How will your sector fare in 2009-10?

After an extraordinarily difficult 2008-09, Australia’s small and medium businesses are gearing up for another very tough 12 months this financial year.

While economists are expecting a slow recovery to start in the last few months of 2009, the depth of the global recession and a predicted rise in unemployment is likely to take its toll on many sectors.

But there are some bright spots. Research and information consultancy IBISWorld recently released a list of the 10 industries it has tipped as the fastest-growing in 2009-10.  

The list contains some surprises, including the resurgence of funds management, which has been crippled by the global financial crisis for the best part of two years.
IBISWorld general manager Robert Bryant is anticipating strong growth as investors cautiously return to the market.

“Returning investor confidence will see new funds again flow into the arms of investment managers, and as a result of the difficult conditions of the past year, only the toughest and most talented now remain – something which will help support fund performance and drive up performance fees in the new financial year,” he says.

So how will your sector perform in 2009-10? Let’s take a look: 

Advertising and marketing

Despite the urgings of many business experts and commentators for companies not to cut their marketing budgets in the downturn, it’s clear that many are doing exactly that. Media companies are reporting falls of up to 20% in advertising revenue and William Scott, chief executive of CommQuest group, says a big fall in activity in what he calls traditional marketing areas such as PR and direct marketing have forced him to close his group’s divisions in this area.

But things are looking better for the second half of the financial year, particularly for the digital side of the sector. London-based media agency Group M is prediction advertising spending will grow 4.7% in 2010, led by a 30% increase in mobile advertising and 15% increases in spending on internet display advertising and internet search advertising. Hang in there! 

Agribusiness

The Government’s agricultural economic bureau, ABARE, is predicting farm export earnings will increase by 2% to $32.5 billion in 2009-10, following a strong rise of 16% to $31.8 billion in 2008-09.

“A forecast increase in winter crop production combined with relatively favourable world prices for many agricultural products is expected to support farm export earnings in the short term,” says ABARE executive director, Phillip Glyde.

IBISWorld nominates grain production as a growth industry for 2009-10. Solid rains across Australia’s primary wheat crop regions this year have prompted the forecast of a bumper harvest by recent standards, but the global financial crisis has slowed demand, meaning excess grain needs to be stored. “IBISWorld expects that so long as no natural disaster strikes, the long-term trends that have supported higher prices are expected to continue and as global markets stabilise by the end of 2009, the price of grains will rebound – encouraging more acreage to be dedicated to grain production,” Bryant says. 

Construction and engineering

While government spending on infrastructure throughout Australia should keep the construction and engineering sector busy, conditions are not expected to reach the heights of 2007 and 2008, when the mining boom was in full swing.

The biggest problem is the credit crisis, which continues to put the brakes on big private sector projects. The Association of Consulting Engineers Australia expects the sector’s revenue to only increase by a meager 4% in 2009-10 and 2% in 2010-11, and chief executive Megan Motto says a major recovery will be delayed until the funding drought breaks.

“At the end of the day, what we really need to see is private sector financing come back into that sector.” 

Food and beverages

ABARE’s latest forecasts paint a fairly bleak picture for the food and beverages sector, with the global recession weighing heavily on demand. Diary exports are tipped to fall 17% to $2.3 billon, while wine exports are expected to be flat, and beef and veal exports are tipped to fall 7% to $2.4 billion.

However, food and beverage retailers in Australia seem to be doing OK, particularly at the cheaper end of the market where cautious consumers and still spending. 

Financial services and insurance

While IBISWorld has tipped the funds management sector as one of the big growth areas for 2009-10, the rest of the financial services and insurance sector faces a difficult period.

At the top end of the market, banks are bracing for a rise in bad debts from the small business and consumer sector – analysts from UBS are expecting bad debts of $16 billion to actually eclipse the big banks’ profits of $15.5 billion. Insurers will also be still reeling from the string of natural disasters Australia suffered through in 2008-09.