IMF says the world may soon be teetering on the edge of a global recession, only two years after the last one
Welcome to Talking Business, a podcast produced in Melbourne Australia. The podcast is available on the Acast site, my own website, the Apple Podcast store or wherever you go to get your podcasts. Or you can get it at the Business Acumen website at www.businessacumen.biz.
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 26 in our series for 2022 and today’s date is Friday July 29.
First, I’ll be talking to Brandon Bach, the president of CCT, the makers of the EEASY Lid – the first jar lid innovation in over 75 years. The lid allows consumers to vent a jar by simply press a button the lid which opens a tiny slit that breaks the seal. Believe it or not, there are about a third of consumers who struggle to open jar lids. While a stubborn vacuum-sealed jar lid might be a minor inconvenience to some, it can be a major struggle for others with disabilities or physical limitations. The future of packaging is dependent on inclusive adaptation, and CCT is leading the charge.
And I’ll be talking to economist Saul Eslake.
But now, let’s talk to Brandon Bach.
The International Monetary Fund has said the global economy could soon be teetering on the brink of recession amid evidence that the world’s three biggest economies are all stalling and inflation is higher than previously forecast. The International Monetary Fund has significantly downgraded its outlook for the global economy for the second time in just three months as inflation and rapidly rising interest rates stymie activity. In a downbeat update to its April world economic outlook (WEO), the IMF cut its growth forecasts in 2022 and 2023 – and raised the prospect of a more pronounced slowdown. It said problems in the US, China and the eurozone had resulted in global output falling in the second quarter of this year – the first contraction since the start of the Covid-19 pandemic. The Washington-based IMF said it now expected the global economy to grow by 3.2% in 2022 – a 0.4-point reduction since April. The slowdown is predicted to continue next year, when growth is now forecast to be 2.9% – 0.7 points lower than had been pencilled in three months ago. The UK is forecast to grow by 3.2% in 2022 and by just 0.5% in 2023 – cuts of 0.5 and 0.7 points. The IMF expects the UK to slow down markedly in the second half of this year and to be the weakest of the G7 economies in 2023.
Australia’s inflation over the year to June hit 6.1% which is the highest level in 21 years, since the GST was introduced. The Consumer Price Index from the Australian Bureau of Statistics shows that prices rose 1.8% in the June quarter, which was slightly below the March quarter inflation rate of 2.1%. The most significant contributors to the rise in the June quarter CPI were new dwellings (+5.6%) and automotive fuel (+4.2%).
Global car manufacturers are calling for mandatory emissions targets on themselves and warning the slow take-up of electric vehicles could leave Australia with less choice and – in the worst-case scenario – mean some right-hand drive models are unviable. Confidential research authored by S&P Global for the Federal Chamber of Automotive Industries, which represents the major car companies, shows EVs will still only make up 76% of all vehicles sold in 2030 if the federal government does not move to accelerate their arrival. Only 18% will be electric-only vehicles, the estimate shows. Before the May election Labor said it would remove taxes on EV vehicles and set targets for government fleets – and suggested that modelling showed 89% of new cars would be electric by 2030. But the FCAI, in its discussions with the government, has warned the key issue is the availability of EVs, with manufacturers prioritising exports to regions with stricter emissions rules. In a far-ranging proposal put to the government, the FCAI recommends emissions targets be placed on manufacturers to push a greater supply of EVs to Australia. The modelling by S&P Global forecasts only 12% of cars in Europe, 17% in China and 35% in North America will have an internal combustion engine by 2033. In South Asia, a key vehicle sourcing region for Australia, that figure will be 63%, leading “to less electrification headed to Australia”.
Consumer confidence gained 0.7% last week following a 0.2% increase the week before, the latest ANZ-Roy Morgan Australian Consumer Confidence survey shows.
The mainland Chinese market, once a goldmine for Australian winemakers as local drinkers filled their glasses and banquet tables with more than $1bn a year in Australian wine, has been crushed to become just a tiddler $25m market following years of political tensions and punishing trade tariffs. Year on year exports to China last financial year have collapsed by nearly 96% to $24.6m – ranking it about the same size in terms of Australian wine consumed as Sweden and only slightly more than the Muslim nation of the United Arab Emirates. The latest export figures released by Wine Australia have revealed that in the wake of tariffs slapped on Australian wine by Beijing in late 2020 of as much as 218% the China market has gone from Australia’s biggest wine export destination to one of its smallest that now only buys 1% of wine exports. The average value of Australian wine sold into China now has also collapsed by 65% to an average of $4.09 per litre, to totally destroy a once buoyant market that could devour as much Penfolds Grange and other luxury premium wines Australian winemakers could send off to the Asian giant.
