This is episode number sixteen in our series for 2020 and today’s date is Friday, May 22.
First I talk to Patrick Coghlan, CEO of CreditorWatch, on new payment data suggesting that SMEs were struggling with cash flow issues long before the coronavirus lockdown measures came into play and were unprepared for the current downturn.
And then I’ll be talking to Indeed economist Callum Pickering about the latest unemployment and what they mean for the economy.
But first, let’s talk to Patrick Coghlan.
Global stocks surged as investors took heart that the gradual easing of lockdowns in Europe would stimulate global economic growth, while also drawing encouragement from a US trial for a Covid-19 vaccine. Trader optimism was underpinned by comments from Federal Reserve chairman Jay Powell over the weekend that the central bank had more in reserve to support the US economy if required.
But the global economy will take much longer to recover fully from the shock caused by the new coronavirus than initially expected, the head of the International Monetary Fund said, and she stressed the danger of protectionism. Managing Director Kristalina Georgieva said the Fund was likely to revise downward its forecast for a 3% contraction in GDP in 2020 but gave no details.
That would likely also trigger changes in the Fund’s forecast of a partial recovery of 5.8% in 2021. In an interview with Reuters, she said data from around the world was worse than expected. “Obviously that means it will take us much longer to have a full recovery from this crisis,” Georgieva said in an interview. She gave no specific target date for the rebound.
In April, the global lender forecast that business closures and lockdowns to slow the spread of the virus would throw the world into the deepest recession since the 1930s Great Depression. But data reported since then points to “more bad news,” Georgieva said. The IMF is due to release new global projections in June. Georgieva told Reuters the Fund was focused on risks such as high debt levels, increased deficits, unemployment, bankruptcies, increased poverty and inequality during the recovery period.
But she said the crisis was also boosting the digital economy, offering a chance to boost transparency and e-learning, and give even small firms access to markets. Asked about renewed tensions between the United States and China – the world’s two largest economies, Georgieva said she was urging member countries to maintain open communication and trade flows that had underpinned global growth for decades.
Facebook is making another run at building a shopping empire – and this time it has the direct involvement of the company’s most important executive Mark Zuckerberg. The Facebook chief executive officer announced a handful of updates on Tuesday signaling the company’s commitment to online shopping and commerce, one of the areas he highlighted as a priority for this year. The main product, called Shops, is a new version of an existing Facebook feature with a similar name and will let retailers upload product catalogues to their Facebook page or Instagram profile.
Users can find these Shops directly from the retailer’s page, or by clicking on an ad that will redirect them to a Shop inside Facebook instead of the retailer’s own website. Eventually, Mr. Zuckerberg says, these Shops will be accessible across the Facebook company, including Messenger and WhatsApp, giving retailers a way to reach Facebook’s nearly 3 billion users with one product catalogue. Mr. Zuckerberg highlighted the importance of Shops for small businesses, almost all of which are operating exclusively online during the COVID-19 pandemic. The vast majority of Facebook advertisers are small businesses.
But in Australia, the hoarders gave and they taketh away. ABS figures show retail sales fell by a record 17.9% in April
The rate of jobs lost in the COVID-19 hit economy is slowing, while earlier estimates of job losses have also been revised down. The latest payroll data from the Australian Bureau of Statistics and Australian Tax Office shows that over the seven weeks from mid-March to early May, total jobs fell by 7.3%. Based on the 13 million employed in March that 7.3% fall equates to 950,000 jobs lost in the seven weeks. ABS Head of Labour Statistics Bjorn Jarvis said the week-to-week changes are now much smaller than they were early in the COVID-19 period.
China has delivered a brutal payback to Australia after it pushed for a COVID-19 probe, slapping new tariffs on drought-affected barley exporters. The move, which was first threatened last week, effectively wipes out Australian barley trade with China and follows weeks of high-profile lobbying from Australia over the coronavirus inquiry. Within hours of President Xi Jinping announced he would back a probe into the coronavirus pandemic once it is “brought under control” China moved swiftly to punish Australia.
China has followed through on its threat to impose an 80% tariff on Australian barley imports, with the tax set to remain in place for five years. The tariff is expected to wipe out Australia’s trade of the grain with China, worth $1.5 billion in 2018, with half of the Australian barley exports typically bound for the country. Australia is now considering taking it to the World Trade Organisation. China argues the product has been imported against trade rules, after an investigation that began in 2018.
