Focus on costs to tackle slowdown, says economist

posted by Andrew Colley
22 July 2019

Australian procurement professionals should start focusing on efficiency as fears of softer economic performance and structural pressures point to a potentially difficult ride for business, warns Bank of Queensland chief economist Peter Munckton.

Speaking at the CIPS Australasia Conference in Melbourne, Munckton said that lower interest rates and a weaker Australian dollar pointed to a potential uptick in economic performance. However, he said it was not clear how well they would help businesses weather the impact of China’s growing domestic debt problems and continuous challenges from increased domestic competition.

He said that China’s debt levels had reached 300% of GDP and it was not yet clear how its government planned to meet the challenge of cooling the situation. At the same time, he said the ongoing trade battle between the US and China was also introducing uncertainty that could weaken the global economy.

Munckton told SM that in order to prepare for potentially weaker revenue and price performance in the increasingly competitive environment, businesses would start finding ways to cut costs and improve efficiency. At the same time, customers would also be looking for greater value for money.

“Growth constrains how much you can sell, and competition constrains how much you can charge which means your revenue growth is capped. In order to achieve some level of profitability you have to start focusing on your costs,” Munckton said.

Turning to emerging technology and making greater use of the internet and digitisation for their operations have proven to be effective measures for tackling challenges in recent years, he explained.

“There’s increasingly good smart stuff that’s being developed out there and in different industries people are starting to take this onboard,” he said.

However, he said that businesses still needed to be wary about going for the cheapest solutions on the market.

“Cheap is one thing but it’s almost at least as much about how to provide it in a better way for the customer,” he said.

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