2018 was a solid year for the Australian economy, but some industries had a tougher time than others. Here we use Deloitte Horizon to examine the industries that faced the greatest pressure over the course of last year. What makes for a bad year? Businesses come under pressure when they see a lull in activity, have difficulty getting a good price for what they do or face rapidly rising costs. By combining a range of data from the Australian Bureau of Statistics Deloitte Horizon can give us insights into pockets of stress in the Australian economy. Economists and headlines are often focused on the rate of economic growth, but solid growth on average is little comfort for the industries and businesses who aren’t seeing that growth showing up in their quarterly accounts. Slower growth A slowdown in activity has obvious implications for a business’s bottom line – even if margins hold up, fewer sales will still put a dent in profits. Source: ABS, Deloitte “Some industries are expected to end the year well short of GDP growth of 2.9%.” That was certainly the case in the agricultural sector in 2018. The rains came from October onwards, but that was too late to transform this year of misery for farmers. Drought conditions hammered winter crop production, which is set to be at its lowest level in a decade. Parts of manufacturing continue to struggle, led by makers of machinery and equipment. In part that’s a hangover from the end of car manufacturing in this country, but it also reflects a continued drop off following the end of the mining boom. Construction activity turned a corner in 2018, with the sector expected to end the year a little smaller than it was. There were patches of real stress, with high profile collapses of RCR Tomlinson in Western Australia and York Civil in South Australia highlighting the risks of the industry and leaving thousands of subcontractors out of pocket. That level of distress hasn’t hit major operators in the eastern States yet, but storm clouds are building. Weaker prices While economists focus on the volume of output when we look at real GDP, business people know that it’s the value of what you do that matters – and that prices are a key part of that puzzle. Here it is a different set of industries facing challenges. A property slowdown in Sydney and Melbourne has put pressure on prices in the real estate services sector as commissions have been squeezed. Prices in mining and agriculture eased, though both were coming off strong peaks in 2017. Heavy competition – including from online retailing that continues to swallow up a larger share of our wallets – means retailers have long been feeling the squeeze when it comes to prices. Higher costs Costs are another part of the profit equation the economists can often overlook. Rising world oil prices over much of 2018 flowed through to higher costs for some industries. Industries which are sensitive to the oil price include the airlines and chemical product manufacturing, among others. Rising world interest rates and the demands of the Hayne Royal Commission also placed upward pressure on costs in the finance sector. Farmers too have felt something of a cost squeeze because of rising feed, water and diesel input costs. The depreciation of Australia’s currency from the peak of the mining boom has pushed up retail costs, as many of the goods on our shelves are imported. Context matters A reduction in profitability hurts most where margins are already leanest. For some the pressures of 2018 are largely a result of trends that have been in play for years – with a moderation in the good times for engineering construction and coal mining a good example of a return to earth rather than a stint in the poorhouse. Then there are those industries that are still riding high despite a tougher 2018. Australia’s banks are a prime example, and are making profits most of us would kill for. For other sectors the news is rather more troubling. Spare a thought for Australia’s farmers, and the businesses that support them. A long and widespread drought in the eastern States has seen the countries farm output shrink for the second year in a row. And while 2017 saw strong farm gate prices for a number of commodities cushion the blow, 2018 saw prices going backwards. That combination is a tough one for any industry to swallow. So where to from here? The good news is that a pickup in activity should start to lift profits in agribusiness through 2019. But construction is where the biggest issues are likely to lie. A deepening downturn in major property markets will increasingly be showing up in a smaller pipeline of work – particularly in the apartment market. Retailers too could have a tough time ahead if wage growth continues to disappoint. Households have been dipping into savings to finance their spending for some time now and that can’t last particularly with reduced access to credit. With cutthroat competition a feature of the sector, that says some stressful times are ahead.