The move comes amid diplomatic tension between the two countries over Australia’s push for an inquiry into the origins of Covid-19. The Chinese slap will cost Australian barley producers close to $1 billion, according to industry researcher IBISWorld. The tariff will effectively spell the end of Australia’s barley exports to China, which was worth $917 million in the 2018-2019 financial year, according to IBISWorld. While China’s recovery from the COVID-19 outbreak has supported the demand for locally grown barley in recent months, American farmers, rather than Australian ones, are likely to benefit’ China is Australia’s largest grain export market, with barley used to make beer and feed livestock. China accounts for 13% of Australian grain exports, according to the research firm. Australia’s grain industry has been badly hurt by both coronavirus and the summer bushfires, with revenue expected to fall 17.6% in the 2019-2020 financial year.
The Andrews government will undertake the biggest spend on social housing since the global financial crisis, as part of a $500 million package to build 168 new units and upgrade 23,000 more to bolster Victoria’s struggling economy. The mammoth spend is part of a $2.7 billion government “building blitz”, which it says will create thousands of jobs. The Victorian state government will pump $58 million into new social housing units in Reservoir, Balaclava, Dandenong, and Hampton Park, but the biggest portion of the package will go towards maintenance and upgrade works that can be delivered quickly, such as painting and roofing.
Employers and the federal government have warned premiers not to further damage the $80 billion domestic tourism sector, as travelers face ongoing confusion over the lifting of state border restrictions. Small numbers of domestic flights are continuing during the COVID-19 pandemic crisis, but interstate recreational travel remains on hold until a move to the second stage of revised restrictions agreed by national cabinet – expected in June at the earliest.
Warnings against all non-essential travel remain in place and the federal government does not expect interstate leisure travel to restart until the third stage of COVID-safe rules, likely to be some time in July. Qantas and Jetstar on Monday announced plans to introduce new safety precautions on Tuesday, with all passengers to be issued masks and staggered boarding and disembarkation from June 12. Hand sanitiser and additional cleaning will be in place but empty seats will not be left between passengers.
Air New Zealand and US carrier Delta are among airlines flying with reduced passenger numbers to limit the risk from coronavirus spread. The growing split among state premiers on when to lift border restrictions prompted a new warning from Tourism Minister Simon Birmingham on Tuesday. He said Queensland Premier Annastacia Palaszczuk would have to answer to her state’s tourism sector if the block on travel remains in place longer than other states. Ms. Palaszczuk has warned against reopening to tourism while community transmission of COVID-19 continues in NSW and Victoria. But NSW Premier Gladys Berejiklian has encouraged people interstate to book a holiday in NSW, after announcing coronavirus travel restrictions would be scrapped from June 1.
McDonald’s global comparable sales tumbled 22.2% in March and the burger chain pulled its full-year forecast as coronavirus-related lockdowns forced it to shutter stores and stick to delivery or takeaway. The company, one of the first major fast-food chains to provide a glimpse into the economic impact of the health crisis, said it had raised $US6.5 billion ($10.4 billion) in the quarter and suspended share buybacks to bolster its cash reserves. And 12 stores closed in Melbourne.
Virgin Australia’s auction moved into the second round with four shortlisted bidders on Monday morning. Regional Express and Alliance Aviation – two listed Australian regional airlines – were not in the mix. The bidders were told Virgin’s management would make its pitch to the four respective groups next week. Deloitte was seeking to have final bids by June 12 and a signed deal by June 30. And the race for Virgin Australia just took a dramatic twist, with the surprise entrance of a New York-based hedge fund that surely counts as one of the world’s most exposed airline investors.
Cyrus Capital Partners is a front runner for Virgin and is on the shortlist. Cyrus, which manages $7 billion, takes its place alongside long-time front runners BGH, Bain Capital, and Indigo Partners, a US private equity investor that specialises in the aviation sector. But Cyrus is particularly fascinating because of its connection to two men – Wall Street titan Stephen Freidheim and Richard Branson, the father of the Virgin Group.
Fletcher Building is sacking 1500 people from its workforce including 500 in Australia because of a sharp downturn in demand as the economic damage from the coronavirus pandemic washes through the construction sector. Fletcher chief executive Ross Taylor said it was an ”unsettling time for all involved” but there was no other option as volumes weakened, with around 10% of the entire workforce to be made redundant.
Fletcher is dual-listed on New Zealand and Australian stock exchanges and the company operates a $3 billion-plus building products business in Australia under brands including Tradelink plumbing and bathroom supplies, Stramit roofing and structural steel, Iplex pipes, Rocla concrete, Tasman Sinkware, and Fletcher insulation. It is the biggest player in its home market of New Zealand in the building products sector. Mr. Taylor said that other cost-cutting measures already put in place simply weren’t enough to ensure the business was in the right shape to make it through the tough times.
There are important messages to extract from Fletcher’s view of the residential market and its decision to go early on job cuts. Firstly, a residential construction slowdown could create something of a feedback loop through the economy, given residential construction accounts for a bit under 6% of GDP and a bit under 6% of employment. Nervous households close their wallets for construction spending. Activity drops jobs are lost. Household budgets are hit further and recovery in spending becomes less likely still.
