This is episode number twenty two in our series for 2020 and today’s date is Friday, July 3.
First I talk to Aramex Australia CEO Peter Lipinski to discuss the increased demand on Australia’s transport and the delivery sector as online shopping orders boom with more people self-isolating and working from home, and how the Australian delivery sector is adapting to these unprecedented times.
And then I’ll be talking to AMP Capital chief economist Shane Oliver about how the market is traveling.
But now, let’s talk to Peter Lipinski.
Probably the best thing to say about world financial markets so far this year is simply that it has been quite a ride. If somehow you missed the coronavirus slamming the global economy like a wrecking ball, current market levels certainly do not reveal the wild swings that unprecedented events unleashed.
Sure, world stocks are down nearly 9% for their worst start to a year in a decade, some big emerging market currencies are down over 15% and super low-risk US government bonds and gold has returned 16%. But none of that is exactly unique. In fact, some bits look distinctly bullish. The tech-heavy Nasdaq is near a record high thanks to those fantastic FAANGs again, Chinese stocks are now up for the year as are Italian bonds, which might all suggest nothing serious has gone on. Wrong!
The reality is that it has been one of the most turbulent six months ever seen. Having slumped 35% between February 20 and March 23 in the most destructive sell-off since the Great Depression, MSCI’s world equity index has rallied to within 10% of February record highs and Wall Street has had its best quarter since 1998.
It has all been fuelled by $US18 trillion ($26 trillion) worth of fiscal and central bank stimulus, interest rates slashed to 0% or below in most major economies, and massive debt buying programs. Borrowing costs for high-grade US companies are now below January levels despite rising numbers of firms going bust.
Australia’s sharemarket is heading for its worst financial year in over a decade as the coronavirus pandemic casts a long shadow over the outlook for economic growth and corporate earnings. Even after the fastest rebound on record, the local bourse is still 24% below its peak. For superannuation investors, this could be the first negative since the global financial crisis. The benchmark S&P/ASX 200 share index was down 12% for the financial year to date after diving 1.5% to a two-week low of 5815 points on Monday as the worsening pandemic in the US and Australia outweighed news of China’s first rise in industrial profits since November
A sudden halt to government stimulus to support the economy through the coronavirus recession would be a problem, the Reserve Bank has conceded, with signs the jobs market is failing to bounce back from pandemic-related shutdowns. RBA deputy governor Guy Debelle said it was clear the recession, despite being caused by health issues, was likely to scar the general economy, which would require ongoing fiscal and monetary policy support for years. Dr. Debelle said while the economy had done better than originally feared, it had faced a “historically large” hit. He said the recession would have a long term impact, requiring “considerable” policy support including government spending. Abruptly ending that support would have substantial ramifications.
In a new report on the COVID-19 recovery phase, the Grattan Institute recommends that the federal government should wind down its fiscal stimulus programs more gradually to avoid a severe economic crunch in September, spending an additional $30 billion in 2020–21. To aid a return to full employment (below 5%) by 2021–22 would cost an additional $40–60 billion, Grattan estimated, including permanent increases to JobSeeker, rent assistance and childcare, and new spending on social housing, services, and infrastructure. Focusing on the decisions the government will need to make over the next six months – in particular, those made ahead of the October budget – the report does not go along with calls from the likes of the Reserve Bank, the OECD., and The Economist magazine to “build back green” and tackle climate change by investing in renewables. Grattan’s outgoing chief executive John Daley tells The Monthly Today, “The reason why we haven’t is that if you’re trying to build back green you’re not going to get there fast enough. If we’re half right about this major economic crunch coming in late September/early October, unless there’s a significant policy shift, it doesn’t matter how fast you move, you’re not going to be building lots of nice green things by September … They’re nothing like shovel-ready and, remember, what happened the last time we did this is pink batts, and didn’t that turn out well?”
National property prices have fallen for the second month in a row and accelerated as uncertainty builds about the fiscal cliff expected in September. Melbourne and Perth led the pack with a fall in property values of 1.1% in June, followed by a 0.8% decrease in Sydney, a 0.4% fall in Brisbane, and a drop of 0.2% in Adelaide, according to CoreLogic’s hedonic home value index.
Business payrolls have increased 2.7% from their low point in mid-April and around 1% over the past month, according to the Australian Bureau of Statistics, However, with payrolls still tracking 6.4% below their pre-crisis levels, the recovery still has a long way to go. Sectors such as accommodation & food services and arts & recreation have been hit hard by COVID-19, with payrolls down 28.6% and 23.9%, respectively, compared with March 14.
