By Heather Ridout
Chief Executive, Australian Industry Group
As we turn the corner on what's been a tough and testing 18 months for manufacturing, we enter 2010 with challenges still ahead.
At the immediate level, the biggest challenge is how we successfully manage the recovery.
During 2009 a drop in demand, an easing of growth among key trading partners in Asia and a higher exchange rate hurt the manufacturing sector.
These factors saw output in the sector fall by 7.2 per cent in the year to the September quarter 2009 and employment fall by 60,000 from its most recent peak in February 2008.
In response, manufacturers have focused on further integration into global supply chains, new products and markets, skills development and training. They've also adopted measures to reduce operational costs.
Manufacturing growth in 2010 will be constrained by weak recovery in economies such as the United States, Europe and Japan.
All of these are struggling to reignite domestic demand growth.
However, manufacturers exposed to Chinese demand and those economies driven by Chinese growth will see their markets improve.
The rate of improvement will depend on the affect of China's higher interest rates and increased bank reserve requirements.
In Australia, local demand will improve this year, particularly for those companies related to mining and infrastructure construction and consumer goods.
Our research shows the resources sector is experiencing a rise in investment expectations, which will particularly benefit the basic and fabricated metal products, machinery and transport equipment and construction materials sector.
The food and beverages, textiles, clothing and footwear sectors should also experience solid consumer demand.
This boost in consumer confidence is a result of improving job security and rising wealth due to the recovery in the stockmarket and housing prices.
The immediate challenge will be how well manufacturers adjust in the face of these factors and how well they grasp the opportunities available.
The longer-term challenges are also very relevant for the manufacturing sector as they are for the rest of the economy. Addressing the productivity challenge as our population ages, will need to remain at the top of the policy agenda.
In this regard, we need to look at areas such as our education and training levels, we need to look at how healthy we are, we need to be able to remain in the workforce for longer.
We need to encourage women who are having children to get back into the workforce including through better childcare and more flexible work arrangements. We need to invest in infrastructure so that when we work we get more bang for our dollar. We need to invest in better technology, which of course in the nineties was a key source of productivity growth. Finally, we need to make sure we have flexible labour markets.
This is an old mantra of employers but it has shown to be extremely effective in the past.
A key issue for business in both the near and long-term is the availability of skilled staff. There are roles for both business and government in addressing this.
Many manufacturers have made a major effort to keep skilled workers and maintain training budgets during the downturn.
These businesses will benefit from this foresight as the improved job outlook for 2010 and renewed demand for skilled people is expected to see shortages emerging in the near future.