This is episode number eleven in our series for 2020 and today’s date is Friday, April 17.
First I talk to the founder and managing director of Two Hands, Greg McLardie. Two Hands is a company that exports hundreds of millions worth of lobsters into China during COVID-19 and it risks the Chinese fish markets where the live lobsters are exposed to terrible and unhygienic conditions. We’ll be talking about how they manage it.
And then I’ll be talking to AMP Capital chief economist Shane Oliver about the share market and how it’s traveling.
But first, let’s talk to Greg McLardie.
The International Monetary Fund predicted the “Great Lockdown” recession would be the steepest in almost a century and warned the world economy’s contraction and recovery would be worse than anticipated if the coronavirus lingers or returns. In its first World Economic Outlook report since the spread of the coronavirus and subsequent freezing of major economies, the IMF estimated on Tuesday that global gross domestic product will shrink 3% this year.
That compares to a January projection of 3.3% expansion and would likely mark the deepest dive since the Great Depression. It would also dwarf the 0.1% contraction of 2009 amid the financial crisis. It predicts the Australian economy would shrink by a massive 6.7% this year.
Global airline industry passenger revenue will plummet 55% this year, according to the latest International Air Transport Association forecast for the pandemic-hit sector. IATA on Tuesday (Wednesday AEST) ramped up its estimate of coronavirus-related worldwide losses among passenger airlines by another 25% to $US314 billion ($493 billion) and signaled that the turbulence could last well beyond the end of the lockdown period. “We have never seen a downturn this deep before,” said IATA director general Alexandre de Juniac. “Half of our business disappears. That’s catastrophic.”
Amazon is to hire another 75,000 workers in America to meet demand from customers shopping from home because of lockdown restrictions. The online retailer has already brought on an extra 100,000 workers in its warehouses and as delivery drivers. Since more than 16m Americans have lost their jobs in three weeks, the new posts are likely to be snapped up.
Oil producers reached a historic agreement on Sunday to support oil prices, but it is unclear it will succeed in doing so. America helped negotiate a deal between the Organisation of the Petroleum Exporting Countries, Russia, and other allies to reduce production by nearly 10m barrels of oil a day (around 10% of global supply), the largest voluntary output cut ever. Even more notably, the producers agreed to limit production for two years.
Yet the bargain’s impact is uncertain. Covid-19 has prompted oil demand to collapse; appetite for crude could drop by 20m barrels a day in April. The deal’s duration could support oil prices as demand picks up, but only if producers abide by its terms. In the past, Russia, Iraq and other big producers have regularly exceeded their quotas. Other countries may rebel, too—Mexico’s reluctance to agree to cuts almost derailed a deal entirely. Those hoping for stable, higher prices will be disappointed.
Global carbon emissions are tipped to fall 6% his year, more than during any previous economic crisis or war, led by a plunge in fuel consumption as the coronavirus hits economic activity and travel. But experts say that won’t be enough to achieve the Paris Agreement’s ambition of limiting global warming to as close to 1.5 degrees as possible.
Business confidence has plunged to its lowest level on record, even worse than the 2008 global financial crisis and early 1990s recession, as cash-strapped firms brace for an economic downturn of “unprecedented speed and magnitude”. The closely watched National Australia Bank business survey reveals government coronavirus containment measures have hit business sentiment.
Despite more than $200 billion in economic rescue spending by the federal government, emergency actions by the Reserve Bank of Australia, there was limited success in slowing the virus outbreak. Business conditions dropped 21pts to -21 in March. The previous record monthly low was -17 in February 2009. On a quarterly basis, this is not as weak as during the 1990s recession, when quarterly business conditions neared -40.
Confidence fell 63pts to -66. The previous record low (both monthly and quarterly) was -30 in November 2008. This was consistent with consumer confidence falling to a record low in late March. Business cash flow deteriorated in March, reflecting slowing sales and forced closures by governments under strict social distancing rules. A collapse in corporate profits caused business conditions to fall last month, with the recreation and personal services industries suffering the biggest hit.
Mining, finance and business and property services all suffered sharp declines in conditions. The exception was wholesale trade, which grew strongly due to grocery retailers stocking up on essential items demanded by panicked customers. NAB said forward orders by firms fell to their lowest level on record. Business confidence fell deep into negative territory to -66 points.
