The global economic recovery is losing steam as a coronavirus resurgence and supply chain disruptions hinder progress, the IMF warned.
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 37 in our series for 2021 and today’s date is Friday October 15.
First, I’ll be talking to Tom Cornell, the Head of Assessments (APAC) at HireVue about how Aussies can prepare for The Great Resignation where employees are moving away from jobs where they feel unappreciated and are instead moving toward new priorities and goals, from more money to greater control over their time in the COVID-era. And I’ll be talking to economist Saul Eslake about whether Sydney’s re-opening will have an economic impact.
But now, let’s talk to Tom Cornell.
The global economic recovery from the coronavirus pandemic is weakening and risks are rising, according to the International Monetary Fund. The IMF on Tuesday slashed its 2021 growth forecast for the United States by one full percentage point to 6%, the biggest reduction suffered by any G7 economy in its latest World Economic Outlook. The cut reflects disruptions to supply chains and softening consumption in the third quarter, the IMF said. The revision comes days after Goldman Sachs cut its growth forecasts for the US economy this year and next, citing weaker consumer spending and the winding down of the government’s Covid-19 relief programs. The IMF now expects the global economy to grow 5.9% in 2021, 0.1 percentage points lower than the July forecast.
The Morrison government cut its economic outlook for the September quarter, saying the contraction will be 50% larger than previously flagged. Treasurer Josh Frydenberg said he expected gross domestic product to fall by 3% or more, up from his previous 2% or more guidance.
NSW residents splurged $100 million at retail outlets on Monday, as the eased health restrictions allowed for a resumption of trading at places including hairdressers and restaurants. It represents a 185% jump from the previous Monday when NSW residents spent $35 million at retail outlets, according to estimates from National Australia Bank. NSW residents spent $12.8 million at restaurants pubs and bars – up from $1 million on the previous Monday – and $5 million on hairdressers and barbers. Spending on clothing increased tenfold from $1 million to $10 million.
After months of lockdown, business owners were exultant on Monday as Sydney reopened. But they’ll need to brace for a permanent change in customer behaviour. Once this initial round of euphoric spending expires, it’s likely that many small businesses – particularly those in the entertainment, leisure, hospitality and tourism sectors – will have to brace themselves for demand to be weaker than in the pre-COVID-19 era. This is because the post-pandemic “new normal” is likely to be characterised by even more wary consumer behaviour. This has certainly been the experience of the United States. The US economy enjoyed a more robust recovery than most, boosted by massive dollops of US government spending. But in recent weeks, leading economists have been scaling back their US growth forecasts to reflect both the sharp decline in US fiscal stimulus, and the distinct wariness that US consumers are showing for activities that involve large crowds. Goldman Sachs economists, for instance, have cut their estimates of US economic growth back to 5.6% for 2021, and to 4% for 2022. They also noted that consumers have demonstrated a reluctance to resume some of their previous spending patterns in what they described as a “longer-lasting virus drag on virus-sensitive consumer services.” This, they say, “will likely prove challenging while COVID cases remain elevated, since many people still feel at least somewhat uncomfortable engaging in many activities that were routine prior to the pandemic.”
Australia shelled out A$27 billion under the government’s signature JobKeeper wage subsidy to firms whose revenue didn’t fall sufficiently to qualify for the program or actually increased during the period, according to a Treasury analysis. At the height of the pandemic lockdown, about A$11.4 billion was paid in the second quarter of 2020 and A$15.6 billion in the third quarter to businesses that didn’t have a 30% — or 50% — decline in sales compared with a year earlier, Treasury said in its report. Of this, A$4.6 billion went to businesses that had an increase in revenue over the year to the June quarter and A$9.2 billion to businesses with an increase over the year to the September quarter, Treasury said in the report titled “Insights from the First Six Months of JobKeeper.”
However, the Tax Office has cleared thousands of businesses suspected of gaming the $89 billion JobKeeper program despite concerns within the federal Treasury they had structured their affairs to qualify for $1500-per-employee payment. As research commissioned by the Labor Party shows almost $20 billion went to businesses that enjoyed an increase in turnover while receiving JobKeeper assistance, the ATO said despite tip-offs from the public it found almost all businesses complied with the program’s eligibility criteria.
