Patchy. That was the word that defined the Australian economy in 2010, and could well be the best description again in 2011.
While most economists are predicting Australia’s economy will grow at a rate of about 3.75% in 2011 – that’s just above the longer-term trend – much of this growth will be driven by the second coming of the resources boom.
Across many other sectors of the economy, the outlook is far cloudier. Weak consumer sentiment, rising interest rates and choppy business investment conditions are weighing on many sectors, such as retail, manufacturing, property and IT.
And with rates tipped to rise across 2011, these trends could well continue for months to come.
To help you determine how your industry will fare this year, we’ve compiled this sector-by-sector guide.
For many sectors, the outlook is mixed as best. But in each industry entrepreneurs will be able to find challenges and opportunities.
A recovering economy helped Australia’s advertising and marketing sector stage an impressive recovery in 2010, with projections from Fusion Strategy, Goldman Sachs and Mitchell Communication Group at 12% across the year.
The trend is tipped to continue into 2011, although the rate of growth is set to ease. Mitchell is predicting growth of 6.4% (the most bullish forecasts are tipping growth of about 8%), with online search tipped to be the fastest-growing category, with growth of 19% in 2011.
The broader online category (which also includes online display and classified advertisements) is tipped to enjoy growth of 16%. On the other hand, newspapers (up just 2.1%), magazines (up 4.4%) and radio (3.5%) are expected to have another difficult year.
Marketing companies outside the media sector are also expecting relatively modest growth in 2011. Marketing services group Salmat, which is best known for its letterbox delivery business but has also branched into call centres and online marketing, is anticipating EBITDA growth of 1-6.5% for the year, excluding one-off items. However, it is pushing heavily into the SME sector, which suggests it is bullish about the prospects for smaller companies.
One trend to watch closely in this sector is consolidation. Last year Mitchell Communication was acquired by London-based media group Aegis, while struggling media and marketing services company Photon is in the process of selling some of its divisions, four of which were purchased in late December by Salmat.
In what remains a fragmented sector, more mergers and acquisitions should be expected.
It’s been another decidedly up-and-down year for most of Australia’s agribusiness sector. While good rains throughout winter seemingly set the sector up for a bumper harvest, summer rains have dampened hopes of a boom year.
However, the prospects of an improving global economy should help support the agribusiness sector this year, with government forecaster ABARE tipping a 5.4% increase in export volumes during the 2010-11 financial year, compared with a fall of 11.5% in the previous corresponding period.
But while higher prices are expected for wheat, barley, canola, raw cotton, sugar, beef and veal, lamb, wool and most dairy products, the high Australian dollar will be a slight drag on actual earnings. Export earnings are tipped to rise almost 6% to $30.2 billion in 2010–11.
Looking beyond the end of the 2011 financial year, the outlook is very much dependent on the weather and the global economic recovery. But longer term food security issues remain in the agribusiness sector’s favour.
Few industries enter 2011 in as worse shape as the construction and engineering sector. According to the Australian Industry Group’s performance of construction index, conditions declined for the last seven months of 2010, and demand has consistently been described as “fragile”.
The big problem is really the property sector. With banks unwilling to lend to property developers, demand for apartment projects and to a lesser extent new homes has dried up.
Housing Industry Association chief economist Harley Dale isn’t expecting a turnaround any time soon.
‘New home building activity looks set to decline across all states and territories in 2011,” he says. “The risk of a sharp contraction in new home building in 2011 is exacerbated by the negative impact on households and small businesses of increases in borrowing costs and by the persistent lack of available credit for small- and medium-sized new home projects.”
Despite the recovering economy, commercial construction also remains sluggish and rising interest rates are likely to weigh further on the property sector as 2011 goes on.
Activity in the engineering construction sector also declined in the second half of 2010, although the resources boom should provide a lift for the sector as the year unfolds.
The big issue for the sector remains skills shortages. The second-coming of the mining boom, and the struggles experienced by the construction sector particularly on the eastern seaboard, have dragged skilled tradespeople and engineers to the mines.
For example, figures from Engineers Australia suggest Australia produces just half the number of engineers it needs each year, at 6,000 graduates.
Smart Company is the leading online publication in Australia for free news, information and resources catering to Australia’s entrepreneurs, small and medium business owners and business managers.
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