Dr. Doom Nouriel Roubini turns Dr. Realist warning about global ‘debt trap’
Welcome to Talking Business, a podcast produced in Melbourne Australia. The podcast is available on the Acast app, 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 35 in our series for 2021 and today’s date is Friday October 1.
First, I’ll be talking to Alistair Leathwood, chief commercial officer for IRI, a world leading big data analytics business that works with many of the world’s household brands – food and grocery, liquor, petrol and convenience, pharmacy – in Australia. We will talk about how the health and wellness sector has performed during COVID and how shoppers have responded. And I’ll be talking to economist Sarah Hunter from BIS Oxford Economics.
But now, let’s talk to Alistair Leathwood.
The energy crisis in Europe presages trouble for the rest of the planet as the continent’s energy shortage has governments warning of blackouts and factories being forced to shut. Inventories at European storage facilities are at historically low levels for this time of year. Pipeline flows from Russia and Norway have been limited. That’s worrying as calmer weather has reduced output from wind turbines while Europe’s aging nuclear plants are being phased out or are more prone to outages—making gas even more necessary. No wonder European gas prices surged by almost 500% in the past year and are trading near record. The spike has forced some fertilizer producers in Europe to reduce output, with more expected to follow, threatening to increase costs for farmers and potentially adding to global food inflation. In the U.K., high energy prices have forced several suppliers out of business. Even a normally cold winter in the Northern Hemisphere is expected to drive up natural gas prices further across much of the world. In China, industrial users including makers of ceramics, glass, and cement may respond by raising prices; households in Brazil will face expensive power bills. Economies that can’t afford the fuel—such as Pakistan or Bangladesh—could simply grind to a halt.
Nouriel Roubini — renowned for foreseeing the mortgage collapse that helped produce the 2008 global financial crisis — said the post-pandemic world seems to be heading toward a repeat. “My concern is that we are in a debt trap,” Roubini, chairman and chief executive officer of Roubini Macro Associates, said in an interview at the Greenwich Economic Forum in Connecticut. “When central banks are going to want to essentially phase out unconventional monetary policy, given the debt ratios, there is the risk of a crash in the bond market, in the credit market, in the stock market, in the economy, and therefore they’ll be in that debt trap and unable to normalise policy rates.” When the COVID-19 pandemic started to strangle the global economy, easy monetary policies and stimulative fiscal policies were seen as necessary to “backstop the financial system,” Roubini said. But the results have been extreme. “We are in a debt super cycle,” he said. “And eventually, central banks are in a trap.
Childcare giant Goodstart Early Learning will make coronavirus vaccinations mandatory for all employees nationwide making it the latest private sector to make jabs compulsory. Chief executive officer Julia Davison made the announcement late on Monday that Goodstart would insist all 15,000 employees in every state and territory be fully vaccinated by November 29, making it the first in the sector to mandate the vaccine.
The Morrison government will pressure the states and territories to stick with the national plan to reopen the economy by turning off emergency financial supports to each jurisdiction a fortnight after they reach an 80% double vaccination rate. Millions of people in lockdown across NSW, Victoria and the ACT will soon have COVID disaster payments cut off as the federal government winds down the multi-billion dollar program to coincide with high vaccination rates. Treasurer Josh Frydenberg on Tuesday said as states and territories hit the 70% and 80% vaccination targets, the payment would be reduced and then axed as economies adjusted to COVID-safe conditions. The COVID disaster payment provides weekly payments of $450 for those who have lost fewer than 20 hours of work a week and $750 for those who have lost more. Those on income support have received an extra $200 a week. Since it was introduced, about 2 million people have received payments worth more than $6.3 billion. More than half of recipients are from NSW with another 530,000 based in Victoria.
Double-dosed Victorians will soon chart a path out of restrictions when six regional areas begin a vaccination economy trial in October. Up to 20 vaccinated economy trials will test systems and support in the fortnight before Victoria is expected to reach the key 70% full vaccination mark, on October 26, triggering greater freedoms for vaccinated people. Scheduled to start from October 11, it is anticipated the trials will cover hospitality, hairdressing, beauty services and tourism businesses, and events such as race meetings, community celebrations and concerts — allowing higher patron numbers with all attendees confirmed as being fully vaccinated. The regional areas of Bass Coast, Greater Bendigo, Pyrenees, Warrnambool, Buloke and East Gippsland municipalities will be the first invited to participate in the trials. The government says it will work with local councils and industry bodies to help identify suitable businesses and events
Australians will get behind net zero emissions by 2050 if the federal government provides more detail on how it is going to reach the commitment without too much economic pain, according to industry groups. While there are fracture lines in the Coalition over the net zero pledges ahead of international climate talks in Glasgow in November, the public will back the target if they are shown the way and are reassured they “won’t be left on the scrapheap”. Business Council chief executive Jennifer Westacott said it was crucial the Morrison government showed how it would move in line with Australia’s trading partners and investors to reach net zero by 2050.