China has partially relaxed its unofficial ban on Australian coal, with some shipments of the commodity allowed to clear customs as authorities struggle to deal with a national power shortage threatening the country’s economic recovery. Coal industry executives and diplomats say they are hopeful the move is the first phase of a broader easing of restrictions imposed almost a year ago. While China would be reluctant to be seen to be backing away from its efforts to punish Australia economically, its current power crisis means it has little choice.
Australian researchers are trialling a smartwatch app that can monitor a worker’s vitals and tell them if it’s OK to go to work or if they should stay home and potentially get a COVID-19 test. The app uses the heart rate and blood oxygen (SpO2) sensors in Samsung’s recently released Galaxy Watch4 smartwatch, and works together with a phone-based app on which workers answer questions about their wellbeing each morning before they go to work. Data from the watch and the phone is fed into a decision support system that either tells the worker to stay home or produces a QR code on the phone’s screen that could be scanned by the workplace to certify the worker has been cleared for work that day.
COVID-19 has accelerated the death of cheques and ATM withdrawals as pandemic restrictions change the way we pay for our goods and services. But the fear of economic downturn has also driven a surge in the number of $100 and $50 notes stashed away under mattresses and in shoe boxes across the country, with a record amount of cash now in circulation. Data from the Reserve Bank shows how consumer purchasing trends have been changed by the pandemic, which has accelerated the use of technologies such as tap-and-go and direct debit as people make purchases from their home offices. In August this year, just 719,000 personal cheques were drawn by Australians, the smallest number since the RBA started collecting figures. Since February last year, before the country’s first lockdowns to stop the spread of coronavirus, the number of personal cheques has fallen by 39%. It continues a pre-COVID-19 trend as Australia approaches the end of cheques in the mail with the payment system down by 86% over the past decade. While the RBA has been openly talking about the eventual end of the cheque system, COVID-19 has also changed our attitudes towards cash. In February last year, more than $10.2 billion in cash was withdrawn from ATMs nationwide but by August this year, that had fallen by almost $3 billion to a record low of $7.3 billion.While the value of withdrawals has fallen 28%, the number of transactions has dropped by 43% in a sign that when people do use an ATM, they are taking out a large amount of cash. The cash, however, is not going through the nation’s shops. The number of $100 and $50 notes in the economy has reached an all-time high. Since COVID-19, the value of $100 notes has jumped by $6.6 billion or 17.5% while the value of $50 notes in circulation has climbed by almost 24% or $9.3 billion. But $5 and $10 notes continue to fall in number and value.
Australia needs an explosive post-World War II-style immigration surge that could bring in 2 million people over five years to rebuild the economy and address worsening labour shortages, according to NSW government advice to new Premier Dominic Perrottet. Top bureaucrats last week urged Mr Perrottet to seize the national leadership initiative by pushing a “national dialogue on an aggressive resumption of immigration levels as a key means of economic recovery and post-pandemic growth”. “An ambitious national immigration plan similar to Australia’s post-World War II approach would ensure Australia would benefit from skills, investment and population growth,” Mr Perrottet was told in the advice. In a sign the new Premier is taking the advice seriously, Mr Perrottet on Monday said the borders need to be opened up amid a “general labour” shortage to ensure a healthy economic recovery.
Westpac’s full-year profit will take a $1.3 billion hit due to heavy write-downs as it shrinks its institutional bank and takes additional provisions for potential legal action and customer remediation after the royal commission. In an indication Westpac is keen to resolve future regulatory cases relating to misconduct identified by the Hayne inquiry, it said it has added new provisions for “litigation matters, including to resolve outstanding investigations should a regulator decide to bring civil penalty proceedings”.
National Australia Bank’s business confidence survey showed a strong rebound for September, up 19 points for a positive index return of 13 points. Business conditions fell 9 points for September, to equal a positive return of 5 index points. NAB said this continued a rapid decline from pre-lockdown record highs.