No other industry group has experienced a fall of 10% or more. The recovery will only be gradual and there is huge uncertainty surrounding government policy, the global response, and, more recently, a second-wave in Victoria. Returning the economy to what it was pre-crisis will not be easy, it will certainly be challenging and it won’t happen quickly. Women have generally been harder hit by COVID-19 than men. Payrolls have fallen by more for women than men in almost every age group. One-in-six women aged under 20 and one-in-ten women aged 20-29 have lost their jobs over the past three months. That compares with one-in-seven men under 20 and one-in-eleven men aged 20-29.
Amazon is investing more than $500 million in its first robotic distribution centre in Australia in a move aimed at speeding up deliveries and doubling its capacity as the structural shift to online shopping gathers pace. In its single largest investment in Australia since launching its online store in December 2017, Amazon has confirmed plans to build a 200,000 square metre “fulfilment centre” at Goodman Group’s Oakdale West industrial estate in western Sydney.
The centre – which will have a footprint the size of 22 rugby fields – will be manned by about 2000 robots. The robots will enable Amazon to speed processing time for online orders by moving shelves to employees, reducing the time and effort it takes to stow items for sale, or pick them for new customer orders. The rectangular robots weigh about 50 kilos and lift storage cubes that weigh about 300 kilos. They lift the cubes and move them around the warehouse at a swift walking pace, using advanced algorithms to work out the most efficient route to packers and the most efficient use of space.
A report in Axios lays out the price the world is paying for the pandemic in stark terms: global poverty reduction, women entering the workforce, long-term health and well-being for young and old alike, among other issues, could face dramatic setbacks. Remote learning may have left students months behind and the knock-on effects may have untold consequences for those students as they graduate and enter the workforce. The restaurant and tourism industries will struggle to recover if consumer spending slows and potential customers seek to mitigate risks.
The coronavirus pandemic has shattered Australia’s resources and energy forecasts, with export earnings set to drop by $30 billion in the 2021 financial year, down from a record high of $293 billion this year. The government’s chief economist, Russell Campbell, expects earnings to be slashed to about $263 billion in fiscal 2021 and $255 billion in 2021–22. “After 11 years of growth, the world is facing a COVID-19-induced downturn of breadth and scale that now seems likely to be much larger than assumed in the March 2020 Resources and Energy Quarterly,” said Mr. Campbell. “The second outbreak of COVID-19, another surge in trade tensions, or an unexpectedly slow global recovery” weigh on the forecast made by Mr. Campbell’s team, released in the Department of Industry’s Resources and Energy June quarterly report.
“But on balance, it remains likely that parts of the service sector will bear the brunt of the downturn, and commodities will once again buffer the Australian economy against external headwinds,” the team has found. Despite the global economic slowdown, Mr. Campbell’s team still expects Australia’s mining and energy exports to hit an export earnings record of $293 billion in the year to June 30, 2020.
Taxpayers have spent $1 million compensating employees who lost wages and entitlements in the collapse of Made Establishment, the restaurant empire founded by celebrity chef George Calombaris. But despite the taxpayer payment, more than two dozen former kitchen and waiting staff have received none of the money owed to them in superannuation and redundancy entitlements because as temporary visa workers they do not qualify for government support.
Some are out of pocket more than $15,000. The Made Establishment empire, which included a dozen restaurants and employed 364 permanent and casual staff, collapsed under the weight of a $7.8 million wages underpayment scandal, significant financial debts, and poor trading conditions despite a large 2017 investment by former Swisse vitamins boss Radek Sali. The company’s eateries included The Press Club, Hellenic Republic, and Jimmy Grants.
However, four months after the collapse, some staff entitlements remain unpaid despite the company’s hopes that workers would not be left out of pocket. Documents filed by liquidator KordaMentha this month shows Made Establishment still owed $1.3 million in employee entitlements when it closed in February 2020, including annual leave, superannuation, redundancy payments, and back wages for more than 100 former full-time workers. Nearly $1 million of this debt has been covered by the federal government’s Fair Entitlements Guarantee, a program that pays the outstanding wages, leaves and redundancy entitlements of citizens and permanent residents when their employers are unable to meet their commitments after going insolvent or bankrupt.
