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 one in our series for 2020 and today’s date is Friday February 7.
First I’ll be interviewing Tathagat Banerjee founder and CEO of Video Translator AI, a tech startup and powerful AI-powered platform able to translate video content into 60-plus languages (and more than 120 dialects) with impressive speed and accuracy. Not only does the technology perform language ‘transcriptions’, but it also generates speech ‘translations’ (hence the company name) which are disarmingly convincing.
And then I’ll be talking to IFM Investors chief economist Alex Joiner about the outlook for the Australian economy in 2020.
But first, let’s talk to Tathagat Banerjee
China’s National Health Commission said that confirmed cases of novel coronavirus on the mainland had risen above 17,000. The World Health Organization has declared the outbreak to be a Public Health Emergency of International Concern, with confirmed cases in 24 countries globally and the rapid spread of the coronavirus pandemic will loom large in the minds of economists in the coming days as the number of global cases soars and the impact on commerce spreads.
While the World Health Organization didn’t recommend any restrictions on travel or trade when it declared the outbreak a global health emergency, more than two-thirds of China’s economy will remain closed as a result of the virus this week, and disruption could spread further. The Federal Reserve and Bank of England have both indicated they are closely monitoring the pandemic, while economists are re-examining their calls for 2020 expansion. Bloomberg Economics forecasts the hit to growth will be most severe in China, and ripple across the world.
The threat of China’s coronavirus outbreak has sparked global fear, but only a modicum of solidarity. A kind of panic appears to be sweeping China and the world. After a 10-day national holiday shadowed by the outbreak, Chinese markets opened Monday and took a tumble. The Shanghai Composite index closed nearly 8 percent lower on Monday evening, marking its biggest daily drop in more than four years. The economic jitters posed by the spread of the virus extended far beyond China’s borders, too. The battle to contain the coronavirus, which has claimed more than 400 lives, may disrupt global supply chains as airlines halt cargo and passenger flights.
With tens of millions of Chinese people quarantined inside their cities and thousands of factories closed, it is already clear that the coronavirus is about to sideswipe the global economy. China’s coronavirus outbreak cost more than 1 trillion yuan ($217 billion) in losses to the restaurant, tourism and movie industries in seven days of the Lunar New Year holiday, economists estimated. Restaurants and retailers recorded sales of more than 1 trillion yuan in the seven days of the 2019 Lunar New Year’s holiday.
Just half of that total is expected for the 2020 holiday, estimated Ren Zeping, chief economist and director of the Evergrande Think Tank. Last year’s tit-for-tat trade war between China and the US, which involved both sides slapping import tariffs on hundreds of billions of dollars’ worth of goods, knocked China’s already ailing GDP growth rate down to 6% in 2019 and helped depress global growth: it fell from 3.6% in 2018 to 3% last year.
A Chinese official warned last week that the spread of the virus from its beginnings in Wuhan to about 10,000 victims across the country would add to the damage from the trade war, and possibly cause more economic harm than the Sars epidemic, almost two decades ago. And with eight key regions and two cities in China subject to closure of non-essential business until at least 9 February, the significance of the epidemic is beyond doubt. Zhang Ming, an economist at the Chinese Academy of Social Sciences (part of Beijing’s state council), predicted that China’s annual growth rate could drop below an annualised 5% in the January-March 2020 quarter. That would be a sharp slowdown compared with 6% annualised growth in the previous quarter. Goldman Sachs believes the fast-spreading coronavirus will knock 0.4 percentage points from annualised growth in the US over the first quarter of 2020, as Chinese tourism to the US dips and exports of American goods to China take a hit. Its central forecast is for a partial rebound in US growth in the second quarter, but the risks are “skewed towards a larger hit”.
Australia’s Treasurer Josh Frydenberg says the coronavirus and bushfires will have a “significant” hit on the economy, putting more pressure on the Morrison government’s budget surplus. The Treasurer could not rule out a negative quarter of economic growth and said the fate of the $5 billion surplus forecast in December would be announced on budget night.
The Australian economy faces a coronavirus hit of up to $13bn in the first half of the year amid warnings from the mining sector that the international health crisis is casting “uncertainty over economic outlooks and commodity markets. Australia’s hotels, restaurants, tourism operators and some of our most popular attractions face a combined $1 billion loss in revenue for every month the Chinese travel ban remains in force, with industry chiefs calling for a government rescue package to save jobs and businesses.
The federal government’s blanket ban on Chinese tourists, announced four days after Beijing grounded Chinese group tours to Australia, has already caused an abrupt, mass cancellation of bookings on what is traditionally the busiest and most profitable time of the year for businesses that target the Chinese market. While Tourism Minister Simon Birmingham described the tourism industry as “incredibly resilient” and predicted it would recover from the twin impact of this summer’s bushfires and coronavirus, Restaurant & Catering Association chief executive Wes Lambert said help would be needed to stop businesses going to the wall.
