Australian industry leaders are bracing for another challenging year in 2025, with concerns over economic prospects prompting a shift toward short-term productivity gains and scaled-back long-term investments, according to the latest Australian Industry Group (Ai Group) Industry Expectations Survey.
Innes Willox, chief executive of the Ai Group, highlighted the urgent need for a shift in policy direction to address these concerns.
“The survey reinforces that without a clear change in policy direction, the leaders of businesses critical to our economic future believe we will not meet our clean energy and housing construction targets,” Willox said.
“They are highly concerned about continued weak market conditions and see little relief on the horizon.”
The survey, conducted in late 2024, drew insights from more than 220 senior leaders across manufacturing, construction, technology, supply chain, and industrial services sectors.
Results revealed a bleak outlook for 2025, with 44 per cent of respondents expecting weaker business conditions compared to 2024, and only 30 per cent predicting improvement.
These figures reflect a continued cautious sentiment, similar to last year’s results, which marked the lowest outlook since the end of the mining boom.
Willox warned that ongoing challenges such as inflation, workforce shortages, and uncertain market conditions are expected to dominate the business environment in 2025.
“Driving productivity is seen as particularly difficult, with the government’s workplace relations measures being viewed as a clear handbrake on making businesses competitive and wage rises sustainable,” he said.
Industry leaders identified controlling cost pressures, particularly those stemming from high energy prices and lingering inflation, as a top priority.
However, weak market conditions are eroding profit margins, complicating efforts to maintain financial stability.
To navigate these challenges, businesses plan to focus on near-term productivity improvements, including process enhancements, workforce skill upgrades, and increased investment in technology.
While these strategies aim to counteract immediate pressures, longer-term initiatives such as research and development, workforce expansion, and international market entry have been deprioritised.
“Given Australia’s poor productivity performance in recent decades, these strategies are welcome,” Willox noted.
“However, they also highlight the difficult trade-offs businesses face, with longer-term growth objectives taking a backseat to immediate survival.”
The survey also revealed that workforce shortages will remain a significant issue in 2025, with 71 per cent of leaders anticipating constraints across both lower- and higher-skilled roles.
These shortages are expected to negatively impact productivity, growth, and financial performance, prompting businesses to adapt processes to align with existing workforce capabilities.
Investment priorities are shifting to “back to basics” strategies, focusing on process improvements, staff training, and traditional capital expenditures aimed at enhancing productivity.
Despite a slight easing in inflation, its negative effects persist, with industry leaders expressing concerns about entrenched inflationary expectations and limited ability to pass on rising costs to consumers.
