This is episode number twenty four in our series for 2020 and today’s date is Friday, July 17.
First I talk to Troy Roennfeldt from digital agency Increaseo which has set up a website Stimulus Package to help to arm all Australians with information regarding the recently implemented Stimulus Packages. Individuals and businesses will be able to locate and easily sort through all applicable support packages offered by the Federal and State Governments to help ease financial pressures and better navigate the tough times ahead.
And then I’ll be talking to economist Nicholas Gruen who has ideas about how to make governments more innovative.
But now, let’s talk to Troy Roennfeldt.
Former Federal Reserve chair Janet Yellen has warned the economic crisis triggered by COVID-19 is not set for a “V-shaped” recovery but a Nike-shaped “swoosh”, with the potential for related bankruptcies to create their own corporate debt crises. Speaking on Monday night in Magellan’s annual investor update, Dr. Yellen, who is an adviser to the fund’s manager, said the crisis could have huge and long-term impacts on the global economy and investment landscape as government support ends.
She cited several reasons for this prediction, including the likelihood of a spate of corporate failures and health concerns continuing to weigh on economic activity. “I think we’ll get growth after that. But to get back to where we started will take a number of years,” Ms. Yellen said. “I think that’s going to be a long, drawn-out process. I find it hard to imagine that hospitality, travel, tourism, consumer-facing sectors will come back to anything close to where they were for a very long time.”
The US recession triggered by the coronavirus will be deeper and longer than initially expected, according to three big banks that reported drastic tumbles in quarterly profits. Instead of a quick economic recovery at the end of this year, JPMorgan Chase now expects the recession to be “much more protracted”, said the bank’s chief financial officer, Jennifer Piepszak. Citigroup said in a statement that it was preparing for “a higher level of stress and/or a somewhat slower economic recovery”. The banks’ more pessimistic outlooks come as millions of people remain out of work, thousands of small businesses close their doors forever and some states begin to shut down for a second time to contain the spread of the coronavirus. The recession marks the first big test of the banking industry’s resilience since the last financial crisis when banks took billions in taxpayer bailouts. This time, the industry says it is much stronger.
The Morrison government will revamp and extend the JobKeeper program beyond September but struggling business owners are being cautioned to think twice before signing up again because it might send them broke. The small business lobby and the government are aware that workers who have been kept on the books using the $1500-per-fortnight wage subsidy have continued to accrue annual leave and other entitlements.
Should the business owner decide at some stage to let the workers go because the business will not bounce back, these entitlements will have to be paid out from cash reserves or from dwindling or non-existent profits. On Thursday next week, when the government releases its first economic update since December last year, a revamped JobKeeper with new assessment criteria will be announced. There is speculation that rather than a flat $1500-fortnightly payment for six months, there will be different rates of pay and a rolling assessment process to ensure ongoing eligibility.
Victorian retailers are bracing for store closures with the Victorian government preparing for harder lockdown restrictions after the state’s new virus cases jumped to 270, two more Victorians died and a second wave showed no sign of turning the corner. Victorian Premier Daniel Andrews said they may need to “go harder” on restrictions if the numbers do not improve and high-level discussions were underway on Tuesday afternoon, as active cases climbed to 1803 with almost 300 cases recorded in regional Victoria, outside the lockdown.
That will be severe. In England, most shops and businesses including pubs, cinemas, theatres, clothing, and electronic stores, beauty salons, community centres, and sports facilities have been ordered to close. In New Zealand, all businesses were closed except for essential services like supermarkets, chemists, medical centres, and petrol stations.
Several major retailers will shut their Melbourne operations after the Victorian government imposed a six-week lockdown on Tuesday. Solomon Lew’s Premier Investments, the owner of Smiggle, Peter Alexander, Portmans, and Just Jeans, said it would shut all its Melbourne metro stores on Wednesday night. The closure will affect stores in 36 shopping centres and seven strip malls, but will not extend to Premier’s regional stores.
Premier said it would not pay rent on its metropolitan stores during the shutdown, but its distribution centre and support office would remain open. Apple joined the shutdown, announcing it would close all five of its Victorian stores from Wednesday. The tech giant had already closed its Highpoint store due to its location in a COVID-19 hot spot, and will now close the remaining stores from midnight. Apple had closed each of its Australian stores in February as COVID-19 hit, and reopened them recently, mandating temperature checks and masks for every customer. National Retailers Association CEO Dominique Lamb said the latest lockdown would prove costly for many businesses no matter the size.
