Businesses expect to return to pre-COVID profitability levels by the end of 2022 – but supply chain chaos remains a concern

• Business confidence has seen a resurgence across industries in October, as NSW and Victoria reopened and companies returned to pre-pandemic trading.
• A newly released survey conducted by HSBC found 65% of Australian businesses are optimistic they can generate growth over the next 12 months, in line with international peers.
• However businesses named supply chain chaos driving delays and inflation as an ongoing concern.

Business confidence and profitability bounced back in October, as NSW and Victoria reopened and pre-pandemic operations recommenced. 

The majority expect to return to pre-COVID profitability levels by November 2022, according to an HSBC survey of over 7,300 global businesses, including 527 Australian companies.

Looking ahead to future risks, a resurgence of COVID-19, supply chain disruption and a decrease in consumer demand ranked as the top three threats to business growth.

The HSBC Navigator survey found 65% of Australian businesses are optimistic they can generate growth over the next 12 months, in line with international peers.

It similarly found 49% of businesses expect to increase revenue 10% or more over the next year.

The vast majority — 89% — rank the introduction of ‘new products and services’ as the main driver of their anticipated growth. 

Steve Hughes, head of commercial banking for HSBC in Australia, said business optimism was driven by the country reopening its international borders. 

“As our borders reopen, we anticipate that local companies will benefit as workforces and supply chains reconnect with international markets” Hughes said.

Despite overwhelming optimism, the Australian organisations surveyed cited several factors as cause for concern outside of a resurgence of COVID-19. 

Businesses said supply chain disruptions and decreased consumer spending represented their core concerns, at 26% and 25% of respondents respectively.

Since the start of the pandemic, supply chain delays have slowly escalated, driven by a perfect storm of understaffed ports, skyrocketing container prices and an explosion in demand driven by consumers. 

In early November, a report from the ACCC outlining the impact to Australian businesses of supply chain disruptions said costs now risked being passed on to consumers.

NAB’s October Business Survey similarly showed a build up of price pressures.

It reported that elevated goods demand alongside supply chain disruptions and border restrictions had pushed inflation to the highest level in a decade.

While product prices continue to track at a high rate, retail price growth eased considerably, NAB said, projecting that price pressures could “persist over coming months before goods demand and the labour market normalise”. 

In response to ongoing supply chain risks, organisations said they were investing in new technology and adopting sustainable practices to protect against future challenges. 

Survey respondents also expressed a desire to increase international trade to mitigate supply chain issues, with 43% tipping increased trade with North America as a desirable new trading partner. 

Hughes said the responses from Australian companies also indicated a growing focus on sustainability.

Moving into 2022, Australian firms were looking to better integrate ESG factors into their operations and those of their partners. 

“The survey supports what we are hearing from our clients — that sustainability is a key focus across the Australian market,” Hughes said.

“It is clear that one key area being prioritised to help drive this change is the sustainability credentials of their supply chains.” 

Overall, however, business confidence jumped to above average levels in October, as measured by the NAB business confidence index, with retail, business, finance and property, and personal and recreation all tracking large confidence improvements.

Alan Oster, chief economist at NAB group, said the results reflected the return of business conditions above their long-run average.

“These results support our expectation of a strong rebound in activity as lockdowns are lifted in the final months of 2021,” Oster said. 

Source: BusinessInsider