The International Monetary Fund trims its global growth outlook and warns recession risks have grown on tremors in the banking sector.
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I am Leon Gettler. My job is to review and monitor the week’s news in business, finance and economics. I bring it all to you, every week.
This is episode number 11 in our series for 2023 and today’s date is Friday April 14
First, I’ll be talking to Sharon Morris, General Manager, Australia & New Zealand at Chartered Institute of Procurement & Supply talking about the importance of social procurement. And I’ll be talking to economist Nicholas Gruen about the future board of the RBA.
But now, let’s talk to Sharon Morris.
The International Monetary Fund trimmed its global growth outlook Tuesday and warned recession risks have grown on tremors in the banking sector. The IMF now sees global economic growth at 2.8% in 2023, slightly below its estimate of 2.9% in January. “Risks to the outlook are squarely to the downside,” the IMF said. “Much uncertainty clouds the short- and medium-term outlook as the global economy adjusts to the shocks of 2020–22 and the recent financial sector turmoil. Recession concerns have gained prominence, while worries about stubbornly high inflation persist.” There’s been a recent crisis of confidence in the banking system. Silicon Valley Bank and Signature failed after a run on deposits last month, while other specialist lender Silvergate was forced to wind down operations. Overseas, Credit Suisse was bought up by rival UBS after concerns around the Swiss lender’s health. There is a significant risk that the banking turmoil will tighten global financial conditions more than anticipated, which would further weaken business and consumer confidence, the IMF said. Additionally, the Federal Reserve has continued to raise interest rates in a bid to combat inflation, and some economists have warned that its aggressive stance has raised the odds of a recession.
Tupperware, the US maker of food storage containers, has warned that it could go bust unless it can quickly raise new financing. The 77-year-old firm said there was “substantial doubt about its ability to continue as a going concern”. Tupperware has been attempting to reposition itself to a younger audience but has failed to stop a slide in its sales. Neil Saunders, managing director of retail at the consultancy GlobalData, said Tupperware has “failed to change with the times in terms of its products and distribution”. Mr Saunders said it was doubtful whether Tupperware could do enough now to turn itself around. He said that if the company had made changes 10 years ago, such as selling in shops or through wholesale, it may be in a different position now. However, the brand name is still well-known, he said, and the company could appeal to a retail giant such as Walmart – which used to own Asda – or even Amazon.
The Albanese government is optimistic that a breakthrough over China’s punitive tariffs against Australian barley paves the way to lift the remaining trade sanctions that crippled $20 billion of exports at the height of political tensions between Canberra and Beijing. In a big backdown by Beijing over its campaign of economic coercion against Australia, China will conduct a snap review of its tariffs on barley. potentially allowing it to avoid an adverse ruling by the trade umpire. Under the deal brokered by officials, Australia will suspend its World Trade Organisation appeal against the tariffs for three months, and a fourth if required, while the expedited review is under way. A favourable outcome should be a guide for resolving the other Australia-China trade case before the WTO, involving tariffs on Australian wine, Foreign Minister Penny Wong and Trade Minister Don Farrell said.
The Grattan Institute has warned that Australia is staring down another decade of budget deficits unless the federal government implements sweeping reforms, including cutting superannuation tax concessions, reining in the NDIS and lifting the GST to 15%. It also says the government should redesign the so-callde Stage 3 tax cuts so they are less generous to the highest income earners It also suggested limiting negative gearing, so investment losses cannot be written off against “unrelated” labour income, raising about $2 billion annually. Other revenue measures include a new 10% Commonwealth royalty on offshore gas, which would raise $4 billion annually, and uncosted measures to introduce a carbon tax and an inheritance tax. Reining in the rapidly expanding National Disability Insurance Scheme by providing additional support outside the program would also take pressure off the budget.
MilkRun, the rapid local delivery service, will close and make its staff redundant, bringing an abrupt end to a company which raised one of the biggest early-stage funding rounds in Australian venture capital history. Deteriorating economic conditions have made it difficult for the company’s founder Dany Milham to raise fresh funding, and he told staff on Tuesday that cash-burning Milkrun would be shut down by the end of the week. While MilkRun, the largest of the local delivery companies, and its peers changed how younger, inner-city consumers in Sydney and Melbourne shopped, it has also faced increasing competition from Woolworths and Coles who have aggressively invested to match newer operators. MilkRun launched in Sydney in 2021; creating a network of warehouses dubbed dark stores, which stock up grocery products and enable delivery riders on e-bikes to get groceries to customers in 20 minutes or less. Customers ordered through a mobile app.
A company that provided services to both Woolworths and Coles that spectacularly collapsed late last year owes $5 million to creditors, financial records have revealed. Melbourne-based REDcycle, which offered Australia’s largest soft-plastics recycling program, went under after it was revealed hundreds of millions of bags and other soft plastics were secretly stored in warehouses and not recycled. Launched in 2011, the company was declared insolvent after it failed to pay storage fees on the thousands of tonnes of plastic, despite earning $20 million from the Coles and Woolworths program that had run for the previous decade. In February, Woolworths and Coles said they would take on responsibility for tonnes of stockpiled soft plastic being stored in 32 sites – but secret stockpiles of plastic bags continue to be found. At least a dozen new sites have been located in the past month, including in Tasmania, Queensland and Western Australia. With a “limited” soft plastic recycling capacity in Australia and the potential that some material will no longer be suitable for recycling, it’s possible parts of the stockpile could go to landfill.
