Ready for round 2? Business, economists nervous about year ahead

Australian business people are worried about the future, with almost three quarters believing the coming year will be a bad one for the economy.

Unsurprisingly, Roy Morgan’s latest business confidence poll plumbed record depths in April as the immediate effects of social restrictions and the economic stoppage caused by efforts to suppress the COVID-19 pandemic were felt.

Confidence began to lift halfway through April as it became clear Australia would not feel an Italy-like pandemic and as government assistance such as the Jobkeeper wage subsidy stabilised nervous businesses.

However, while business people are pessimistic about the state of the economy, they are more confident about their ability to weather an expected downturn.

“Some Australian businesses are already looking past the COVID-19 pandemic and are growing more confident about the next year, with 43.1 per cent (up 3.6 per cent) expecting the business will be ‘better off’ financially this time next year, while only 27.6 per cent (down 1.4 per cent) expect the business to be ‘worse off’,” the Roy Morgan poll found.

Be ready for round two

However, while eight weeks ago the uncertainty was around what level of pandemic would take hold in Australia, now the concern is around which business will be able to re-open and what impact that will have long-term on employment and the recovery.

Economists are warning that the true figures for the impact of the lockdown on business earnings, economic data and, crucially, the long-term employment hit won’t be known until the new financial year.

“Because so much future growth and uptrend potential is priced in, we expect a period of relapse and consolidation [in markets] through June,” said Dr Bob Baur, chief global economist at Principal Global Investors.

“This recession is unique in that it’s deeper, with a much bigger loss of GDP: We’re not visiting restaurants, gyms, or airports less frequently … we’re not going at all. The recession will be selective in who it hurts: this is a small business recession concentrated in service industries.”

Another ASX sell-off is highly likely and the surprising resilience of the ASX over the last six weeks won’t continue, Greencape Capital founder David Pace told the AFR today.

The great re-opening

Federal and state governments are pushing ahead with reopening the economies after almost eight weeks of social and economic restrictions.

On Friday, the federal government issued its first comprehensive roadmap for handling the pandemic which provides a framework for a staged unfurling of the economy that state governments can follow.

The three stage roadmap begins with lifting prohibitions on cafes and restaurants serving sit-down meals, and ends with the prospect of unrestricted interstate travel and travel to New Zealand and within the Pacific.

“The good news is that business confidence bottomed in the first half of the month and has since improved,” Roy Morgan CEO Michele Levine said.

“Since this low-point the index has improved and averaged 82.0 during the second half of April as Australia ‘flattened the curve’ of new COVID-19 infections.

“The announcement that Australia will undergo a three-stage re-opening process over the next two months to ‘reboot’ the economy has provided further hope that Australia may already be past the worst of COVID-19 and businesses can look forward to less restrictions on their activities in the coming weeks.”