Why Australian companies are cutting costs amid an economic rebound

A bounce back is under way in Australia’s economy, fuelled by recent rate and tax cuts, however, major listed companies are still in survival mode.

“There is no question that companies pretty much across the board are saying, ‘Hey, there’s still pressures out there,‘” JP Morgan’s head of Australian equities Jason Steed told Markets with Madison in Sydney.

He cited wage inflation due to union pay agreements and tariffs impacting company supply chains as causes for their concern.

“So companies are still anxious, I’d say, about the outlook, and a lot of them are dealing with that by announcing extensions to cost-cutting programmes,” Steed said.

“Cost-cutting now is almost a a BAU [business as usual] type construct, the majority of companies out there have some form of cost efficiency plan in place.”

Those measures resulted in one of the most volatile share price reactions on the Australian Stock Exchange during an earnings season, he said.

“We actually haven’t seen this degree of volatility in a season ever.

“Certainly not in the last 20 years, it didn’t happen in Covid, it didn’t happen in the GFC.”

The earnings season also caused big discrepancies between the valuation of companies in the same industry, such as supermarket giants Coles and Woolworths, the latter of which was underperforming due to management issues, Steed said.

Despite investor caution, better times were on the way for Australian consumers and borrowers, according to JP Morgan’s chief economist Ben Jarman.

He forecasted four more 0.25% cuts to Australia’s cash rate, following one in February, pushing gross domestic production (GDP) to an annual 2% growth rate in 2025.

“It’s still not much, but it’s kind of in that sweet spot, we think, where you’re doing better than we’ve had, but you’re not doing so much that you’re putting pressure on capacity again.

“And that’s kind of where you need to be if you’re still managing these residual challenges on inflation.”

Watch an in-depth episode about the state of the Australian economy in today’s episode of Markets with Madison from Sydney above.

Plus, find out what stocks JP Morgan is buying in the bounce back.

Get investment insights from executives and experts on Markets with Madison every Monday and Friday here on the NZ Herald, on YouTube and wherever you get your podcasts.

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Disclaimer: The information provided in this programme is of a general nature, and is not intended to be personalised financial advice. We encourage you to seek appropriate advice from a qualified professional to suit your individual circumstances.

Madison Malone (nee Reidy) is host and executive producer of the NZ Herald’s investment show Markets with Madison. She joined the Herald in 2022 after working in investment, and has covered business and economics for television and radio broadcasters.