A diagnostics company backed by mining billionaire Andrew Forrest is donating thousands of PCR tests to Papua New Guinea to avoid Australia’s closest neighbour becoming a hotspot for new Covid-19 variants. Less than 5% of PNG is vaccinated against Covid-19, placing the country at a greater risk of becoming a breeding ground for coronavirus mutations. The pandemic has shown how fast such variants can circulate the globe, and medical technology start-up SpeeDx is moving to ensure that doesn’t happen. The company – which attracted $5m from Andrew and Nicola Forrest’s health technology investment fund, Tenmile, earlier this year – builds molecular tests that help doctors identify infections and the best treatment options. It comes after the Forrests’ private investment group Tattarang launched Tenmile last August, with an initial capital allocation of $250m to spend on “unmet medical needs that support sustainable and equitable healthcare”. Currently, PNG sends Covid-19 test samples to Australia for sequencing to identify variants of the virus – a process that can take about two weeks. The donated materials work on basic sequencing test machines and significantly increase access to Covid-19 tests, which will ensure effective test, trace, isolate, and treat strategies, as well as early identification and containment of new variants. But SpeeDX is not only focusing on bolstering PNG’s Covid-19 response but is also assisting the country in the surveillance of influenza and sexually transmitted infections via pathology-based testing.
Essential workers are spending about two thirds of their income on housing on average as the housing affordability crisis prices them out of their communities and exacerbates staff shortages across Australia. New analysis has found early childhood educators, aged care workers and cleaners are among the hardest hit as they are being forced to spend more than three quarters of their income on average on renting a place to live. The coalition of welfare and housing advocacy organisations behind the “Everybody’s Home” campaign has released a new paper comparing data on rents against the full-time award wages of people in 15 essential worker categories who are living alone. The “Priced Out” report says essential workers have lost an average of six hours from their weekly income to rent increases, which works out to a loss of 37 days’ pay each year — since before the pandemic. Typical unit rents across the country have increased by 31% over the past three years from $372 per week in March 2020 to $489 in March 2023. People on the lowest award rates are now being left with only around $20 a day after paying rent, based on the capital city average, according to the report. Everybody’s Home, which released the study to bolster its calls for the federal government to ramp up in investment in social and affordable housing, says rising rents means essential workers are likely to be in serious financial stress or relying on their partner’s income. Furthermore, the rental crisis means many essential workers can’t afford to move to parts of the country that are most in need of staff while others, such as those in aged care are leaving the profession altogether in favour of higher paid work.
The Melbourne man who invented mobile wireless EFTPOS in the 1990s, Daniel Elbaum, believes Australians will soon need to carry a wallet-sized personal security card to access banking and basic services to protect against the unstoppable threat of cybercrime. Computershare co-founder Tony Wales and trucking magnate Ian Cootes are among the investors who have already poured $125 million into Mr Elbaum’s venture, VeroGuard, which has been working on a solution to prevent cyber crime for the past 20 years. VeroGuard has invented the VeroCard, a multifactor authentication device the size of a business card. It offers the “same level of protection as a bank transaction during online use”, according to the VeroGuard website. Mr Elbaum said the device was already being used by defence forces and intelligence agencies, and it was only a matter of time until it became commonplace, replacing cards and passwords.
Australia’s largest media companies are warning the federal government its proposed privacy law reforms would allow affluent people, politicians and celebrities to avoid scrutiny and could inundate the court system. The Australia’s Right to Know coalition, a group of major Australian publishers, fiercely opposes proposed changes to the Privacy Act and claims it would have a “devastating impact” on journalists’ ability to do their jobs. In a submission to Attorney-General Mark Dreyfus’ review of the act, the group argues the government’s approach to reform is not evidence-based and misunderstands the role of news reporting. “Increased regulation will lead to a suppressed media, which violates the implied freedom of political communication,” says the submission from the group, which includes Nine, the ABC, Guardian Australia, The West Australian and News Corp Australia, owner of The Daily Telegraph, Herald Sun and The Australian. The Attorney-General’s Department released in February its review of the Privacy Act, a report that proposes a way for people to sue for serious invasions of their privacy. The department has sought submissions in response to its set of proposals from the sector. The changes are being considered as a way to better protect Australians from intrusions into their homes and digital lives, but similar laws overseas, such as in the UK, have allowed bankers and celebrities to suppress true but embarrassing stories such as of affairs and drug use.
