything to the mining sector should be relatively straightforward, although competition will be high.

The services sector will be looking for help from suppliers that can help grow sales (anything to do with marketing and lead generation) but may be less likely to spend up big on news systems and processes.

Manufacturers will be looking to try to cut costs wherever possible, while the construction sector will be cautiously looking to invest as the year goes on (and rates stay on hold).

This is a time when entrepreneurs need to spend time doing serious market intelligence, working sector-by-sector and then customer-by-customer to try and find out what buyers need what and when.

Finding the right gear for your business won’t be easy, but it can be done if you stay close to your customers.