Australia’s education industry is facing an $8 billion hit from the travel ban on visitors from China as the sector grapples with how to confront the wider effects of the deadly coronavirus. Education Minister Dan Tehan met with Universities Australia on Monday to discuss how to minimise the impact on international education providers. He has also convened a meeting of the global reputation taskforce which warns the market faces an $8 billion hit from the health crisis. The minister established the taskforce late last month to monitor and advise the federal government on the effects of the bushfire crisis on the sector. The taskforce’s remit now extends to co-ordinating the government and education sector’s response to the coronavirus. Taskforce chair Phil Honeywood said the entry ban on non-citizens who had been in mainland China was a worst-case scenario for universities with English-language colleges and schools relying on the arrival of 200,000 Chinese students this year.
The crackdown on the travelers arriving in Australia from China poses a sizeable risk to both domestic and international passenger growth, according to Goldman Sachs. The broker says if the coronavirus outbreak is of similar duration to SARS – four months – then it would imply an 8% and 4% drop for 2020 annualised international and domestic passenger growth respectively. Goldman Sachs notes Chinese and Hong Kong tourists represented around 15% and 3% of tourist movements in the 2019 financial year, which is equivalent to around 9% of total international passenger movements.
The Reserve Bank of Australia has kept the official cash rate on hold at 0.75%. The bank had been widely expected to keep rates on hold.
ANZ Australian Job Ads increased by 3.8% in January 2020 following a 5.7% fall in December 2019. Over the year, Job Ads were down 11.8% y/y. In trend terms, Job Ads declined 1.2% m/m and 14.0% y/y.
The ANZ-Roy Morgan consumer confidence index edged up a touch last week, reversing the prior week’s decline. It remains well below average. Overall financial conditions were little changed, Current economic conditions’ gained 2.1%, while ‘future economic conditions’ declined 2.5% last week.
Australian house prices continued to rise in January, with increases spreading beyond the booming Sydney and Melbourne markets. Capital city house prices rose an average of 0.9pc in January, while in regional areas they climbed 0.7%. Melbourne had the biggest rise of 1.2%, followed by Sydney’s 1.1% increase. CoreLogic’s Tim Lawless says there are signs growth rates are coming down as more homes are listed for sale The big south-eastern cities continued to lead price rises, but all other capitals posted gains, including modest 0.1% increases for the struggling Perth and Darwin markets.
However, the top 10 capital-city price increases were in areas of Sydney and Melbourne, while six of the 10 biggest falls were in Perth and its surrounds. Regional Tasmania had the three strongest areas for price growth outside the capitals, while outback Queensland and WA led regional declines. Overall, CoreLogic’s figures show the pace of growth has slowed from peaks during the spring selling season, with capital city prices rising 0.9% on average, while regional markets typically posted a 0.7% increase.
Building approvals slipped in December, though not by as much as the market feared. Total dwelling approvals dipped 0.2% for the month to 14,752 on a seasonally adjusted basis, outperforming expectations of a 5% decline from a downwardly revised 10.9% surge in November. Approvals for private sector houses slipped 0.1% to 8,486 for December, the Australian Bureau of Statistics said on Monday, while the “other dwellings” category that includes apartment blocks and townhouses also dropped 0.1%, to 6,087. On an annual basis, total building approvals are up 2.7%, though private sector house approvals are still down 7.1% for the 12-month period.
The AiG Construction Index improved marginally in January to 41.3, seasonally adjusted, up from 38.9 in December. (Anything below 50 indicates contraction and above 50 represents expansion.) The index has been below 50 since September 2018.
Fast-fashion handbag, jewellery and accessories chain Colette by Colette Hayman is searching for buyers or a cash injection after becoming the latest victim of Australia’s worsening retail downturn. Colette, which has 140 stores in Australia and New Zealand and annual sales of about $140 million, fell into voluntary administration on Tuesday after running out of cash after Christmas.
Commonwealth Bank has pledged to launch 25 new start-ups over the next five years in a new incubator – to be called X15 Ventures, which it launched on Monday in partnership with Microsoft and KPMG. CBA will retain ownership of start-ups developed alongside entrepreneurs at X15, which will be a fully-owned CBA subsidiary but operate outside the bank’s bureaucracy. It is planning to make successful concepts available to non-CBA customers, as well as to enhance its CBA’s banking applications.
New York-based Rosen Law Firm is closely monitoring Westpac’s dispute with the financial intelligence agency, on the lookout for admissions by the bank that could provide ammunition for a new class-action lawsuit. On Monday, Federal Court of Australia chief justice James Allsop ruled that AUSTRAC’s explosive case against Australia’s oldest bank over 23 million alleged breaches of anti-money laundering be referred to mediation in the courts. A hearing is expected to take place in March. The development follows a class-action lawsuit filed in the US District Court in Oregon by prominent American plaintiff lawyers Laurence Rosen and Phillip Kim that named former Westpac chief executive Brian Hartzer and interim chief executive Peter King as co-defendants.
