Business Environment Profiles - Australia
Published: 16 September 2024
Business inventories
211 $ billion
1.6 %
This report analyses the value of inventories held by Australian businesses. This is measured as the book value of inventories and includes businesses in the following sectors: mining; manufacturing; electricity, gas, water and waste services; wholesale trade; retail trade; and accommodation and food services. The data for this report is sourced from the Australian Bureau of Statistics and is measured in billions of seasonally adjusted 2018-19 dollars.
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IBISWorld forecasts business inventories to average $211.0 billion in 2024-25, representing an increase of 1.2% over the previous year. Both business confidence and consumer sentiment are anticipated to recover in the current year, driving growth in retail and wholesale trade and, subsequently, encouraging operators in these sectors to order more products for resale purposes. Meanwhile, weaker manufacturing activity is anticipated to constrain growth in total inventories, as lower production orders encourage manufacturers to keep stock levels down. Economic uncertainty brought on by the cost-of-living pressures associated with high interest rates is also anticipated to discourage many Australian businesses from investing significantly in additional inventories. Increased online shopping is expected to boost inventory turnover among retailers, partially offsetting the current-year rise in business inventories.
While inventories typically grow when economic conditions are improving, the economic cycle can have contrasting effects on the value of inventories. For example, when the economy slows, buyers usually react earlier than sellers by reducing purchases, with unsold products then adding to inventory levels. Growth in business inventories, therefore, does not necessarily indicate improving economic conditions. The retail and wholesale trade sectors have the highest exposure to these contrasting economic cycle effects. The accommodation and food services sector is also sensitive to the economic cycle, but its share of total inventory is low, meaning fluctuations in accommodation and food services sector inventory have minimal effect on total inventories.
Total inventories have been largely dominated by the wholesale trade sector, as wholesalers have to purchase and hold large quantities of products in their warehouses before onselling them to downstream markets. Weak growth in the wholesale trade sector has lifted business inventories over the past five years, as the prevalence of wholesale bypass trends, where retailers source products directly from upstream manufacturers and importers, has constrained many wholesalers' ability to reduce inventory levels. The Manufacturing division represents the second largest inventory holder, as manufacturers are required to hold a significant amount of inventory, including inputs for production and finished goods that are awaiting delivery. Intense competition from imports has placed pressure on manufacturing activity over the past five years. However, manufacturing revenue has grown and this trend has supported growth in business inventories. Overall, IBISWorld forecasts business inventories to grow at a compound annual rate of 1.6% over the five years through 2024-25.
IBISWorld forecasts business inventories to average $215.6 billion in 2025-26, representing a gro...
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