Manufacturing CEOs say that, on balance, 2017 was the best year in the last five years. Two thirds of them expect 2018 to deliver a better top line result than last year and a little over half expect better profits. The results are in the Ai Group National 2018 CEO Survey of Business Prospects.

The difference between revenue and profit expectations can largely be put down to expectations of higher energy costs squeezing margins, especially for energy intensive operations. 85% of manufacturers surveyed anticipated higher energy costs and only 3% foresee relief this year.

Chart: Net balance of reported manufacturing conditions

Export revenue growth is expected by 35% of firms, with only 4% seeing a fall. With currency an uncertainty, every respondent felt they were competitive exporting if it was US70c or lower, with 90% confident at US71-80c. Above US81c that confidence drops off to below 40%.

Those facing import competition need a lower dollar to be confident, with 76% feeling they are competitive below US80c.

Overall exchange rate level and volatility appears to be relatively less of a concern than it did three or four years ago, though that can change quickly.

On the other challenges that CEOs are most concerned about, lack of customer demand is of significantly less concern than in recent years. However, the risk of customers choosing overseas competitors or disruptive new market entrants has not abated.

Skill shortages are an increasing constraint, although they have not yet fed into worries about higher wages.

CEOs are slightly more worried about the burden of government regulation.

In considering business strategies, there is a clear shift in the last year toward introducing new products over selling more of the same, with both strategies now of equal importance. The urge to downsize continues to ease.

Domestic market growth remains a key aim, but export market development is catching up in importance, followed by building on-line capability.

The full report can be found here.