Bumper profit run set to end: economist
The large profits seen earlier this year from Australian companies won't be repeated as businesses are hit with a triple whammy of wage increases, an overvalued Aussie dollar and capacity constraints.
The long run of strong profit growth is coming to an end, warns BIS Shrapnel senior economist Mathew Hassan, but there are still companies that will deliver.
Demand will continue to be strong, and will even pick up over 2005/06, but many sectors don't have the capacity to meet that demand.
"In most parts of corporate Australia, we're so lean and mean that there's little scope for further cutting of inputs in order to generate growth and we've forgotten that we actually need extra resources in order to sustain growth into the future," Mr Hassan said.
Australia is at the tail-end of a 15 year efficiency drive where businesses had cut costs to increase profits with many now realising they need extra capacity to grow.
However, as wage costs increase and the skilled labour shortage continues, businesses will struggle to find the resources to expand.
Mr Hassan said labour costs will cause the most headaches, with skilled staff tipped to become more difficult and more costly, to retain.
And companies are facing other cost pressures too, as the price of oil and other commodities soar in an extended resources boom.
"Oil is the most obvious, but supply shortages are seeing the cost of most other raw materials rise sharply as well," Mr Hassan said.
"Delays and escalating costs are also a major problem for activity related to the construction sector and those seeking supplies in strong demand from the booming minerals sector."
Companies that are exposed to the Australian dollar, in particular export-oriented businesses, will bear the brunt of reduced margins.
"Most Australian businesses aren't facing a sharp profit downturn, but the going will get tougher from here and performances will vary more widely, with some Australian dollar exposed sectors looking particularly vulnerable."
© 2005 AAP
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