Real estate agents expect housing values to drop as much as 20% as buyers drop out of the market, prompting fears of a prolonged downturn that could force some agencies to close, according to an industry poll. The survey conducted at a CoreLogic platform, RP Data, showed more than a third (35%) of agents expect prices to drop between 10 to 20% and more than a quarter (27%) expect a deeper decline of more than 20%. 30% of the agents said the hefty price decline was already happening, while a similar proportion expect the price drop to occur in the next three to six months.
Unemployment is set to soar to its highest rate in almost three decades, with 1.4 million Australians expected to be out of work. The unemployment rate will rise from 5.1 % to 10% in the June quarter, according to Treasury figures, all but confirming Australia will enter a recession as it deals with the COVID-19 pandemic. The Treasurer said the economic shock from coronavirus was set to be far more significant than the global financial crisis.
It will be the first time the unemployment rate has hit double digits since April 1994 and the figure is a fraction below Australia’s peak unemployment rate of 11.2% in 1992. But Treasury’s estimates show the unemployment rate would be much higher, and peak at 15 percent, had the Government not intervened with the $130 billion wage subsidy program known as JobKeeper.
Qantas and Virgin Australia are set to receive a multi-million dollar rescue package to subsidise flights between capital cities after both airlines were forced to abandon much of their domestic networks because of travel restrictions crippling demand. The Morrison government is on the verge of signing off on the wave of assistance for the two major carriers, while admitting that overseas travel was likely to stay shut down until the end of the year. Deputy Prime Minister Michael McCormack spent the Easter weekend locked in negotiations with Qantas and Virgin executives including their chiefs Alan Joyce and Paul Scurrah over how the government can bolster flights for freight and passengers while keeping a lid on costs.
But Virgin is considering going into administration as it races against time to get out from under a $4.8bn debt pile. The government says it’s committed to having two airlines, it’s just not saying which two. Amid calls from the federal opposition leader Anthony Albanese, for the government to rescue the airline, it has hired insolvency and turnaround experts at Deloitte to work on restructure scenarios.
It is believed that as part of the restructuring effort Virgin Australia has also hired the debt expert Jim McKnight of the investment bank Houlihan Lokey, who has worked on some of Australia’s biggest corporate collapses and rescues including the shopping centre empire Centro, toll road company BrisConnections and Network Ten. Virgin Australia has halted trading, telling the market it is considering “ongoing issues with respect to financial assistance and restructuring alternatives” amid the COVID-19 pandemic.
Reliance on the private market to develop vaccines has failed, leaving us vulnerable to pandemics such as COVID-19, public health experts say. At least three SARS vaccines that may have prevented COVID-19 were cut off from funding as they were about to go into clinical trials.
Meanwhile, the global coalition spearheading the race towards a COVID-19 vaccine warns it is running out of funding. Manufacturing a vaccine is much more expensive than making a drug because it often involves modifying yeast or bacteria to produce a vaccine – a difficult and costly process. Because of those factors, the enthusiasm of the pharmaceutical industry to invest in vaccines has dropped dramatically in the last 20 years.
Vaccines are far more expensive to develop and produce than other drugs, and many of the potential customers are the global poor, making big pharma companies reluctant to invest. Nobel laureate and immunologist Professor Peter Doherty said the world needed to change its funding model for vaccine development. “There is just not enough profit margin in it for pharma companies,” he said. “They live by profits and the rules of capitalism. And capitalism has no interest in human beings other than as consumers.”
The coronavirus has triggered Australia’s self-sufficiency push. Australia’s reliance on imported products will be put under the microscope by the federal government as it pushes the economy to become more self-sufficient in the wake of the coronavirus pandemic. Federal Agriculture Minister David Littleproud has started quietly pulling together a policy roundtable from the public and private sectors. Agriculture is the industry “best placed” to thrive after COVID-19 restrictions are relaxed as rain soaks into drought-baked paddocks of eastern Australia. Mr. Littleproud said even though agriculture delivered just 2% of GDP, the industry would be crucial in helping the nation rebound after this crisis. He was circumspect about bringing back food manufacturing jobs but said there were opportunities for “new jobs in innovation and science” to boost livestock and crop yields with new farming techniques and technology.
