Australia’s secondary industries are bearing the brunt of inflationary pressures as business failures spike in the face of a nationwide cost-of living crisis.
According to data compiled by the Australian Securities and Investments Commission (ASIC), manufacturing and building company insolvencies surged in the first six months of FY 2023-24 due to the steep cost of raw materials and electricity, coupled with labour shortages.
ASIC’s data reveals a total of 1,391 reported construction insolvencies in the first half of FY 2023-24, a figure that already equates to 62.9 percent of the 2,213 insolvencies recorded throughout the previous financial year.
Failures in manufacturing have also risen alongside prices, with a total of 458 insolvencies reported in FY 2022-23, a 153 percent increase from the previous year. About 243 manufacturing insolvencies have been filed throughout the first 6 months of FY 2023-24.
These business failures are creating a domino effect across the economy as ASIC’s figures correlate with both productivity and unemployment trends.
According to the Australian Bureau of Statistics (ABS), multifactor productivity—a measure comparing industrial outputs to their combined inputs—dropped 0.5 percent in 2022-23.
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Similarly, market sector labour productivity—measuring output per worker—fell 2.9 percent.
Australian unemployment, which has remained reasonably low since the outset of COVID-19, is now swiftly rising as inflationary lag effects are realised. It sat at 3.9 percent at its last measure in Nov. 2023, its highest point since May 2022.
Judo Bank Chief Economic Advisor Warren Hogan forecasts unemployment to continue to rise in the remainder of 2024, a trend he attributes to high levels of immigration.
“It’s probably going to go up. The increase we’ve seen from the lows has really been driven by strong population growth, the pickup in immigration,” Mr. Hogan told Sky News Australia.
Mr. Hogan also said slow employment growth is essential in keeping inflation under control.
“To get the soft landing, to take that pressure off the labour market and inflation, you’re going to need employment to be softer this year.”
Government to Blame?
Deputy Opposition Leader Sussan Ley has criticised the Albanese Labor government not mitigating the woes of the manufacturing and construction industries.“This government’s energy and industrial relations supply chain policies are driving manufacturing businesses offshore and it’s pretty awful if you work in one of those industries or own in one of them,” Ms. Ley told 2GB Radio on Jan. 17.
“We haven’t had a government or an industry minister that’s even tried to keep these businesses here. We’ve seen the same thing with the alumina refinery in WA, more jobs on the chopping block.”
Ms. Ley also accused Prime Minister Anthony Albanese of falling short of his pre-election promises.
“Anthony Albanese stood there before the last election and said we’re going to make more things in Australia and that we’ll have a fantastic manufacturing policy. It turns out his only plan for manufacturing was about how to manufacture his election win.”
Australia’s industrial capabilities have experienced an exponential decline since its prime output in the 1960s, when manufacturing accounted for 25 percent of the national gross domestic product (GDP). In 2022, that figure was just 5.42 percent.
According to government employment bureau Labour Market Insights, approximately 870,000 Australians are currently employed in manufacturing, comprising 5.6 percent of the workforce. In 1973, Australian manufacturing employment peaked at 1.46 million.
In addition, the Harvard Economic Complexity Index—a barometer for the diversification of a nation’s export basket and degree of complexity involved in the production of those goods—ranks Australia at 93rd behind developing countries like Malawi and Honduras.
Bolstering Australia’s manufacturing has been a key tenet of the Albanese government’s official policy and initial election promises. In a speech made on Dec. 21, Mr. Albanese proclaimed that by the end of his first term in government, the Australian economy would be more reliant on homegrown goods and a domestic manufacturing sector powered by cheap renewable energy.
In Oct. 2022, the government announced the inception of the National Reconstruction Fund—a financing vehicle allocating $15 billion (US$10.1 billion) in government funding to drive investment in critical sectors.
More recently, Mr. Albanese publicly renewed his stated desire for “value adding, moving up the supply chain, making sure that we do make more things here, which is Australian jobs here,” at a press conference on Jan. 3.
