Macro-Economic Reflections & Impacts on Australian Businesses: Summary

Summary:

• The fiscal response of governments to Covid-19 has been much more proactive than the past issues.
• Major consensus such as easing of trade restrictions; recovery building through 2021 so that the trade output gets back to 2019Q4 levels by the end of 2021.
• The impact of Covid has affected 90% of the world economy, and has spread economic distress (there is widespread depression, uncertainty, cost cutting and an aversion to risk).
• Governments are making efforts to support the economy and frame policies to assist recovery post the pandemic. It is critical that there is a robust framework to ensure bounce back of markets, once the government support is withdrawn in September 2020.
• There is a sharp rise in unemployment in Australia despite Jobkeeper (over 10% in three months).
• Few highlights from the Treasurers Speech to National Press Club on 5th May 2020 – Reskilling of workers, new infrastructure projects to maintain $100 billion ten-year pipeline, regulatory reform to reduce the cost burden, and tax and industrial relations reform to increase competitiveness.
• Global Trade volumes may drop by 13 – 32% in 2020; global economy may shrink by 3% in 2020 from previous growth projection of 3.4%, more than 60% expect trade flows to decline by at least 60% in 2020.
• The pandemic has accentuated the trend of alternative finance providers over banks, who can provide access to faster and more agile funding to help navigate the effects of Covid-19.
• Large banks have announced several supportive measures such as one-month maturity extension on trade loans, flexibility to convert unutilised trade lines into a revolving line for six months, interest / fee waivers, tenure extensions, alternative settlement arrangements, options to restructure borrowing and trade credit facilities, etc.
• Supply chain finance (SCF) has risen in popularity as a lower-cost source of funding for suppliers and a means of stabilising supply chain for buyers.
• With the current market cash crunch, there are several issues with debtor finance and therefore supply chain financing is becoming handy for businesses.
• Bank of England Governor Andrew Bailey pointed to emergency SCF as a likely solution for firms struggling with the impact of Covid-19.
• The Corporate Sector will be looking for new markets to set up a manufacturing base as Covid & US tariffs affect production units in China. Prospective markets - India, Vietnam, Malaysia, Brazil, Mexico.
• With insufficient data and the unpredictable pandemic that has affected countries world-wide, it is impossible to predict the future of existing economic problems such as debt, asset prices, productivity, and protectionism. The role of the governments and the private sector is vital at this stage.
• The right balance between safety (health) and society (economy) is the way forward.