The world’s fourth-biggest pension pool is bracing for multi-billion dollar outflows and diminished returns after Australia’s government allowed people hit by the coronavirus outbreak to dip into their retirement savings early. Australia’s superannuation industry expects as much as $50 billion to be withdrawn over the next five months, causing liquidity problems for some funds. The policy, which comes into effect April 20, also risks locking in investment losses as assets are sold to fund the payments amid the worst market volatility since the global financial crisis. While leading funds such as AustralianSuper say they have enough liquid assets to meet liabilities, they’ve expressed concerns about the plan and the likelihood that investors will miss the opportunity to ride the eventual market rebound.
Qantas staff are exploring options, including a class action alleging the airline failed to adequately protect them against Covid 19, after more than 59 employees became infected along with some family members. The Flight Attendants’ Association of Australia has begun exploring possible legal avenues for staff, amid deep dissatisfaction about the way in which Qantas has handled what they say are the risks, particularly to cabin crew.
The Australian Health Protection Principal Committee (AHPPC) has now acknowledged that international cabin crew face a higher risk and issued new guidance to the airlines, as Qantas gears up to begin limited scheduled international flights to Los Angeles, London, Auckland, and Hong Kong. The flights will operate for a month, Qantas said. Previously aircrew were exempt from quarantine – unlike their passengers – to allow them to maintain a semblance of normal life while staffing essential flights.
Television and radio spectrum fees will be waived for 12 months, $50 million put into regional news gathering and content quotas will be suspended for the rest of 2020, in a relief package from the government to help media companies navigate the COVID-19 pandemic. Communications Minister Paul Fletcher announced the package on Wednesday as part of an effort to help media companies, which are experiencing heavy drop-offs in advertising revenue due to brands pulling planned spending during government-imposed restrictions on movement aimed at stopping the spread of coronavirus.
But News Corp is warning the spread of the coronavirus will hit Foxtel and Kayo subscriptions due to the cancellation of most live sports, of weak listing volumes expected for its property classifieds businesses REA Group and Move, but says it is seeing growing digital book purchases and subscriptions for its news websites. Foxtel had already been under pressure before the outbreak of COVID-19 escalated in Australia over the last month, with a declining broadcast subscriber base.
It has turned to Kayo, its sports streaming service which was launched in November 2018, as a major part of its restructure and to provide growth. Kayo slipped back over the summer months during the cricket season and News Corp had pointed to the NRL and AFL seasons being the key for the service to take off again. But now with the AFL, NRL and Super Rugby seasons postponed, Foxtel and Kayo have come under renewed pressure.
McDonald’s has expanded the essential groceries available to customers during the coronavirus crisis. The fast-food chain announced last month it would begin selling basic groceries, such as bread and milk, during the pandemic. And now, it’s added eggs to that list. The newest items will be rolling out at stores nationally over the next week. The groceries are available through drive-thrus and takeaway services.
Westpac has set aside $900 million to settle a massive breach of anti-money laundering laws, in what would be the biggest fine in Australian corporate history. The potential fine is part of $1.43 billion of charges — including increased customer remediation — that will slash first-half profit, with newly appointed Chief Executive Officer Peter King warning further bad-debt provisions from the coronavirus crisis are coming.
The Sydney-based lender is still working out the extent of expected credit losses and will provide a further update before releasing first-half results on May 4, it said in a statement Tuesday. However, it expects to have a “significant” increase in bad-debt provisions. Earnings at all of Australia’s major banks are set to plunge this year as the coronavirus outbreak shuts down large swathes of the economy. Dividend payments, one of the key attractions of bank stocks for retail shareholders, are also under pressure after the regulator urged lenders to reduce payouts to shore up capital.
And that’s it for this week.
And next week, I’ll be talking to Didier Moutia, the commissioner of St John Ambulance Australia (NSW). And we’ll be talking about how St John Ambulance is using technology to support its 130 strong team of volunteers to remain connected and engaged with the organisation during this period of strict social distancing. This is a critical component for the organisation as it relies on a team of volunteers who are engaged to support the community.
The Granville Division of SJA exists to support its local health services with first aid support and services, and equipping individuals, families, and workplaces with high-quality equipment. The team also has a critical role in major incidents – like COVID-19 – where they will work alongside emergency services in times of need. And I’ll be talking to Indeed economist Callam Pickering, analysing 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.