It will be a much smaller Virgin after the sale to Bain and there are forecasts it will sack 5000 or half its workforce. That is the opinion of Tony Webber, who was chief economist at Qantas from 2007 to 2011, and the estimate relies on how much of the airline Bain maintains. Bain plans to implement a support program for any team members who may leave the airline and establish an employee ownership/profit-sharing scheme.
From the opposite direction, think tank Beyond Zero Emissions has released its Million Jobs Plan, with project advisers including former PM Malcolm Turnbull and economist Ross Garnaut. The plan advocates for hundreds of billions of dollars of public and private investment in decarbonisation, from renewables and clean transport to energy-efficient social housing and manufacturing opportunities, such as green steel and hydrogen, creating more than one million new jobs in Australia over the next five years. The report was launched by Atlassian co-founder Mike Cannon-Brookes, the former UN climate chief Christiana Figueres and First State Super chief executive Deanne Stewart. “No one thought 2020 would turn out the way it has,” Eytan Lenko, interim chief of Beyond Zero Emissions, told Guardian Australia. “We now have a unique opportunity to seize this moment, to retool, reskill, and rebuild our battered economy to set us up for future generations”.
The Morrison government is examining whether the emergency doubling of the JobSeeker unemployment benefits has had a negative impact on Australians looking for low-paid work or seeking out extra shifts. Worker advocates say that the economic slowdown brought on by the pandemic will ensure that unemployment will remain high “for the foreseeable future,” and the benefit needs to be extended. But the government is arguing that at its current level, JobSeeker provides a disincentive to return to work and “must be pared back.”
Cirque du Soleil Entertainment Group filed for bankruptcy protection after the coronavirus pandemic forced it to close shows around the world, bringing one of the best-known brands in live performance to its knees. As part of the restructuring, Cirque said it would lay off 3,480 employees who had been furloughed during the COVID-19 disruptions.
The Montreal-based company, controlled by private equity giant TPG Capital, requested court protection through the Companies’ Creditors Arrangement Act in Canada. An application under the CCAA will be heard by the Quebec Superior Court and the company will also seek its immediate provisional recognition in the US under Chapter 15. Entertainment companies that depend on large crowds were among the first business casualties of the virus. Cirque du Soleil laid off 4679 employees – about 95% of its workforce – on March 19 after shutting down 44 productions to comply with government orders around the world.
The company, which grew from a troupe of Quebec street performers into a global live entertainment giant, entered into a so-called stalking horse purchase agreement with its top shareholders – TPG, Shanghai-based Fosun International Ltd. and Caisse de Depot et Placement du Quebec. The Quebec government’s investment and lending arm, Investissement Quebec (IQ), is involved as a lender, the company said.
Outbreaks of panic buying of toilet paper and pasta could occur again multiple times over the next 12 months as fresh waves of the coronavirus pandemic trigger more grocery hoarding, Macquarie Wealth Management has warned. Its report noted a recent pick-up in grocery stockpiling in Melbourne and parts of Sydney, causing some shortages, and said this could continue to happen as fears grow of more COVID-19 outbreaks.
“The latest illion/AlphaBeta data suggests supermarket sales are 3% below normal levels … purchase limits were reinstated in Victoria earlier this week, as stockpiling behaviors began to materialise again, while on Thursday, Sydney was reported as beginning to see product shortages again,” the report noted. “We expect this cycle could repeat itself multiple times in the next 12 months each time there is a fear of another wave occurring.
We expect the general eat-at-home trend to continue to play out in supermarket sales through the first half of 2021 as consumers remain cautious about spending money going out.” Last week supermarket chains Woolworths and Coles were forced to reimpose buying restrictions in Victoria on a number of staple items such as toilet paper, paper towels, rice, UHT milk, and mince. As panic buying spread, they reinstated limited restrictions on groceries for the rest of Australia. The stockpiling initially flared up in parts of Melbourne following a spike in COVID-19 infections, but the panic buying quickly spread to other parts of the city before Woolworths and Coles imposed purchasing limits in Victoria.
And that’s it for this week. And next week, I’ll be talking to Rachel Callen and Katie Croft about their “Thriving Through COVID-19” initiative which they set up to help hundreds of small businesses stay connected, inspired – and thrive – no matter how they’ve been impacted. And I’ll be talking to CommSec chief economist Craig James about what to expect in the market in the week ahead.
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.