Confidence in business conditions and the state of the economy has declined significantly in the second half of 2023 | Director Sentiment Index 2H23

Labour shortages and the cost of living are seen as the major economic challenges facing Australian businesses, followed by inflation and rising interest rates, according to the latest Director Sentiment survey.

Director sentiment has fallen further into negative territory - the third consecutive negative result for the DSI which has dropped dramatically since the first half and is down 13.6 points to -19.7 This is the softest result since the second half of 2020.

42 per cent of directors believe cost of living is the leading economic challenge for Australian businesses, up significantly from 24 per cent in the first half of 2023, and putting it on par with labour shortages (43%) as the main challenges facing Australian businesses. Productivity growth, one of the least mentioned challenges in the previous wave, has become one of the top 4 economic challenges now, increasing significantly from 16 per cent to 32 per cent.

AICD Managing Director and CEO Mark Rigotti said the wariness directors were feeling at the beginning of the year has taken hold in the second half and it will require a concerted effort by government, business and industry to turn these difficult conditions around.

Other key findings include: 

• 69 per cent say their organisations have been affected by labour market issues
• 71 per cent think skilled migration levels are not keeping pace with demand
• Flexible work arrangements are seen by over 60 per cent as a positive for attracting & retaining staff but a negative for cyber security (51%)
• Increasing numbers say flexible work is also impacting negatively on productivity, innovation, business costs and organisational culture
• Trust in Federal and State Governments has continued to decline with the exception of Western Australia
• 58 per cent believe advancing reconciliation with First Nations peoples remains a national governance priority