…or so the famous saying goes. I feel economists (very much like health professions trying to find a cure for COVID-19, and politicians trying to manage the ever-changing landscape) are very much in a state of flux now. In fact, trying to predict how the economy will move over the coming months and years ahead is becoming increasingly tricky.
Reading the signs
Looking at the most brutal facts of the Australian economy, unemployment is rising to a twenty year high, many businesses are suffering, and our country is in a recession. It has been just under 30 years since Australia was in fact in a recession. I was just finishing university. It was a very challenging time for many to find jobs and for companies to survive. There was certainly a general sense of nervousness in the air, but it was a time without cell phones and internet meaning that information wasn’t as ubiquitous as it is now. This wealth of information at our disposal can raise the sense of unease in the community. Information is a good thing though. We shouldn’t stick our heads in the sands but rather face up to life’s challenges. So, in this article I’ve tried to distil all of this information into a snapshot as to where I feel we are as an economy and hopefully suggest some mechanisms to assist with personal and business resistance during these somewhat unprecedented times.
Reflecting on an article I wrote several months ago, many of us were expecting a light at the end of the tunnel to have been sighted by now. Unfortunately, despite some promising results over the coming months, some regions throughout both Australia and the rest of the world have not been able to halt the progress of this terribly virulent disease. The result of this is that many businesses are being forced to close or slow their business just when they felt that they were about to be allowed to move back to somewhat normal business trading conditions. This will obviously hit those individual businesses and their people hard and it will also have a significantly negative impact on the overall macroeconomic landscape.
The macro view and the micro impact
Turning to that macroeconomic landscape, Australia had a fall in GDP of six per cent to the end of June 2020. Whilst this fall is not as large as was originally predicted, it is still the largest reduction in GDP since the great depression hit our shores. To further compound the problem, the expected uplift in GDP in the second half of the year now seems increasingly unlikely as further COVID-19 outbreaks and a return to border restrictions (and lockdowns in some jurisdictions) will have a negative impact on the economy. The anticipated rise in GDP in the second half of 2020 of seven per cent has been revised to just four per cent, and, with the recently imposed restrictions on business, that revision is likely to be revised again to be lower. As such, whilst economists were predicting the economy to be down six per cent for the year, there is a growing realisation that the longer these necessary lockdowns exist, the further will be the plight of our GDP and economic growth for the 2020 calendar year. Sadly, this macro-economic statistic has a real micro-economic impact on individuals and individual businesses as unemployment continues to rise and more businesses fail.
From a micro economic perspective, we are seeing unemployment rise and businesses suffer. Currently Victoria is going through some extremely challenging times with bringing the virus under control, and the government has been forced to implement even more stringent lockdown measures which, needless to say, will further deteriorate employment and business conditions in the state and will have a trickle on effect to the broader Australian economy. Indeed, it should also be a wakeup call to other states to continue with efforts to containing future outbreaks. Furthermore, the longer the rest of the world remains infected, the drop in global tourism and global trade will have a significant impact on Australia’s GDP. Thus, whilst we have had some very positive signs that clearly point towards a recovery in Australia and New Zealand, it is important that we remain focused on digging ourselves out of the economic quagmire we are currently in.
Australia has some strong attributes in its favour, from which we can take strength. Firstly, we have governments willing to continue to support individuals and businesses through this crisis. Unfortunately, some will slip through the cracks. If you are worried that you or your business may miss out on some of the government support being offered, please take the time to consult with your local Bentleys advisor. They are best placed to guide you through the various legislation, which is changing at a rapid pace. Within Bentleys, our Tax technical advisory committee has been working extremely well to collaborate on a series of articles which aims to assist our clients and our community with managing their affairs through this time. JobKeeper is an ever-changing landscape, or so it would seem. Please keep an eye on our COVID-19 resource hub which explains these changes, and consult with our Tax team or Business Advisory team for any assistance required.