Multi-billion dollar Melbourne developer Caydon Property Group, whose projects include the redevelopment of the famed Nylex site in Cremorne,, has collapsed in the biggest private developer failure since Ralan and Steller. Insolvency specialists McGrathNicol said Matthew Hutton and Matthew Caddy had been appointed receivers and managers of Caydon by Asian-based non-bank lender OCP Asia, which holds security over Caydon’s assets and properties. OCP Asia was also a financier of Stellar Group which collapsed in 2019.
Car manufacturing giant Ford has struck deals with Australian miners, including BHP and Rio Tinto, to secure supplies of critical battery minerals to power its transition to electric vehicles. Mining giant BHP announced on Thursday it had signed an agreement with the US automaker to explore options to supply nickel from Western Australia for EV batteries. Anglo-Australian mining giant Rio Tinto also announced a partnership with Ford for supplies of lithium, low-carbon aluminium and copper. Under the deal, Ford said it may become the foundation customer for Rio’s large Rincon lithium development in Argentina once it begins production in coming years. Ford said on Thursday it had secured enough battery minerals from various deals around the world to produce 600,000 EVs by late 2023; a jump from the 27,140 battery-powered cars it sold last year.
As global sales of electric cars rise, automakers are racing to lock in scarce supplies of key raw materials such as nickel, cobalt and lithium needed to build millions of electric batteries. The forecast supply crunch sparked a stunning rally last year in lithium prices, one of the building blocks for EV batteries. Australian lithium minnow Ioneer also announced on Friday it had signed a more advanced binding agreement to supply Ford with lithium from its flagship American lithium-boron mine in Nevada, once it is expected to begin production in 2025.
The federal government will move to gut the controversial construction industry watchdog of its powers this week in a decision set to spark a fresh battle between employers and unions over worksite intimidation tactics and productivity. Workplace Relations Minister Tony Burke had flagged that the Australian Building and Construction Commission would be defunded before Labor introduced legislation to disband it, but he announced on Sunday that its remit would be reduced to the “bare legal minimum” and its most “ridiculous powers” would be scrapped altogether from Tuesday. The commission is the most recent iteration of a building industry watchdog and was created by the Coalition government in 2016 to tackle lawlessness in the construction sector. It pursued prosecutions against the militant CFMEU construction union and other unions and enforced the building industry code. The code covers a list of rules specific to the building industry for government-funded projects and includes right-of-entry obligations; collusion and compliance laws; limits to the display of union insignia such as flags; and restrictions on workplace agreements. Employer and construction groups said the shock move would jeopardise the economic recovery by delaying and increasing the cost of vital infrastructure projects, and the opposition said that Labor had once again capitulated to its CFMEU paymasters. The unions, however, hailed it as a move to restore equity and fairness to the building industry by removing measures “focused on wage suppression”. The code bans several controversial provisions from inclusion in workplace agreements. Immediately, the unions gave notice that they would pursue conditions banned under the building code. These include paying labour-hire workers the same as full-time employees performing the same work, and infringing on managerial prerogative by stipulating, for example, who can and cannot be employed on a site, such as the number of apprentices and casuals.
The Albanese government faces a struggle in the Senate to abolish the Australian Building and Construction Commission, but is prepared to defund the watchdog should the legislation fail. And even without the funding threat, the ABCC would still operate with limited powers if the legislation failed because the Opposition cannot muster the numbers to disallow the regulations which have been used to gut it. At the end of the day, the government was prepared to strip the ABCC of funding if need be. Labor pre-election costings contained plans to savage the ABCC’s operating budget this coming financial year, identifying $28 million in savings from the watchdog’s $35 million budget. The savings increase to $36.6 million in the 2025-26 financial year, equivalent to the commission’s entire budget.
Wesfarmers’ retail chains, Bunnings and Kmart, have paused the use of facial recognition technology as the Australian Information Commissioner presses its investigation over privacy concerns. Earlier this month, the Office of the Australian Information Commissioner (OAIC) opened investigations into the personal information handling practices of both chains focusing on the companies’ use of facial recognition technology following a report from consumer advocacy group Choice. The Good Guys – owned by electronics and white goods retailer JB Hi-Fi – in late June paused the use of facial recognition technology in its stores while OAIC investigated. Perth-based Wesfarmers bowed to pressure to stop using the technology at the weekend after Choice released names of large retailers that do not collect and use such biometric information including Coles, Woolworths, Aldi, Myer and David Jones.
