What I Learned From Successful CEOs About Economic Growth and Profits

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This February’s profit season was significant, given the environment of elevated uncertainty. 

For analysts, fund managers, executives, and business media alike, reporting season is an exhaustive trial and a chance to observe every sector across Australia and beyond. 

One central point to remember is that the worst of Australia’s economic slowdown has yet to come. Most companies have absorbed increased costs with solid balance sheets and cautiously positive outlooks. While profit margins may decrease as demand drops more quickly than expenses, it hasn’t happened yet.

Telstra recently felt the consequences of increasing prices in their December half: customer growth declined, and some clients moved to cheaper plans.

Further price increases could occur soon, but will a rival blink first? It is an ongoing dilemma across all industries whether to boost profits by hiking up costs or maintain them low to promote development.

Sue Lloyd-Hurwitz of Mirvac suggests that declining house prices don’t necessarily tell the entire story regarding Australia’s housing market. With tight rental demand, we see evidence of a gap between supply and demand which could incentivise those whose borrowing power has been limited by rising interest rates. CoreLogic estimates this gap to be around 30% higher than historically.

Mike Henry of BHP believes China will be imperative to Australia’s iron ore miners and the broader economy in 2023. While the US and Europe may experience sluggishness, he expects considerable development from both China and India; surprisingly enough, it is even anticipated that China could function as a steadying force despite its existing geopolitical issues.

Terry Smart of JB Hi-Fi has guaranteed the company will remain competitive and continue to offer value to its customers, despite Australia’s top retailers having too much stock that needs discounting. However, this could be a potential threat as their competitors’ poor inventory management could still impact JB’s success.

Nick Hawkins of IAG reports that insurance policy inflation has risen 10%, and Australia’s current natural disasters make it unlikely for relief any time soon.

Nevertheless, IAG’s customer retention rates remain robust at over 90% – a clear indication that this service is something customers consider essential rather than discretionary.

As the head of Lendlease’s funds management, Tony Lombardo is aware that investors remain wary, not due to rates alone but more importantly because they are still in flux. Thus, reaching the peak rate-tightening cycle will be a critical moment for optimism.

Ryan Stokes of Seven Group articulated an insightful perspective on the nuanced difference between how central banks determine monetary policy (using yesterday’s data) and organisations that need to plan for the future. These two entities are interpreting different visions of what is ahead.

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