New home building has slumped by 27% from its pre-pandemic high of five years ago,choking off housing supply just as Australia grapples with surging local and immigrant demand and a sharp drop-off in purchasing by mum and dad investors, who enabled the last big boost of new apartments and townhouses for rental stock. Analysis of ABS data shows quarterly home building starts had fallen to 45,489 by the September quarter last year, after rising to a high in the pre-pandemic period of 62,275 in March 2018, split evenly between houses and apartments. These figures reveal how after a debt and incentive fuelled spike in detached housing – now playing out with brutal consequences for builders such as Porter Davis and their customers – the country finds itself badly short of homes, just as migration resumes. As in past cycles, surging demand – and higher rental and purchase prices – will eventually trigger more supply. But it will not be like last time, when offshore and domestic investors lifted the country’s housing stock with a swell of apartment construction that peaked in mid-2015. Experts say the billions of dollars needed to fund the country’s next major boost in housing stock – over and above the historically consistent supply of detached homes to meet owner-occupier demand – will come from institutions such as local superannuation funds, global pension funds and insurers.
Thousands of Porter Davis customers hoping for a white knight home builder to swoop in and finish their incomplete homes have been dealt a blow after liquidator talks with “dozens of parties” failed to identify any capable of taking over all 1700 stalled builds. Liquidators have rejected as not “credible” a left field offer from a would-be white knight to buy collapsed construction giant Porter Davis Homes Group. Melbourne businessman Amit Miglani, who is the chief executive of MIG and Sons, revealed on Sunday that he had submitted a bid to purchase Porter Davis, which went into liquidation last month leaving about 1700 projects in limbo in Victoria and Queensland with another 779 contracts signed. The offer was to buy the business outright in a move that he claimed would keep all staff employed, protect homeowner deposits, and see all projects under contract completed. However, a spokesman for the liquidator Grant Thornton Australia said they have engaged with dozens of parties who have contacted them expressing various levels of interest in Porter Davis. “As advised to customers last week, while there is genuine interest in parts of the Porter Davis Group, the liquidators have not identified any parties that are willing and capable of taking over all builds for Porter Davis customers as part of a single sale transaction,” Grant Thornton said in a statement on Monday.
Cyber security experts have warned the rate at which criminal gangs and state actors are targeting the health care sector is “accelerating” because of the ability to cause significant damage – which increases the likelihood of being paid a ransom – or to steal cutting-edge research, a report has found. Leading cyber security body CyberCX has found that while health care companies had previously ranked cyber threats low on their list of concerns, with only 40% of health insurers listing it as a material risk in their annual reports, the nation is now in the midst of a “national data reckoning” following high-profile data leaks at Optus and Medibank. The report found that health care was one of the “most targeted sectors” because it hit a “sweet spot” of providing essential services and holding a high volume of sensitive data, which criminals know “hurts and causes damage” when released.
Supermarket and petrol station bosses are warning the federal government faces as much as a $5bn hole punched in its budget from lost tobacco excise and uncollected GST caused by collapsing tobacco sales, as smokers switch to illicit tobacco, counterfeit smokes and an explosion in vaping. Independent supermarkets, petrol stations, convenience stores and corner stores have witnessed a sharp fall in tobacco sales from their store counters as the skyrocketing price of legal tobacco encourages demand for illicit, counterfeit and loose tobacco – known as chop-chop” – with smokers looking to save money amid cost of living pressures. The huge popularity of prohibited e-cigarettes, or vaping, is also robbing legitimate retailers of sales, which in turn and combined with the massive growth in illicit tobacco is seeing lost collections of tobacco excise and GST. The threat to the Treasury’s forward estimates – estimated by the Australian Association of Convenience Stores to be as much as $5bn – was laid bare recently by one of the nation’s largest independent supermarket chain, Ritchies, in a presentation two weeks ago to its key food and grocery suppliers.
The nation’s biggest banks and financial services companies will be summoned to a series of unprecedented war-gaming exercises to test how they would respond to debilitating cyberattacks that could upend the lives of tens of millions of Australians. Home Affairs Minister Clare O’Neil said recent attacks on Optus, Medibank and Latitude Financial were just the tip of the iceberg when it came to damaging cyberattacks, and the government was preparing for more profound breaches that crippled critical infrastructure assets such as the water supply and electricity grid. O’Neil said the government had begun a series of cybersecurity exercises with the banking and finance sector because of its importance to the functioning of the economy. The government ran a three-hour tabletop exercise with representatives from the Reserve Bank, Australian Securities and Investments Commission, Australian Prudential Regulation Authority and Australian Federal Police last month to examine how they would respond to attacks involving the theft of sensitive data and encryption of information technology. Similar exercises will be held with individual banks before the government moves on to the aviation sector and other critical infrastructure networks.
And that’s it for this week. And next week, I’ll be talking to Mark Fazio, the co-CEO of MATE, an independently owned, Sydney based challenger telco provider that is taking on the big players in the industry through great customer service and exceptional value for their customers. And I’ll be talking to Indeed economist Callam Pickering about the latest unemployment figures.
In the meantime you can catch me on Facebook, Twitter, Instagram, LinkedIn and YouTube. And if you want leave a comment. For the most exclusive access to leading economists and business leaders from around the world, subscribe to Talking Business on the Apple podcast store or on my website leongettler.com.
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Wishing you all a safe and healthy week. And looking forward to bringing you Talking Business next week.