Internet criminals are cashing in on people who want to buy a puppy to help cope with loneliness during the lockdown. The consumer watchdog says victims have lost nearly $300,000 in so-called “puppy scams” this year, with a spike in scams since the COVID-19 lockdown took hold. Puppy scam complaints to the Australian Competition and Consumer Commission were five times higher than average in April.
ACCC Deputy Chairman Delia Rickard said scammers had set up ads online selling popular dog breeds such as Cavoodles and French Bulldogs. She said the crims are exploiting the fact that people could not travel to see the puppy in person, asking for upfront payments and offering to transport the dog to the buyer. Ms. Rickard said the safest option was to adopt or buy a pet when you can see it in person.
Foxtel’s new streaming service is expected to launch next week after weeks of rumours and speculation. The upcoming addition tipped to be called Binge, will join a crowded market of streaming offerings competing for Australian dollars. Foxtel’s streaming service news comes just weeks after it announced it had secured exclusive rights to air HBO Max content in Australia.
While the deal was limited to a few years, it means that the upcoming U.S. entertainment giant will deliver its original and legacy content through Foxtel’s services in the country, delaying any chance of a separate Australian HBO Max release. HBO Max is set to launch on May 27 in the U.S. and will feature a variety of original programs, including a Gossip Girl reboot, Station Eleven, Tokyo Vice, Adventure Time: Distant Lands, and Americanah.
The announcements are anticipated to provide a much-needed bump to Foxtel’s dwindling subscriber base. According to Roy Morgan’s March 2020 report, Foxtel was the only entertainment platform to lose subscribers compared to February of the previous year. It shrunk around 100,000 subscribers down to 4.85 million subscribers over its three entertainment options whereas Netflix, Stan, Amazon Prime Video, and Disney+ all experienced a growth in the base.
The major banks are considering adopting artificial intelligence technology to monitor the electronic communications of staff, to identify bad culture, and to reduce risks in the workforce operating remotely. The AI tool, developed by consulting firm Blackhall & Pearl and the Massachusetts Institute of Technology, will also help banks after COVID-19 to implement the Hayne royal commission and meet tougher demands from regulators for tangible evidence that poor cultures have improved. The system will allow companies to x-ray staff emails, mapping connections to determine social influencers, and using natural language processing technology to work out the sentiment of teams. It can also run on emerging communication platforms like Slack or Yammer.
In a landmark case, 25 young people aged 13 to 30 are mounting a legal challenge to the massive, Clive Palmer-owned Galilee Basin coal project. This will be the first time human rights arguments are used in a climate change case in Australia. Palmer’s proposed Waratah Coal mine in the Galilee Basin will dwarf Adani’s operation, extracting four times as much coal per year.
The mine has been given the green light at the federal government level and has been issued with a draft environmental approval at the state government level. This court challenge will allow Queensland’s Land Court to recommend whether the state government should issue or reject final environmental approval. So why mount a case now? Queensland’s new Human Rights Act 2019 came into effect on January 1 this year, opening the door for a flood of new climate change litigation.
Climate change poses a clear threat to human rights, with lives and livelihoods at direct risk from increased extreme weather events, extended heatwaves, and worsened drought conditions. This case between the group of young Queenslanders (called “Youth Verdict”) and mining company Waratah Coal, will test whether the project’s benefits – including economic benefits and employment provision – justify limiting human rights. After the United States, Australia has had the highest number of climate-related cases before our courts.
Workers based in CBD office towers in Melbourne and Sydney will likely be confronted by thermal screening and lift queues when they return to their workstations post-pandemic, With occupancy rates in Melbourne hovering at around 5% last month, offices are not expected to hit even 50% until at least July. Full occupancy may be “years away,” experts say. ANZ Bank says thermal scanners will check worker temperatures at its office entrances. Those with “an elevated temperature” would isolate for 10 minutes and then be retested. And physical distancing rules could force workers in Sydney’s Australia Square Tower to wait as long as three hours to get up and down the landmark building at the start and end of the day, as the 1.5-metre requirement allows no more than two people in its lifts at the same time.
And that’s it for this week. And next week, I’ll be talking to Caroline Bowler, CEO of BTC Markets, the largest, most liquid Australian bitcoin exchange with 260,000 Australian customers trading more than $8 billion. And economist Saul Eslake will offer his views on where the Australian economy is heading.
In the meantime, you can find me on Twitter at talkingbizz, on Facebook, and on LinkedIn. And if you want, leave a comment. Wishing you all a safe and healthy week and looking forward to bringing you Talking Business next week.