Unlucky 13. We have seen the 13th increase in official interest rates by the RBA since May last year. Cash rate now at 4.35%
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 or at Banking Day.
For the most exclusive access to leading economists and business leaders from around the world, subscribe to Talking Business from my website leongettler.com.
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 41 in our series for 2023 and today’s date is Friday November 10.
First, I’ll be talking to Steve Orenstein, the founder and CEO of Zoom2U Technologies which enables private drivers to become couriers,
And I’ll be talking to Indeed economist Callam Pickering about the latest jobs figures.
But first, let’s talk to Steve Orenstein
So what’s happening in the news.
The downturn in euro zone business activity accelerated last month as demand in the dominant services industry weakened further, a survey showed on Monday, suggesting there is a growing chance of a recession in the 20-country currency union. The economy contracted 0.1% in the third quarter, official data has shown, and Monday’s final Composite Purchasing Managers’ Index (PMI) for October indicated the bloc entered the final quarter of 2023 on the back foot. HCOB’s PMI, compiled by S&P Global and seen as a good guide of overall economic health, fell to 46.5 in October from September’s 47.2, its lowest reading since November 2020 when COVID-19 restrictions were tightened on much of the continent. That was below the 50 mark separating growth from contraction for a fifth consecutive month and matched a preliminary estimate. Manufacturing activity took a further step back in October, according to a sister survey last week which showed new orders contracted at one of the steepest rates since the data was first collected in 1997. It was a similar picture for services and the new business index, a gauge of demand, was its lowest since early 2021 as indebted consumers feeling the pinch from price rises and increased borrowing costs kept their hands in their pockets. Services activity in Germany, Europe’s largest economy, slipped back into contraction in October amid persistent weakness in demand while in France it shrank again. Italian services activity contracted for a third month running and at its fastest pace in a year but Spain bucked the trend and its services sector grew at a slightly faster rate last month.
A global recession could be triggered by the conflict in the Middle East as the humanitarian crisis compounds the challenges facing an already precarious world economy, two of Wall Street’s biggest names warned this weekend. Larry Fink, chief executive of the world’s largest asset manager, BlackRock, said a combination of the Hamas atrocities of 7 October, Israel’s resultant attack on Gaza and Russia’s invasion of Ukraine last year had pushed the world “almost to a whole new future”. In an interview with the Sunday Times, he said: “When the Russian invasion occurred in Ukraine, we said that the peace dividend is over. Geopolitical risk is a major component in shaping all our lives. We are having rising fear throughout the world, and less hope. Rising fear creates a withdrawal from consumption or spending more. So fear creates recessions in the long run, and if we continue to have rising fear, the probability of a European recession grows and the probability of a US recession grows.” Jamie Dimon, the chair of America’s biggest bank, JP Morgan,, told the same newspaper that the combination of Israel’s war on Hamas and Russia’s invasion of Ukraine – were “quite scary and unpredictable”. “Here in the US we continue to have a strong economy. We still have a lot of fiscal and monetary stimulus in the system. But these geopolitical matters are very serious – arguably the most serious since 1938,” he said. “What’s happening on the geopolitical front right now is the most important thing for the future of the world – freedom, democracy, food, energy, immigration.” The comments come three weeks after similar apocalyptic remarks from Dimon, who is one of the world’s best known financiers. Three weeks ago, he issued a warning that the world may be living through “the most dangerous time the world has seen in decades”, with the escalating conflict potentially having “far-reaching impacts” on energy prices, food costs, international trade and diplomatic ties. At the bank’s most recent update to Wall Street last month, Dimon said: “The war in Ukraine compounded by [the] attacks on Israel may have far-reaching impacts on energy and food markets, global trade and geopolitical relationships. This may be the most dangerous time the world has seen in decades”.