Australian Prime Minister Scott Morrison refused to commit to phasing out fossil fuels as a major climate conference approaches, while his deputy doubled down on opposing targets for net zero emissions of greenhouse gases. Morrison is yet to make a decision whether he flies to the Glasgow conference. Australia, the world’s top coal and a major gas exporter, is under growing pressure to come up with emissions reduction targets ahead of November’s COP26 United Nations climate conference in Scotland. In interviews with Australian media after a summit in Washington, Morrison said his government was still working on its emissions plans, declining to commit to curbing fossil fuels that account for a major part of Australia’s export revenue. He told broadcaster SBS in an interview that aired on Saturday night that he was not prepared to pull back any fossil fuel industries immediately.
Coronavirus lockdowns have cost east coast retailers almost $2 billion in sales with warnings a pre-Christmas surge may be slowed by remaining restrictions and concern among shoppers about contracting COVID-19 in busy malls. Retail trade fell 1.7% in August, on a seasonally-adjusted basis, to be 0.7% lower than a year ago marking the third consecutive monthly decline as lockdowns in Australia’s two largest cities crimp buying. It followed a 2.8% drop during July and a 1.8% decline in June. August marked the first time the retail country’s sector had gone back for three consecutive months since 2000, ahead of the introduction of the GST that year. The damage has been done since NSW started introducing restrictions. Since May, retail sales in NSW have fallen by almost 14% or $1.4 billion while in the ACT they have cratered by 17.1%, with all of that occurring in August when the nation’s capital went into lockdown. Retail sales across Victoria have dropped by $450 million or 5.7% since May while Queensland has lost 2.7% or $173 million in sales. The only jurisdictions ahead of their May level are non-lockdown states of South Australia (up by 3.8%) and Western Australia, where sales have grown by 4.1% amid expectations of an AFL grand final-inspired surge in September. As has occurred in previous lockdowns, sales of food through supermarkets increased as people spent most of their time at home. Food retailing lifted by 2.1% in August to be up by 6% since May. But in a sign that Australians have fully kitted out their home offices, household good sales dropped by 2.3% to be at their lowest point since the start of the pandemic early last year. Spending in cafes and restaurants dropped by 7%, taking it back to May last year.
Telstra is planning to get rid of call centres. Nikos Katinakis, the company’s group executive for networks and IT, said Telstra’s T22 strategy had included big requirements for digitisation across its operations, with an entirely new “IT stack” created for both its consumer and enterprise businesses. However, he said the journey was not finished, with an aim now to enable every customer transaction to be handled digitally. He said the benefits of enabling 100% digital transactions was obvious in that it reduced the number of interactions between customers and the company, which was cheaper for Telstra and preferable for customers. He said the era of needing to contact the company numerous times to resolve a problem should be gone for good. Like much of the technology innovation that has occurred in big enterprises in the last decade, a large part of the plan involves shifting a large number of business applications off company-owned infrastructure and into the public cloud environment of tech giants such as Amazon Web Services. Telstra has committed to having 90% of its applications running in the public cloud by 2025, which will give the company greater flexibility in how it operates, but is less easy to achieve than it sounds because it requires a lot of the applications to be transformed, so either modernised or replaced with new ones.
Housebound consumers in Sydney and Melbourne have spent big on gambling, home deliveries and electronic gadgets during the 2021 lockdowns. But binges on homewares and office equipment that marked the lockdowns of 2020 have not been repeated. Spending on online gambling in Australia’s two biggest cities has peaked at 329% above normal levels during the latest lockdowns. That surpasses the gambling surge during last year’s lockdown, , which peaked at 215% above the pre-pandemic norm. Another pandemic boom industry,- home delivery – has also surpassed previous heights. Spending on home delivery peaked at 203% above the pre-pandemic norm during the 2021 lockdowns, surpassing the high point of 132% above normal, reached last time around. The consumption trends are revealed by a real-time spending tracker developed by consultancy Accenture and credit bureau illion, which draws on anonymised weekly bank transaction data of hundreds of thousands of Australian customers. It shows that a big rise in spending on consumer electronics, pets and alcohol evident during last year’s lockdown has been repeated during 2021 lockdowns in Sydney and Melbourne. But the splurge on homewares and home offices during last year’s lockdown has been moderated – spending growth on furniture, office equipment and hardware in Sydney and Melbourne has been much lower during the latest lockdowns.
