The latest survey from the Australian Institute of Company Directors (AICD) has revealed the latest Director Sentiment Index (DSI), a statistical measure of confidence in the Australian economy. The findings indicate a prevailing pessimistic outlook of the economy among companies’ top management.
While there was a slight improvement in the index, the DSI continued to stay in the negative territory at -19.2.
Through sampling 1,000 of its members, the Institute found that cost of living (40 percent) has overtaken labour shortages (35 percent) as the most pressing economic challenge for directors in the first half of 2024. This is followed by concerns over productivity growth (33 percent) and inflation alongside interest rates (28 percent).
According to the Australian Bureau of Statistics, the consumer price index (CPI) rose by 4.1 percent in the 12 months leading to the December 2023 quarter, though lower than the 7.8 percent in 2022. Meanwhile, all five living cost indexes increased by 4 percent to 6.9 percent during the same period.
The change in directors’ sentiment also indicates an improvement in the labour market condition since the early days of the COVID-19 pandemic recovery, attributed to increased labour supply after the government reopened the borders and resumed the migration flow.
Nevertheless, 85 percent of the respondents still believed that skill shortages existed in the workplace, with a third of the directors thinking suggesting that the labour problem could be solved via the adoption of artificial intelligence systems and automation.
Concerns persist regarding high interest rates, with 41 percent of directors reporting a negative impact on their businesses.
“It’s been a difficult period to navigate and the way forward from here is not instantly clear,” said AICD Managing Director and CEO Mark Rigotti.
“The RBA holding interest rates steady for the moment has not been enough to ease cost pressures and there’s a level of uncertainty about which way things are headed.”
Deterioration in Trust in Government
Additionally, the study highlighted the drop in directors’ trust in the government with more than half of those surveyed expressing doubts about the government’s understanding of businesses.“Perceptions of federal and state governments remain largely negative,” AICD said.
“57 percent say compliance and regulation is the main factor affecting their board’s risk appetite.”
The Institute also pointed out that the government’s recent mandatory climate reporting policy was a concern among directors.
Around 37 percent of the respondents said they were worried that the complexity of the reporting requirements would add more burden to their business.
“Directors are also feeling the weight of regulation and uncertainty around non-financial considerations such as cyber security, AI governance and the introduction of the government’s mandatory climate reporting regime,” Ms. Rigotti said.
In late March, the Labor government introduced legislation making it compulsory for companies to disclose climate-related information in their annual reports next year.
Under the bill, companies will be required to report metrics and targets that relate to the climate including greenhouse gas emissions, as well as information on governance and risk management related to these targets.
If passed, the legislation will first apply to large listed and unlisted Australian companies from Jan. 1, 2025.
In the final stage, the requirement will extend to companies with an annual turnover of $50 million (US$33.1 million), or 100 and more employees.