Australia’s borrowers have been dealt another blow with the Reserve Bank lifting its key interest rate for the first time in five months to ensure inflation keeps falling. The RBA board on Tuesday decided to hike its cash rate 25 basis points to 4.35%, a 12-year high. The increase, widely anticipated by economists, was the central bank’s 13th rate rise since May 2022. New governor Michelle Bullock and the board had lately sent repeated signals they were poised to resume rate rises if inflation didn’t slow as expected. The RBA remains ready to hoist interest rates again if required, she said in an accompanying statement. The Reserve Bank’s reasons for the hike centred around stubborn services inflation, noting that key data since the October meeting pointed to inflation remaining higher for longer. As Bullock noted in her statement on Tuesday, after lifting the base rate by 0.25 of a percentage point to 4.35%, inflation is likely to be only back to the top of the RBA’s target range of 2% to 3% by the end of 2025. The RBA wanted insurance against missing that target, and Tuesday’s rate rise is it. Bullock said any further rate rises would depend on upcoming economic data and issues including developments in the global economy.
Westpac’s annual net profit has surged by 26% to $7.19bn, as its business and institutional banking units benefited from higher interest rates, offsetting margin pressure from intense mortgage competition in its consumer unit. Profit in the second half came in at $3.19bn, up 32% compared to the same period a year earlier and in line with market expectations. That was still 20% below profit in the first half of the 2023 financial year
Brookfield and EIG are understood to be in the process of launching a hostile takeover bid for Origin Energy by Christmas. The offer will be at a lower price than the $9.53 per share offer that is currently on the table through a scheme of arrangement structure, where shareholders vote on the transaction for it to gain approval. Under the takeover bid structure, the suitors buy shares directly on the market. It is understood that the takeover bid will be put forward by both Brookfield and EIG within the coming weeks, subject to a minimum acceptance of 50.1%. It means the race will be on for the two bidders to amass shares after AustralianSuper recently lifted its interest to just under 15% from 13.67%, outlaying up to $182m to buy shares through Macquarie Capital. The bidders were recently released from their standstill agreement, which means they can now buy at least 5% of the company if they also launch a takeover offer. The move comes after AustralianSuper – the country’s largest superannuation fund – rejected the sweetened $16bn deal to buy Origin, which was an 8.2% or $1.2bn increase from its original offer of $8.81 per share maintaining the offer undervalues the company.
The number of companies that collapsed in October soared 43%, with an increasingly aggressive tax office ramping up the pressure as the holiday slowdown period looms for many under-pressure businesses dealing with interest rate rises. Revive Financial head of business, restructuring and insolvency Jarvis Archer said with the July to September quarter Business Activity Statements (BAS) falling in October, many businesses had watched their ATO debt jump. There were 569 liquidation or administration appointments nationally in October, almost 43% more than the 399 in October last year, according to preliminary data from the Australian Securities & Investments Commission. In October, NSW recorded 237 company collapses, up almost 22% of the 195 recorded 12 months previously, while Victoria had 138 – an increase of 79% from 77 the previous year. There were 85 in Queensland in October, 42% more than the 60 recorded in October last year. Western Australia recorded 54, compared to 32, South Australia 34 (19), the ACT 10 (five), and Northern Territory 4 (three). Revive Financial head of business, restructuring and insolvency Jarvis Archer said construction, hospitality and retail had seen the biggest jumps in failures.
Small to medium businesses are facing an increased risk of cyber attacks as larger organisations harden their defences against malicious data breaches, prompting cyber criminals to look for softer targets. A new report by CyberCX has sounded the alarm on a of cyber attacks facing small businesses as larger companies acquire more sophisticated defences against cyber attacks. The research also reveals total cyber extortion attacks are at record levels, with ransomware attacks and data theft extortion the most popular types of cyber crime since 2019. Professional services firms remain the most affected by cyber crime, followed by engineering and manufacturing firms and then healthcare and IT.