Woolworths is doubling down on the Covid-19 induced boom in online shopping, launching a nationwide online marketplace that will take the fight to e-commerce giants Amazon and eBay in categories from appliances to toys, beauty and pet food. From Tuesday customers using Woolworths’ website or app were able to purchase more than 2000 of “Everyday Market” products that don’t sit on supermarket shelves like Nutribullet blenders, Big W products, Dyson vacuums and Designer Bums reusable nappies. Everyday Market will be integrated into Woolworths’ current online shopping offering, with loyalty card members able to earn one point for every dollar they spend on new products. The move is aimed at leveraging Woolworths’ customer base while broadening its retail offering. In recent years tech players such as Amazon and eBay have been offering a marketplace for suppliers and customers, albeit with a limited food offering. Woolworths’ group e-commerce sales grew almost 75% in the 2021 financial year to $3.5bn, with online sales now making up 8% of all sales – double the pre-pandemic level. At the same time weekly traffic to Woolworth’s websites are up 40.5% to 17.2m page views, driven by growth in apps. General Manager of Everyday Market Lance Eerhard said Woolworths was looking to double the product offering within the year, eventually extending the grocery giant’s virtual aisles to double 15,000 to 20,000 products typically carried in a Woolworths store.
Furniture, televisions, electronics, toys, sporting goods and food are facing months of delays as port strikes across the country, triggered by a worsening dispute over union demands for more pay and control of hiring workers, threaten to cripple imports ahead of Christmas and further strain supply chains in the middle of state lockdowns. The Maritime Union of Australia has this week escalated already damaging industrial action at Patrick Terminals and notified that hundreds of wharfies will strike for 48 hours in Sydney’s Port Botany next weekend and for 12 hours every Monday, Wednesday and Friday in Melbourne for the whole of October. The strike will disrupt Melbourne and Sydney ports already experiencing unpredictable shutdowns caused by the coronavirus with Victoria International Container Terminals (VICT) forced to close for more than three days last week due to four cases among its workforce. Patrick’s Fremantle wharfies downed tools for 48 hours on the weekend while Melbourne wharfies stopped work for 24 hours over the same period, in time for the AFL grand final. Every terminal including Brisbane also has to deal with various work bans, including on overtime and shift upgrades. Freight companies say the strikes are causing huge stress for retail businesses already hurting from months of lockdowns and international supply chain interruptions.
One in 10 Australian jobs are at high risk of being automated, according to the OECD, with many in communities already facing large-scale disruption from global efforts to meet emissions-reduction targets. Leading labour market economist Jeff Borland said the destruction of so-called routine jobs had been happening for more than three decades and would continue for another 10 to 20 years. Routine jobs, according to the Melbourne University professor, are those that can be precisely written down as a series of repeated tasks, which could then be replicated by computer code. Food preparation, handicrafts, and plant and machinery operators are the most exposed, with 314,000 personal service workers making-up the largest cohort likely to face cuts, according to the OECD. Men, Indigenous Australians and young people were also more likely to face job losses.
A bidding war has broken out for Australian Pharmaceutical Industries, owner of Priceline, after rival drug wholesaler Sigma Healthcare lobbed an indicative non-binding and conditional cash and scrip deal valuing the company at $773.5 million. The API board said in an ASX statement that after careful consideration it believes the Sigma proposal, if completed substantially in accordance with its terms, is more favourable to its shareholders than the all-cash indicative bid by WA-based Wesfarmers. It told investors to take no action and opened its books to Sigma to conduct due diligence.
PwC chief executive Tom Seymour has launched an investigation into allegedly racist behaviour by two human resources executives after one mocked Chinese accents and another dressed up as “a bat from Wuhan” at a firm trivia event last Thursday The firm has fast-tracked an internal investigation into the matter and engaged external legal advisers to assist in its response. In one skit, a human resources executive dressed as a bat from Wuhan while in another, a senior manager of diversity and inclusion mocked Chinese accents. Mr Seymour said the HR team’s conduct “did not reflect the values and culture of our firm” and that he had communicated with partners and staff “reminding them to consider how our behaviour can impact others”.
And that’s it for this week. And next week, I’ll be talking to Justin Hanka, a director at Shape Capital, the company behind Mindbio Therapeutics an exciting Melbourne company doing pioneering work on psychedelic LSD microdosing research. And I’ll be talking to CommSec Chief economist Craig James about market trends in the week ahead,
In the meantime you can catch me on Facebook, Twitter and 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