Steady as she goes

The economics of making stuff is better when it is cleaner, safer and faster.

As many of those qualified economist’s columns extol, the Australian economy has made it through 2023 in fairly good shape, helped by a resilient labour market, buoyant business conditions and strong commodity prices. Risks of a recession this year have receded, but that doesn’t mean things will be easy. The thing to remember here is that economics is international. The local conditions are weathering what occurs overseas. The cumulative (long-term) impacts of interest-rate rises are still biting, with softening consumer spending and more gloomy consumer confidence. Firms are still adapting to higher interest rates, meaning increased volatility in business conditions and lower business sentiment.

Of particular concern is weakening economic activity in China. Ongoing geopolitical risks in Ukraine, the Middle East and Asia are adding to the uncertainty, compounded by the looming US election. Extreme weather events, both at home and abroad, are already in the headlines in 2024 and are a constant reminder that climate resilience and the energy transition remain policy priorities and are likely to have an impact on economic growth for some time. With this much real-life drama, who needs reality television?

Inflation is moving in the right direction but is still too high in Australia. It is likely to remain the focus of economic policy and public debate throughout this and next year. Globally, inflation is receding. This will assist the Australian outlook. While we may not see more interest rate rises in 2024, rate cuts are not yet on the agenda – unless inflation falls quicker than expected. Anything that entrenches inflation for longer will lead to worse outcomes for the economy and the broader community. The Government must ensure its policies and spending decisions work with monetary policy, not against it, to avoid stoking inflation.

ESG (Environmental, Social, and Governance), is the practise of keeping a close watch on the effects your manufacturing have on the environment, your workers and the bottom line, while giving the manufacturing industry the confidence it is producing goods (profits) without destroying the planet.

In 2017, Xie Jinping temporarily shut down parts of the Chinese steel manufacturing sector to allow factories to refit and clean up their act. The export market halted for months.

The strongarm rules helped standardise reporting in China while reducing greenwashing risks. Fast forward to China 2024, there are new ESG disclosure rules for its biggest companies as the world’s top polluter seeks to align with European requirements and bring foreign investment back to its struggling economy. But foreign investors have been turning their backs on China lately. Direct investment plunged to a three-year low in 2023 as a property market slump, deflation risks and growing geopolitical tensions with the US stifle economic growth. China is looking to bring its regulations in line with Europe, where companies have to make similar disclosures starting this year under the Corporate Sustainability Reporting Directive.

Australian manufacturers are now having to file their ESG reporting obligations and the benefits won’t just be financial. It’s time to join the queue of nation’s industries having to report how they ‘make their stuff’. I’d suggest this is way better than being forcibly shut down until your act is cleaned up.

Paul Hellard