Secondly, unlike many other countries, we are fortunate enough to have a strong banking system in this country, with well capitalised banks with a general willingness to assist customers re-balance their debt obligations. If you are unsure of how this works, and what cash flow and other business information you require, please consult your Bentleys business advisor. We can work with you to ensure you are well placed to have the relevant discussion with your bankers on adjusting your financial arrangements if you are in need of doing so.
Thirdly, and I think just as importantly, we are a resilient country. Without stirring up memories of Dorotha McKellar’s famous poem, our spirit of hard work and mateship is important during these challenging times. Certainly, many of us are experiencing very challenging economic times. It is important to continue to work as hard as ever to try to overcome these medical, economic and socio-economic challenges. Indeed, many will be doing it tougher than others. This is where mateship comes in. Asking ‘are you okay’ to someone you know may be struggling is just as important as it ever was. With unemployment rising and business failures on the horizon for some, it is important to be on the lookout for those under stress and encourage them to reach out to for help where required.
Preparing for a slow recovery
A final point worth noting, is that recessions have a habit of lasting a little longer than many realise. If you haven’t been through one before, it is simply worth noting that there isn’t an ‘immediate’ fix and that there will be a myriad of good and bad economic conditions coming our way as we move out of these recessionary times. It’s a new feeling for many, and the best way I’ve seen it described is that our economy has been put into a type of economic ‘coma’ while we recover from this virus. As I’m sure many would be aware, you awake from a coma gently. As such, our economy will come back to life, but it will take some time. Yes, there is a lot of pent up demand out there which should provide some strong stimulus to the economy as we ‘emerge’ from the coma, but there are also going to be some significant gaps in businesses, the workforce, and the mental state of many which will take time to rebuild.
For the remainder of this quarter all eyes will be on our COVID-19 case numbers as we hopefully see recovery in Victoria and further reductions and eliminations around the country. Indeed, we will also be watching our New Zealand brethren to see if they can continue their excellent results. We will, no doubt, continue to confront various challenges along the way, but for some there will also be new opportunities. We may experience some minor setbacks as we return to life as we knew it and, in some instances, it may take a little longer than we hope for. Rest assured that if we continue to work together as a society and as a Network, we can overcome any short-term setbacks and life will eventually return to how it was pre-COVID-19.
A time to unite
To those in our community who have experienced loss in any way I offer my condolences on behalf of the Bentleys Board and our broader Bentleys family. To those experiencing financial and/or emotional stress, I encourage you to seek support. To our clients, I know your Bentleys team will have been in contact with you already and are looking to work with you through this phase and into the future. Hopefully we can assist you with your requirements, whatever they may be. To our wonderful staff, thank you for staying strong during this challenging period. I know some have found in tougher going than others, and some may find returning to work tougher than others. To those in Victoria, I especially pass on my best wishes and wish you all the very best during this challenging time. Please know you aren’t alone. Be sure you are talking to friends, family, managers and your HR team to ensure you are best prepared for the upcoming changes to our work environments and changing business conditions.
And finally, as I have continued to say in my messages, to all our frontline healthcare workers, medical practitioners, cleaners, hospitality workers who continue to serve, thank you for your efforts during this time. You are truly the unsung heroes of our communities. Australia and New Zealand have been fortunate compared to the impact in many other parts of the world. Again, I wish all our clients and staff in Victoria all the very best of luck during this time. Stay well. As we all try to rebuild over the coming weeks and months, I wish you all well on your return to work and I look forward to seeing all the Bentleys staff across Australia and New Zealand over the coming months as we hopefully return to business as usual.
We, at Bentleys, are doing everything we can to help businesses come out of this challenging time in good shape.
We will continue to update our COVID-19 resource hub with important developments, so please return soon.
Disclaimer: This information is general in nature and should not be relied on as advice. It does not take into account the objectives, financial situation or needs of any particular person. You need to consider your financial situation and needs and seek professional advice before making any decisions based on this information.