Record levels of ongoing and unfunded spending are being baked into a federal budget already running the largest deficits in history, with government debt on its way to $1 trillion. On top of short-term government responses to the coronavirus pandemic, a series of policy initiatives around social services and defence – on top of anything promised ahead of the election – could consolidate spending at levels normally associated with sharp economic downturns or war. Deloitte Access Economics on Monday released its latest quarterly outlook on the economy, forecasting the recovery out of the COVID-19 pandemic had been delayed rather than derailed by recent lockdowns aimed at preventing the spread of the Delta strain of coronavirus. It is tipping the economy to grow by 1.5% in 2021-22, driven by a further lift from the mining and agriculture sectors, a lift in business investment and a 4.4% step-up in public expenditure. Growth is likely to be strongest in Tasmania and South Australia, with the NSW economy forecast to expand by 0.3% and Victoria’s by 1.2%. But Deloitte director Chris Richardson said another issue beyond the recovery from the pandemic is the state of the federal budget. He said the public sector deficit this year will be almost 2% of national income higher than what is forecast by federal and state budgets combined.
According to the president of the Business Council of Australia, when the facts change, business has to go back and reassess decisions. Tim Reed’s rationale will offer ice-cold comfort to former ALP leader Bill Shorten. In 2019, the BCA famously described Labor’s election commitment to reduce emissions by 45% by 2030 as “economy wrecking” – compounding Scott Morrison’s assault on Labor’s economic credibility. Yet, the BCA not only wants Australia to reduce emissions by slightly more than that over the next decade, it is also promoting the economic growth and commercial opportunities this inevitable shift will produce if done right. This still looks less a matter of changed facts, more a matter of changed fears. Yes, advances in technology only ever accelerate, including dramatic falls in the cost of renewable energy and expanding horizons for new industries like hydrogen. But the biggest fear stalking Australia’s big business community is being caught out by the rapidly changing demand by investors and global capital markets to demonstrate much more urgent action on climate change. It’s why so many companies, including in the resources sector, have moved well ahead of the Morrison government on this, demanding Canberra belatedly catch up.
BHP says Australia will not have the luxury of ignoring nuclear power’s potential to deliver reliable, carbon-free electricity as experts said last month’s submarine pact had welded the nation’s future to the radioactive fuel. Fiona Wild, BHP’s vice-president of sustainability and climate, said Australia had “great opportunities” to tap into the world’s largest known resource of uranium, the raw feedstock for nuclear power generation. She said nuclear power can play a significant role in providing low greenhouse gas emissions power but there are issues associated with it. She said there are great opportunities there and obviously Australian has large uranium resources. She says it should be on the table as one of a range of options Australia needs to think through.
Small businesses have been dealt “a major setback” by a court ruling that found a range of insurance policies did not cover them for financial losses during COVID. It means insurers may be able to avoid paying out policies that small businesses hoped would cover them for COVID downturn losses The Federal Court ruling on a crucial test case means that insurance companies may potentially avoid paying out billions in payouts. The court found that the majority of nine business interruption (BI) policies put before it for scrutiny would not need to be paid out by the insurers. Business interruption insurance has emerged as a controversial space during the pandemic, with insurance giants claiming they never intended for these sorts of policies to cover pandemics. It is estimated there were roughly 250,000 policies of this ilk in Australia when the pandemic struck, with a total potential liability of $10 billion. The decision is being appealed
A US investment firm with over $US3 billion in managed assets will bankroll the latest challenge to Australia’s aviation market with an independent low-cost carrier called Bonza that aims to take off early next year. Founded by former Virgin Blue executive Tim Jordan, the new airline will fly Boeing 737-8 jets leased from linchpin investor 777 Partners, and forego the lucrative “golden triangle” routes between Sydney, Brisbane and Melbourne for underserved leisure locations in hopes of stimulating new demand. Mr Jordan said this was a more sustainable business model than taking on established players like Qantas, Virgin Australia and Regional Express on their home turf.
Supermarket giants Coles and Woolworths, along with Commonwealth Bank and National Australia Bank, are supporting a new QR payments platform developed by eftpos. Eftpos’s new QR payments platform called eQR will allow customers to photograph a QR code to pay – like checking in to a venue during COVID. Supplied The retailers like camera payments because they will be able to integrate rewards schemes with the payment, in contrast to the status quo, where Flybuys or other rewards cards or vouchers are presented separately to the payment card. This will allow them to improve the marketing of offers to customers. For the banks, paying with a QR code will allow them to bring payments into their banking apps, driving customer usage and engagement.
And that’s it for this week. And next week, I‘ll be talk to Ashik Ahmed, the CEO and co-founder of the global workforce management platform for employee scheduling, timesheets and communication, Deputy about the impact of the lockdowns on gig workers. And l will be talking to economist Sinclair Davidson about how much we can recover economically.
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