The latest Australian Industry Group Outlook for 2026 makes uncomfortable reading, but none of it should surprise anyone running a business. With costs climbing, regulation tightening, and workforce pressures haven’t eased, they’ve hardened into a new operating reality.

The businesses TRS work with in manufacturing, construction, logistics, and the trades are recalibrating. However, are they recalibrating in the right places?

The three pressures in 2026

The Ai Group survey of 225 senior business leaders points to three forces that will define the year ahead.

1. Inflation has returned, with input and energy costs still rising while market conditions stay weak.
2. Regulatory burden is being felt across both the tax system and broader compliance regimes, with 37 per cent of leaders citing tax and 33 per cent citing compliance as serious drags on growth.
3. Workforce pressures are persistent, with wage costs rising sharply while shortages continue for higher skilled roles.

None of these are new by the way, but what is; is how they compound. A business can’t ease wage pressure by hiring less skilled labour when the work demands skills. It can’t absorb regulatory cost by deferring investment when deferred investment is exactly what creates the next wave of capability gaps.

Why workforce strategy is being deprioritised, and why that is a problem

What we hear from businesses is that technology is being prioritised as the lever that will get them through. Investment in AI, automation, and digital systems is all going up to lift productivity and manage cost. That makes sense right? So, the Outlook confirms it’s happening at scale.

What’s concerning is what’s being deprioritised to make room. R&D, non tech investment, and workforce development are the three areas leaders say they are pulling back on. Workforce development sitting in that list should give every operations leader a pause.

Training intentions are still positive but more subdued than the post pandemic peak. 40% of businesses plan to maintain training investment, and 37 per cent intend to increase it. That sounds steady on the surface, but it sits against a backdrop where the Outlook itself describes shortages in higher skilled roles as becoming structural rather than cyclical. Steady investment won’tclose a structural gap.

Where the shortages are sitting

The direct out look is lower skilled shortages have eased and higher skilled shortages have barely changed. In manufacturing, 54 % of leaders expect higher skilled shortages this year. In construction, that figure is 78 %

Those numbers match what we’re seeing in recruitment. The candidates we place for our clients are not the entry level roles. They’re the supervisors, the qualified tradespeople, the licensed operators, the experienced project engineers, the workshop technicians who run modern equipment. This talent pool was tight in 2023, tighter in 2024, and no easier in 2026.

In construction and trades, the pipeline of work is strong within infrastructure, residential, and commercial. The workforce to deliver is quite stretched. However, in manufacturing, the move toward advanced equipment and automation hasn’t reduced the need for skilled people, but has changed what “skilled” means, and the businesses that will benefit most from technology investment are those who have the people to run it.

In logistics and supply chain, the same dynamic is playing out. Wage pressure is a real thing, and competition for experienced operators, schedulers, and warehouse leaders is intense. The technology investment in this sector is also quite significant, but the people who configure, run, and improve those systems are in still unfortunately in short supply.

The risk in cutting back on workforce investment now

At the end of the day, every business has to defend margin. That is not in dispute. But the Outlook flags something that should sit uncomfortably with anyone planning for the next three years. If conditions become entrenched, long term competitiveness would die a death of a thousand cuts.

Pulling back on workforce development in 2026 means the same shortages will be deeper and harder to fix in 2027. The technology investment that is being prioritised today will only deliver if the people are there to operate it tomorrow. Capex on a new line, a new system, or a new piece of plant is wasted if the workforce around it is thin or under-skilled.

The businesses that we see managing this best are the ones treating workforce planning with the same way as their capital planning. They are mapping where their critical roles sit, where their succession risk is, and where they need to bring people in or build them up. No, they’re not waiting until a key person resigns to think about their next hire.

What this means practically

If your business operates in manufacturing, construction, logistics, trades, or engineering, the Outlook is essentially describing your hiring environment for the next twelve months. Higher skilled roles will stay hard to fill and wage expectations will keep climbing. The candidates you want will have options.

That doesn’t mean every business has to outspend the market. It does mean the businesses that will win are the ones that move quickly, present a clear and honest pitch on the role and the workplace, and use specialist recruitment partners who know the sector and the local market in Melbourne, Sydney, or Brisbane, right where we are.

It also means looking honestly at retention. The cost of replacing a skilled supervisor or experienced trade is significant, and in a market this tight, it is often the avoidable losses that hurt the most. Counter offers, exit interviews after the fact, and reactive hiring all cost more than a steady conversation about what your people need.

The bottom line

The Ai Group Outlook is a useful reset for anyone planning their 2026. Guys, costs are real. Regulation is real. Technology investment is the right move. But workforce capability is not a problem you can solve later, and it is not a line item that absorbs being deprioritised without consequence.

The businesses that come through 2026 in the strongest position will be the ones that took workforce strategy as seriously as their tech roadmap. The ones that treat it as a deferred problem will pay for it in 2027 on onwards.

If your business is facing hiring challenges, we’d welcome the conversation. Reach out to the TRS team directly.

 

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