Services Australia will get 3000 extra staff after a more than doubling of claims in the first quarter of the financial year and a decade-long rundown in headcount prompted the Albanese government to boost the agency’s budget by $228 million. The funding will seek to reduce a blowout in call waiting times for Centrelink, Medicare and child support services, including to more than 30 minutes for employment services. Expansions in welfare eligibility, including for the seniors’ health card and childcare subsidies, drove a 155% spike in claims for the three months to September 30. Claim levels had already lifted by nearly a third over the last five years. Service Australia staff are also having to work through a significant backlog welfare debt recovery after those efforts were paused during the pandemic. Faced with what an official described as a “perfect storm”, the cabinet’s expenditure review committee agreed to lift staffing levels as part of the mid-year economic and budget review. During the past financial year only 61% of calls were answered within Services Australia’s 15-minute target, down from 68% in 2021-22 and well below the 80% target the agency previously targeted. The call delays were worst for welfare payments, with only 36% of calls answered within 15 minutes. The big investment in new front-line staff comes after average staffing levels in the large service agency had fallen over the last decade, down from 31,000 in 2012-13 to 26,600 at latest count. The number of staff focused on service delivery has fallen from 25,000 to around 21,000, causing a ballooning in overtime. Over $95 million was paid out in the last financial year for a series of Saturday working blitzes to process backlogs. Headcount across the Australian Public Service is on track to rise 15% higher than pre-pandemic levels to a record-high of nearly 192,000. This compares to 166,000 in 2015-16, the lowest staffing level during the previous Coalition government. Government Services Minister Bill Shorten said 2000 of the new roles would be new frontline staff, and almost all will be hired outside of Canberra.
China has declared the relationship with Australia to be at a “new starting point” following a historic meeting in Beijing on Monday night between Anthony Albanese and Chinese President Xi Jinping. In their first formal meeting since their breakthrough talks in Indonesia a year ago, Mr Xi heralded Mr Albanese’s efforts to repair the relationship. Mr Albanese told Mr Xi the occasion was historic and that “Australia along with other countries in the region has an interest in continued stable growth in the Chinese economy”. In private talks after their opening remarks, Mr Albanese was expected to raise the gamut of bilateral issues with Mr Xi, ranging from concerns about China’s territorial encroachment, its human rights abuses, the ongoing detention of dual citizen Yang Hengjun and trade. It was also anticipated he would invite Mr Xi to visit Australia. Mr Albanese will hold separate talks with Premier Li Qiangon on Tuesday, as well as receive a ceremonial welcome at the Great Hall of the People. China wants Australia’s support for its entry into the regional free trade pact, the CPTPP. Mr Albanese said on Sunday China had to lift its game in terms of adhering to a global rules-based order on trade before it would be accepted. He also sought assurances that China would lift its remaining trade sanctions on Australian lobster and red meat exports.
The corporate watchdog is taking TelstraSuper to court claiming it failed more than 200 times to respond to customer complaints quickly enough or adequately, in a landmark case which is the first time a retirement fund has been sued for this type of alleged misconduct. Financial Services Minister Stephen Jones has warned super funds the government would consider further regulation of the sector if it did not drastically improve its customer service and retirement advice, building pressure on funds to do better. Fund bosses have conceded their customer service offerings fall short of the standards consumers expect, but say they need the government to reform financial advice laws if it expects them to significantly clean up their act. In court documents filed late on Friday, the Australian Securities and Investments Commission alleged that TelstraSuper failed to comply with its own internal dispute resolution processes for 40% of the 330-plus complaints it received from customers in the 15 months to January this year. This included failing to respond to 106 complainants within 45 days, as super funds are required to under law. One complainant did not get a response from TelstraSuper for 276 days, while others waited from 101-105 days, ASIC alleges. The profit-to-member fund manages more than $25 billion in retirement savings for nearly 100,000 members. Historically only offered to Telstra staff, the fund opened up its membership to the public last year.