Credit and debit card spending has dropped across most categories in Victoria as the second-wave lockdown bites, dragging down overall spending across the country. Commonwealth Bank data shows growth in card spending across the country eased in the week to July 10 to be only 7.2% higher than a year ago. This is down from 12% higher in the week to July 3. Overall spending growth in Victoria went negative, falling 3%.
This reverses the rebound the state had experienced in the previous week when spending rose 5% above the same time last year. Spending in Victoria on clothing, personal care, recreation, transport, and education all took a hit as the COVID-19 outbreak spread across the state, and restrictions on movement were again imposed.
Spending growth eased in all other states over the week with the exception of the Northern Territory. In the ACT overall spending growth compared to the same week, last year also went negative, down 1%. In NSW, overall spending is now only 9% higher than the same week last year. In the week to July 3, that spending was 13% higher. Spending on food however is growing in both Victoria and all other states in an early sign of some stockpiling behaviour seen during the first pandemic lockdown in late March.
Services spending across the country is down 10% on the same time last year, again reversing the recovery last week when the pullback in services eased to be just 3% on the same time last year. The overall figures point to a weakening in consumption, which makes up 60% of GDP. Consumer spending behaviour is also closely watched for decisions around stimulus.
And bad news for hotels. The Berejiklian government will tighten some social restrictions on Tuesday along with the implementation of stricter rules on venues to collect the contact details of patrons in case of an outbreak. Group bookings at pubs will be reduced from 20 people back to 10 and large venues will not be allowed to have more than 300 patrons. Clubs, Restaurants, and Sydney’s Star casino are not included in the crackdown despite the Star being fined for breaching some restrictions. The restrictions come as the Crossroads Hotel cluster grows to 21 and was linked to a case in another pub in the area as well as Sydney’s Star casino.
The NSW government will prioritise economic recovery over pre-emptive lockdowns, even as it slashes the number of people who will be allowed in the state’s pubs and ramps up enforcement against venues flouting the rules. As Victorian health authorities warned that infected travelers visited a string of venues across Sydney last week, the NSW cabinet on Monday night decided to cut from 20 to 10 the number of patrons who could book in a group and strengthen flying squads to enforce COVID-19 social distancing rules.
But senior ministers remain committed to keeping the NSW economy open as businesses warn they cannot afford a repeat of a hard lockdown in the wake of Victoria’s decision to enforce a six-week stay-at-home order in Melbourne after a spike in COVID-19 transmissions. The recovery of the NSW economy, which makes up about a third of the national economy, was the subject of fierce debate during a telephone hook-up of senior ministers on Sunday night that included Premier Gladys Berejiklian, Deputy Premier John Barilaro, and Treasurer Dominic Perrottet. The strong belief among most senior ministers was that lockdowns of any kind would be anathema to economic recovery. The state’s hospital system was equipped to handle a sharp rise in cases, and a lockdown would be an absolute last resort.
The latest research by ANZ and Roy Morgan shows confidence fell 0.5% in the last week — its third weekly decline. Its report noted deteriorating conditions in Melbourne are driving the anxiety, with economic sentiment conditions falling 3.4% over the week.
And the Westpac-Melbourne Institute Index of Consumer Sentiment fell 6.1% to 87.9 in July from 93.7 in June. The timing of the survey is relevant. It covered the week in which the lockdown was announced for Melbourne but the survey closed before the news of a significant cluster was reported for Sydney.
Sentiment has been rocked by the resurgence in Coronavirus cases over the last month. It is of some concern that the survey pre-dates the news of a significant cluster of cases in Sydney which emerged last weekend – a day after the end of the survey. State readings underscore the importance of virus-related developments: Victoria’s sentiment index plunged 10.4% in July but sentiment across the rest of the nation showed much milder declines (down 4.5% on a combined basis). While milder, the weakness in other states is also likely to be linked to the outbreak in Victoria, reflecting concerns about the virus spreading interstate and spill-over effects on the wider economy.
But business confidence and conditions across the country registered a record rebound before the Victorian COVID-19 lockdown last week the latest NAB Business survey reveals. Trading, profitability, forward orders, and employment intentions, all surged in June as restrictions across the country had started to relax and power up business activity. Confidence rose by 21 points to 1 index points in the month – a third consecutive large increase in confidence, while business conditions rose 17 points to -7 index points – continuing last month’s rebound after falling below GFC lows in April. Despite the solid overall improvement across May and June, there is still a long way to go, with most indicators still well below their long-run averages. Business conditions are 8pts below pre-pandemic levels, which were already relatively weak.
