Skills shortages, cost of living top challenges facing economy

The AICD has published its Director Sentiment Index (DSI) for the second half of 2023. Directors have identified labour shortages and cost of living as the major challenges facing the Australian economy, followed by inflation and rising interest rates. More than two-thirds of directors believe that increasing interest rates will cause a housing/mortgage crisis. Productivity growth has also become a major concern.

The Director Sentiment Index has further decreased 13.6 points in the second half of 2023, down to -19.7, with declines in all categories including economic outlook, business conditions, structural policy settings and directorship conditions.

The index reports that optimism for Australia’s current economic health dropped 22 points in the second half but remained stronger than other global economies, except for Asia (excluding China).

The survey also shows that the outlook for Australia’s future economic health has fallen by eight points to −1, falling much lower than the recent high of +65 in the second half of 2021.

Compliance and regulation major concerns

A newly added option in the survey’s question on board risk appetite, compliance and regulation resulted in 59 per cent of those surveyed citing it as a major factor affecting their boards’ risk appetite, followed by cyber attacks, inflation and COVID.

The effects of several high-profile data breaches in late 2022 continue, with cyber-crime and data security remaining standout issues. Overall, forty-five per cent of surveyed directors said cyber crime and data security was the number one thing keeping them awake at night, significantly higher than any other issues. 

Most organisations have said they are aware of cyber security obligations and threats, with 84 per cent of directors believing their board is aware of Privacy Act obligations related to the collection, storage and management of personal information. 

Interest rates

Another area of great concern is interest rates. More than two-thirds of directors (69 per cent) believe that increasing interest rates will cause a housing/mortgage crisis.

A majority of directors thought the RBA and monetary policy are key drivers of recession risk and that further interest rate hikes could put the economy into recession. They are also concerned that current monetary policy settings will lead to a major uptick in business insolvencies.

In the short-term, housing affordability/supply has become the most pressing issue requiring the government’s attention, as mentioned by 34 per cent of directors. That number is up six percentage points from the first half of 2023.

Skills shortages, flexible working

One of the most mentioned issues in the index is productivity growth, which swapped from the least mentioned issue in the first half to one of the top four challenges in the second half, rising from 16 per cent to 32 per cent. 

Conversely, sentiment for the topic of skills shortages, though still a major issue for the government to address in the short-term, has dropped in the index from 34 per cent in the previous wave to 26 per cent in the second half. Interestingly, there is a considerable increase in the number of directors who agree that the implementation of AI systems can resolve current skills shortages, although they are still outnumbered by the sceptics.

Long-term priority was placed on climate change as an issue that the federal government needs to address, with 41 per cent of directors identifying it as the top issue.

Rounding out the index were the issues of reconciliation and flexible working conditions respectively. The former remains a national governance priority albeit in decline, with 58 per cent of directors now saying they believe advancing reconciliation with First Nations peoples is a priority for Australia.

On the issue of flexible working, 65 per cent of directors view flexibility as an incentive for attracting new staff. However, it’s interesting to note that markedly more directors now believe that flexible working arrangements are having a negative impact on organisational culture (45 per cent, up from 41 per cent), and on innovation (up from 36 per cent to 43 per cent).

The latest survey represents AICD member opinions from a representative sample of 1,352 directors across Australia on a range of issues covering the domestic and global economies, government policy and governance regulations.

For the complete index and details of policy settings and deep dives on topical issues, get the DSI here.