Farming and business groups and a former top diplomat to Indonesia have backed keeping the border open with Australia’s northern neighbour, warning an over-reaction to the foot and mouth disease outbreak risks $500 million in trade and could be as damaging as the 2011 live cattle ban. Prime Minister Anthony Albanese warned that shutting the border could damage two-way trade and insisted the federal government had introduced the “strongest ever” biosecurity measures to keep the disease out of Australia. Albanese pushed back at calls from opposition frontbench MPs – including Karen Andrews and Barnaby Joyce – to consider shutting the border, arguing that “if we do that … then there of course will be a response”.
Australian airports have been ranked among the worst in the world for flight delays and cancellations, putting them in the same category as London Heathrow and Amsterdam’s Schiphol Airport. On-time performance for June compiled by aviation analytics site OAG ranked Melbourne Australia’s worst at 631st, behind Schiphol at 658, Toronto’s Pearson Airport at 653 and Heathrow at 642. Sydney Airport came in at 597, the Gold Coast at 587, Perth 567 and Brisbane 524 in the comprehensive list of international and domestic gateways. According to the OAG data, fewer than half of all flights departing from Melbourne took off on time in June, and 8.1% of services were cancelled. In Sydney, 54.5% of flights departed within 15 minutes of schedule and 7.1% were cancelled. Travellers out of Brisbane fared considerably better in comparison with 63.4% of flights taking off on time, and fewer than 5% were scrapped.
The $2 billion agribusiness group Elders is part-way through a $25 million investment in a new wool handling business where a large facility on the outskirts of Melbourne will have 22 electric driverless vehicles helping to move wool bales. Under the code-name Project Casino, the 35,000 square metre facility will be up and running at Ravenhall in outer Melbourne by mid-2023. The Ravenhall facility will have seven charging stations for the electric autonomous guided vehicles. The driverless units will be operated through a high-tech software network which is part of the $25 million in capital spending.
More than half of the country is now experiencing declines in property values. That is according to a suburb-level analysis from PropTrack. The biggest declines in Sydney through the June quarter were houses in Mulgoa, western Sydney (-22.72%), units in Taren Point, southern Sydney (-22.11%) and units in Manly (-20.44%). In Melbourne it was houses in Dandenong South in the southeast (-20.86%), houses in Red Hill (-20.36%) and houses in Flinders (-19.34%), both on the Mornington Peninsula. PropTrack director of economic research Cameron Kusher said the property market in Sydney and Melbourne had already been slowing before interest rates rose in May. Interest rates have increased 1.25% in three months. In Hobart, the data showed units in Battery Point, just south of the CBD, declined the most in the June quarter (-20.58%). In Adelaide, it was units in the coastal suburbs of Hove and Grange (-16.14%). Units in the Canberra suburb of Watson declined by -22.89%, the largest across the capital cities, and houses in Griffith declined by -22.42%. Houses in the affluent Perth suburb of Peppermint Grove dropped -13.34%. Houses in Larrakeyah, an inner suburb of Darwin, saw a -20.60 decline, and units in Birkdale, Brisbane, declined -22.69%.
Australian companies are less sophisticated than their overseas counterparts when it comes to adopting artificial intelligence, a new report says. The Committee for Economic Development report says AI is still in the early phases of implementation in many Australian companies and industries, with only 34% of firms using it across their operations. The report points to Stanford University’s Artificial Intelligence Index, which showed Australia’s private investment in AI was valued at $US1.25 billion ($1.8 billion) in 2021. Up from just shy of $US300 million in 2020, this marked the biggest yearly jump since 2014, and put Australia ahead of South Korea, Hong Kong, Singapore, Spain and Portugal. However, Australia remained well behind France ($US1.55 billion), Canada ($US1.87 billion), Germany ($US1.98 billion), Israel ($US2.41 billion), the UK ($US4.65 billion), China ($US17.2 billion) and the US ($US52.8 billion).
Fallout from the COVID-19 pandemic is expected to fuel a surge in class actions because the crisis would have “masked fundamental business weaknesses”, industry veteran John Walker says. Mr Walker, of litigation funder CASL, said the election of the Labor government would also help the pendulum swing back in favour of those seeking to lodge class action claims. CASL is cashed up after recently raising $155 million for claims that will only be run in Australia. The bulk of the funds came from offshore institutional investors and will be invested over the next two years. In 2012, 17 claims were filed in Australian courts. This rose to a high of 62 in 2020, before coming back to 53 filings in 2021, amid uncertainty created by Coalition plans to limit the amount that could be paid to litigation funders and lawyers in class actions.
And that’s it for this week. And next week, I’ll be talking to James Brown, CEO of Smart Communications, a leading technology company that helps businesses engage in more meaningful customer conversations. Smart works with top Australian government agencies and highly regulated companies, and James can discuss the current customer experience landscape he’s seeing in the country. And I’ll be talking to economist Nicholas Gruen.
Wishing you all a safe and healthy week. And looking forward to bringing you Talking Business next week.