Advertising revenue for the metropolitan commercial radio stations, including 2GB, 3AW and KIIS, dropped nearly 47% in three months to June, as companies slashed spending during the coronavirus crisis. The industry booked advertising revenue of $114.1m in the fourth quarter of the 2020 financial year, down from $213.7m a year earlier, according to Commercial Radio Australia. Sydney, the nation’s biggest radio market, and Brisbane recorded the biggest falls.
Both markets also saw major hosting changes following the departure of veteran broadcaster Alan Jones from his long-running breakfast radio show on the 2GB and 4BC stations, which are owned by Nine Entertainment, at the end of May. Fourth-quarter ad revenue dropped 48.45% to $34.0m in Sydney and 48.48% to $16.9m in Brisbane. The Melbourne market fell 46.57% to $37.3m, Perth stations recorded a 43.87% fall to $14.8m, and Adelaide stations fell 40.92% to more than $11m.
Australia’s major radio companies include Nine Entertainment’s Nine Radio, formerly Macquarie Media, Southern Cross Media, HT&E’s Australian Radio Network, and NOVA Entertainment. The big drop is broadly in line with the broader media industry, which saw ad revenue fall more than 40% in May and June because of the health and economic crisis.
Mall vacancies have hit a 20-year high as eased coronavirus restrictions and increased foot traffic fail to alleviate the pain felt by many retailers, the latest figures from JLL show. With coronavirus shutdowns and restrictions putting pressure on retailers, the average number of empty shopfronts in shopping centres around the country rose to 5.1% in June from 3.8% in December 2019. It was the highest vacancy level in more than 20 years. If normally bustling CBD shopping locations and large format retail are included, the average vacancy rate rises to 6.3%, a jump of 1.5% over the same six-month period.
Debt collector Credit Corp’s profit will tumble to between $75 million to $80 million with the company warning about the impact of COVID-19. “Credit Corp expects persistently elevated levels of unemployment, the impact of which will be more severe for the Company’s credit-impaired customers, who are more exposed to the risk of unemployment for a prolonged period. As temporary support is reduced, collections will fall while loan book arrears will rise.”
Virgin Australia’s prospective new owner, US private equity outfit Bain Capital, urgently injected $125 million into the airline to ensure its immediate survival. Minutes from a committee meeting on July 1 offer the first glimpse into the financial covenants Bain entered to purchase Virgin. When the country’s second carrier fell into administration in late April concerns were raised that it did not have enough cash to fund its operations until the sale was completed, upon creditors approving the deal at an August meeting.
However, according to minutes from a committee of inspection meeting, Bain bridged that gap on July 1. The firm is also planning to pay unsecured creditors “hundreds of millions of dollars” for their debt, the minutes said. Still, this is significantly short of the nearly $2 billion Virgin owed them when it collapsed in late April. The minutes, which the airline’s administrators from Deloitte filed with regulators last week, reveal that the carrier plans to return to 35% of its pre-pandemic capacity to the sky by the end of August. Further, Bain is planning to retain at least 73 jets from the airline’s existing fleet as well.
Even as much of Australia’s second-largest state remains under lockdown, Qantas is attempting to lure its most loyal customers back to booking travel. To help compensate for “reduced flying activity,” the airline is offering elite frequent flyer members a 50% bump in status credits. The move will help push anxious loyalists closer to maintaining their membership tiers for the year. Reward seats for domestic and trans-Tasman flights will also be opened up to drum up demand. Qantas says it’s already seeing a strong interest in Queensland routes.
After being opposed by the Australian Competition and Consumer Commission and going through the Federal Court, TPG has finalised its merger with Vodafone Australia after almost two years since it was first announced. The combined entity, now worth $16.63 billion, adopted the name of TPG Telecom and now trades on the Australian Securities Exchange under the ticker “TPG” TPG has also spun out its Singaporean mobile business, TPG Telecom Pte Ltd, to a new company called Tuas Limited.
And that’s it for this week. And next week, I’ll be talking Hayden Brass from the little known oil company Zea Relief and its offer of a unique range of products that are changing the way people treat arthritis, inflammation, and pain at home. And I’ll be talking to Indeed economist Callam Pickering about Australia’s latest unemployment figures.
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.