Australian industry leaders remain pessimistic about the country's economic prospects for 2025 and are cutting long-term investment plans while focusing on achieving short-term productivity gains according to the latest annual Australian Industry Group industry expectations survey.
"The survey reinforces that without a clear change in policy direction, the leaders of businesses that are critical to our economic future believe we will not meet our clean energy and housing construction targets and are poorly placed to meet the productivity and competitive challenges we face. They are highly concerned about continued weak market conditions and see little relief on the horizon," said Innes Willox, Chief Executive of the national employer association, the Australian Industry Group.
"The Industry Expectations survey which was conducted just before Christmas must serve as a wake up call to policy makers in the weeks before the next election that expectations for growth among those who make decisions crucial for business growth, investment and employment are very weak.
"Industry leaders are concerned that 2025 will see a repeat of last year with inflation, workforce and skill shortages and a continued uncertain outlook dominating their concerns. Driving productivity is seen as particularly difficult with the Government's workplace relations measures being seen as a clear handbrake on making businesses competitive and wage rises sustainable.
"Since 2012, Ai Group has annually surveyed CEOs and leaders from across Australian industry. This year, more than 220 senior leaders from the manufacturing, construction, technology and supply chain and industrial services fields shared their views on the outlook for 2025.
"Expectations for 2025 are relatively weak: 44% of industry leaders expect business conditions to be weaker in 2025 than 2024, while 30% expect them to be better. These are very similar to last year when we saw the lowest outlook since the end of the mining boom. Last year saw the private sector slow hiring and begin significant job shedding in response to our economic conditions.
"Controlling cost pressures caused by lingering inflation and high energy prices are a top priority because, given weak market conditions, they are eroding business margins and profitability.
"As we show in our report, industry leaders are making near-term productivity a priority to meet the challenges of this environment. They plan to invest in process improvement to improve efficiency, upgrade the skills of their current workforce, and grow their investment in technology.
"These strategies are welcome, given Australia's poor productivity performance in recent decades. However, they also mean that longer-term growth objectives – particularly R&D, growing the workforce and internationalisation – have been deprioritised to meet near-term challenges," Mr Willox said.
A full copy of the Ai Group survey report is available here.
Key findings of the 2025 survey
Australian industry expects another year of challenging conditions. While leaders' sentiments for 2025 have improved slightly compared to last year, on balance they remain negative for the performance of the economy and business conditions.
Expectations are for 2025 to look a lot like 2024. Industry leaders anticipate a mild improvement in consumer demand, employment and revenue. However, expectations for most other indicators of business health – including inflation, uncertainty, investment and workforce – are negative and very similar to those reported last year.
Three factors – weak demand, cost pressures and workforce constraints – will be the main inhibitors in 2025. While cost and workforce challenges have been common for several years, weak demand conditions will make it harder for industry to manage these challenges. This is expected to put further pressure on margins, with leaders expecting profitability to fall further next year.
While inflation is easing, its negative effects on industry are not. Industry leaders' pricing outlook has moderated slightly but remains well over normal levels, suggesting that inflationary expectations are at risk of becoming entrenched. Fewer businesses anticipate they can pass on input and energy costs given weak market conditions, putting further downward pressure on margins.
Investment efforts will go 'back to basics' to improve productivity. To reduce costs and maximise workforce efficiency, process improvement and staff training top the investment priority list for 2025. Traditional forms of capex are also attracting greater priority as a productivity enhancement strategy. R&D spending has been deprioritised to focus on investments with more immediate returns.
Workforce shortages will continue in 2025, with 71% of industry leaders expecting to be affected. Industry leaders report shortages across both lower- and higher-skilled roles, which negatively impact productivity, growth and financial performance. To manage labour constraints, they plan to change business processes and models to fit the workforce they have.
Growth strategies will focus on the near-term rather than long-term. Most intend to introduce new products and services and/or improve their current offerings. There is a clear preference for Australian over international markets, given uncertainties about the global environment. Longer-term growth options – such as workforce expansion, major investments or moves into foreign markets – have been placed on the backburner to focus on near-term market pressures.
The 2025 Industry Leaders Survey was administered in October and November 2024. Responses were received from leaders of 220 private-sector businesses across Australia. Collectively, these businesses employed 138,000 people (approximately 0.9% of the Australian labour force) and had aggregate annual revenue of just over $60.5 billion in 2024 (approximately 1.6% of Australian business revenue).
