CHART OF THE DAY: Rising Labour Costs Are The 'Number One' Challenge For Australian Businesses

Last week’s jobs data in Australia showed unexpected strength, with a rise of 37,400 new jobs in Australia.

But even as Australian businesses push total employment to a new record, they and their counterparts in New Zealand are reporting that the “number one challenge to profitability is rising labour costs”, according to the Economist Corporate Network’s “Asia Business Outlook Survey 2015“.

The survey reported that:

Almost 40% of companies cite this issue as having a negative impact on profit margins. Had we asked this question two years ago, respondents in Australia might well have listed currency movements as being the number one challenge, given that the strong dollar had not only hurt exporters, but had also made many imports cheaper than locally-produced goods and services.

Today, however, with the dollar much weaker, the issue ranks only third as a challenge to profits. Nonetheless, for foreign firms sending profits home, a weaker dollar isn’t necessarily good news.

Source: Economist, Asia Business Outlook Survey 2015

With the Fair Work Commission undertaking a root and branch review of Australia’s “Modern Award” system in 2015 it is likely to heighten industry calls for a reduction in penalty rates.

Likewise, as inflation falls and as the domestic economy struggles for internally generated growth, this focus on labour costs by business is likely to put downward pressure on wage rises across the country over the next year or so.

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