AustralianSuper was the worst retirement fund for complaints last financial year, with grievances about the behemoth more than doubling to 1750, or more than two times the average of major providers on a per-member basis. There were 6.1 complaints per 10,000 customers made to the Australian Financial Complaints Authority in the 2023 financial year about AustralianSuper, compared to an average of 2.7 and far outstripping the next highest, which was Cbus with 4.4. AustralianSuper recorded the biggest jump in complaints last financial year compared to the previous one, with an increase of 127%, analysis of AFCA data shows. The fund, which manages $300 billion-plus in retirement savings for more than 3.2 million Australians, said it was ramping up its investment in customer service in response. The Australian Retirement Trust recorded the next biggest increase in complaints with 92.4%, the analysis revealed, followed by Cbus (85.8%) and Hostplus (85.3%). Cbus, AMP, BT and Hostplus rounded out the top five most-complained about major funds, with grievances per 10,000 members of 4.4, 3.5, 3.3 and 3.1 respectively.
The corporate watchdog’s decision to abandon naming and shaming poor audit quality among the big four consulting firms removed a key deterrent of poor behaviour, a review has concluded. The Financial Reporting Council, which oversees Australia’s financial reporting framework including accounting and auditing standards, also criticised the Australian Securities and Investments Commission’s decision to slash annual audit quality checks, which were already “very low”. In a review of audit quality oversight published on Monday, the council said ASIC’s decision to conduct just 15 reviews of high-risk audits in 2022-23 raised serious questions about whether it had “sufficient coverage of the audit” to enable adequate monitoring. That number in 2022-23 was a third of the 45 conducted the year before, which was also lower than in previous years. “Given that there are approximately 1900 entities on the Australian Stock Exchange the number of files reviewed is very low,” the report said. The audit inspection program involves trained officers from ASIC reviewing “high-risk” audits of company accounts to assess if enough has been done to justify findings. The FPR report noted the public reporting of poor audit quality among Australia’s six largest accounting firms provided an important deterrent to poor behaviour, including media and parliamentary attention on negative findings. Now axed naming and shaming of firms was one of a few completed recommendations of the 2020 Senate report into audit quality. Other deterrents under the existing program included financial penalties for audit partners from a negative ASIC review imposed by the audit firm and firms being concerned about the possibility of losing or not winning audits based on higher levels of negative findings compared with competitors. In July, there were reports ASIC had scaled back its oversight program and sacked its chief accountant in a restructure that allocated more money and staff to enforcement rather than prevention. The change sparked criticism from peak accounting bodies who labelled the decision surprising and concerning. ASIC said undertaking 45 reviews each year was too time- and resource-intensive and that a more targeted approach, focusing on specific and significant issues rather than a broad sweep, would yield better results. The same restructure also cut staff from ASIC’s corporate finance function that scrutinised mergers and acquisitions, company fundraisings and sharemarket listings. That team was reduced from more than 20 down to about 12 at one stage, sparking concern from lawyers and investor groups.
A Sydney jewellery shop and its owner have been ordered to pay a record amount of general damages for sexual harassment, which included him slapping the bottom of a female employee and asking her on several occasions to start an intimate relationship. Federal Court Justice Anna Katzmann awarded Fiona Taylor $268,233.64 in damages after finding she was sexually harassed by Simon Grew, owner of Grew & Co, and was victimised after filing a complaint to the Australian Human Rights Commission. Maurice Blackburn principal lawyer Mia Pantechis who ran Ms Taylor’s case, said the decision set a record for the highest general damages awarded in a sexual harassment matter under the federal Sex Discrimination Act (SDA). Ms Taylor was awarded $140,000 in general damages, $15,000 in aggravated damages, $23,070.75 for compensation of past economic loss, $46,284 for future economic loss, $3000 for future out-of-pocket expenses, and $40,000 for victimisation. The largest general damages award under the federal SDA was $120,000 in 2019. Mr Grew and his company were also ordered to pay Ms Taylor’s costs. Ms Pantechis said the ruling was an important step towards increasing sexual harassment compensation awards.
And that’s it for this week. And next week, I’ll be talking to David Chinn, the president and chief marketing officer for Lexer, the Australian-born customer experience and data platform.
And I’ll be talking to CommSec chief economist Craig James about what’s in the market for the week ahead.
For the most exclusive access to leading economists and business leaders from around the world, subscribe to Talking Business from 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