Law firm Maurice Blackburn is looking for a potential second win over Penfolds owner Treasury Wine Estates in a new class-action being investigated after last week’s surprise profit downgrade, three years after securing a $49 million settlement in a previous case. Maurice Blackburn class actions principal Miranda Nagy is handling the latest potential action for possible breaches of sharemarket disclosure laws after a profit dive in the United States caused mainly by a cheap wine glut wiped $3 billion from Treasury’s sharemarket value last week.
Ms. Nagy spearheaded a previous class action against Treasury in a long-running case between 2015 and 2017, which eventually ended with a $49 million settlement by the wine group on August 28, 2017 in favour of shareholders. That case also centered on Treasury’s US wine business and similar disclosure issues after profits went south in 2013, resulting in the infamous crushing of millions of bottles of cheap wine which had built up in distributors’ warehouses. Maurice Blackburn is the second large law firm to investigate a possible class-action by shareholders this time around, with Slater and Gordon revealing last week it was testing the appetite of Treasury shareholders to become involved in its own potential class action over the same issue.
Anglo American will be out of thermal coal within five years while Rio Tinto says the mining industry is facing a “make or break” moment on sustainability issues. The comments from two of the world’s biggest diversified miners come as BHP studies ways to exit its thermal coal assets in New South Wales and Colombia, and as South 32 enters the final stages of selling its South African thermal coal assets.
Speaking in South Africa on Tuesday morning, Anglo chief executive Mark Cutifani told reporters his company did not have long term ambitions in thermal coal; the type of coal burned to generate electricity. “We are in a transition and we will end up without material thermal coal,” he was reported as saying by Bloomberg. “You’re not talking five years, it’ll be earlier than that.” Anglo exited its Australian thermal coal mines between 2015 and 2017 but continues to mine coking coal for steelmaking in Queensland. Rio exited its last coal mines in 2018 and the company’s energy and minerals boss Bold Baatar told the same event that the pressure on the resources sector to reduce its carbon emissions would only rise in the future.
And it’s the profit reporting season. Bushfires and heatwaves did little to dampen demand at for furniture and homewares, with sales at homeware retailer Temple & Webster soaring more than 50% in January to a better-than-expected $74.1 million in the six months ending December 31, according to a trading update on Tuesday.
Earnings before interest tax depreciation and amortisation more than doubled to $2.3 million from $1.0 million – beating market forecasts around $1.3 million – as sales growth outpaced cost growth. BWP Trust which owns a portfolio of mostly Bunnings warehouses, as well as other large-format retail, said net profit for the six months was $135.6 million, which included a $78.5 million increase in the value of its properties. SCA Property Group reported statutory net profit after tax of $90.2 million, up 129.5% in the same period last year.
Gage Roads Brewing reported $0.3 million of EBITDA for the half, from $2.1 million, and revenue of $19.3 million from $17.5 million. ARB’s net profit for the half-year ended December 31 will fall by 7.4%. The company reported a first-half net profit of $27.32 million in 2019. The company is scheduled to report its audited, half-year results on February 18. ALE Property Group, which owns Australia’s largest portfolio of freehold pub properties, reported a net profit which after-tax climbed to $20.5 million, from $5.6 million a year ago, after revenue lifted to $30.9 million, from $30.0 million.
Lenders mortgage insurer Genworth’s profits jumped by almost 60% to in 2019, buoyed by a recovery in the Sydney and Melbourne housing market. The company, which reports in line with the calendar year, returned statutory net profit after tax of $120.1 million for the full year 2019. That was up from $75.7 million in 2018. Smartpay said it had achieved a 38% increase in quarterly revenue in the three months to December 31 compared with the prior corresponding period and an 11% increase in the three months to September 30.
And that’s it for this week. And next week, I’ll be talking to Ada Xiao, the chief strategy officer for PlatON, the pioneering global privacy-preserving computing network. Located in Hangzhou, Innova City is envisaged to be China’s largest blockchain-powered smart city project with an estimated 90,000 citizens expected to occupy the city by its completion in 2025. PlatON’s blockchain solution will also be used to monitor driving behavioural data to train auto-driving systems, as well as to record and monitor electric vehicle life cycles, in order to manage ecological waste efficiently, among other use cases. And I’ll be talking to AMP Capital chief economist Shane Oliver looking at the reporting season and what’s happening in the market.
In the meantime, you can find me on Twitter at talkingbizz, on Facebook and on LinkedIn. And if you want, leave a comment. Wishing you all a terrific week, and looking forward to bringing you Talking Business next week.