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Business

The ’90 per cent economy’


Veteran forecaster Chris Richardson, from Deloitte Access Economics, doesn’t expect the economy’s production to get back to what it was at the end if last year until late 2021 or early 2022. He says our economy will be at least 3 per cent permanently smaller than it would have been had the pandemic not happened.

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Even so, maintaining a bit over 90 per cent of the economy’s output in the face of a deadly pandemic has been quite an accomplishment.

In a way we’re fortunate the coronavirus outbreak happened in 2020 rather than in 2000 because, even two decades ago, the economic damage would likely have been far more severe.

Technologies that facilitate remote work have allowed millions to keep doing their jobs during the crisis. A study by the consultancy AlphaBeta, a part of Accenture, found the tools that enable remote work and collaboration permitted 3.2 million Australian employees to keep doing their work safely during the pandemic, including about 1.6 million who may have otherwise been unable to do any work at all. That’s a vast amount of economic output that would have been lost before remote working became possible on a mass scale.

At the same time, online shopping has helped keep our homes stocked with goods during the pandemic, delivery apps have made it easy for us to keep eating meals from our favourite restaurants at home and the digital delivery of movies, apps and music have kept us entertained.

But the strange circumstances of the 90 per cent economy will have lasting consequences. The adjustments made to sustain economic activity during the pandemic have altered the behaviour of businesses, workers and consumers.

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Take businesses first. There has been an astonishing acceleration in the use of digital technology during the past seven months. AlphaBeta’s research found Australian companies have, on average, increased their adoption of some digital technology during the COVID-19 period by as much as the previous 10 years. The uptake of digital collaboration options, such as video-conferencing, has been especially swift. Most businesses intend to continue using these new tools and practices after the pandemic has passed.

Associated with this shift has been the vast, unplanned experiment in working from home. Before the pandemic Australia had been something of a laggard when it came to remote work. On the day of the 2016 census only 4.1 per cent of non-farm employees reported working from home, only marginally higher than in 2006.

But this year a legion of employees had their first taste of working from home, and many liked it.

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A survey published last month by Sydney University’s Institute for Transport and Logistics Studies showed three in four workers believed that, post-COVID-19, their employers were more likely to support work from home than they did before the pandemic. A separate study by Swinburne University researchers John Hopkins and Anne Bardoel found three in four managers now believed their staff would do more remote work after the pandemic than before it.

The office isn’t dead. But the evidence suggests things won’t go back to the way they were.

Professor David Hensher, the director of the Institute for Transport and Logistics Studies, says the “new normal” for how Australia’s workforce balances time spent working from home versus time at the office might not become apparent until late next year. But he anticipates a substantial fall in work-related travel around big cities with major implications for the use of transport infrastructure, demand for office space and the character of our central business districts.

“There will be a decline in activity around our CBDs but quite a bit of that will relocate to the suburbs,” he said.

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Meanwhile, the pandemic has been altering the way we consume and spend. A recent survey by the McKinsey consultancy found a majority of Australians had tried “new shopping behaviours” since the onset of the pandemic and most intended to continue with them. While many old spending behaviours will return once health risks fade, new habits picked up during the crisis will persist. That will also have sweeping repercussions.

The coronavirus-induced downturn has changed the way businesses, workers and consumers behave. Our economy will be fundamentally different as a result.

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Business

Call it the ’90 per cent economy’. Post-pandemic, it will never be the same


If the economy manages to return to a normal growth rate in the second half of this year, quarterly gross domestic product will still be about $30 billion smaller at the end of 2020 than it was at the end of 2019. Only a super-strong burst of growth lasting several years will make up for the economic output lost to the pandemic.

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Even so, maintaining 90 per cent of the economy’s output in the face of a deadly pandemic has been quite an accomplishment.

In a way we’re fortunate the coronavirus outbreak happened in 2020 rather than in 2000 because, even two decades ago, the economic damage would likely have been far more severe.

Technologies that facilitate remote work have allowed millions to keep doing their jobs during the crisis. A study by the consultancy AlphaBeta, a part of Accenture, found the tools that enable remote work and collaboration permitted 3.2 million Australian employees to keep doing their work safely during the pandemic, including about 1.6 million who may have otherwise been unable to do any work at all. That’s a vast amount of economic output that would have been lost before remote working became possible on a mass scale.

At the same time, online shopping has helped keep our homes stocked with goods during the pandemic, delivery apps have made it easy for us to keep eating meals from our favourite restaurants at home and the digital delivery of movies, apps and music have kept us entertained.

But the strange circumstances of the 90 per cent economy will have lasting consequences. The adjustments made to sustain economic activity during the pandemic have altered the behaviour of businesses, workers and consumers.

Loading

Take businesses first. There has been an astonishing acceleration in the use of digital technology during the past seven months. AlphaBeta’s research found Australian companies have, on average, increased their adoption of some digital technology during the COVID-19 period by as much as the previous 10 years. The uptake of digital collaboration tools, such as video-conferencing, has been especially swift. Most businesses intend to continue using these new tools and practices after the pandemic has passed.

Associated with this shift has been the vast, unplanned experiment in working from home. Before the pandemic Australia had been something of a laggard when it came to remote work. On the day of the 2016 census only 4.1 per cent of non-farm employees reported working from home, only marginally higher than in 2006.

But this year a legion of employees had their first taste of working from home, and many liked it.

Loading

A survey published last month by Sydney University’s Institute for Transport and Logistics showed three in four workers believed that, post-COVID-19, their employers were more likely to support work from home than they did before the pandemic. A separate study by Swinburne University researchers John Hopkins and Anne Bardoel found three in four managers now believed their staff would do more remote work after the pandemic than before it.

The office isn’t dead. But the evidence suggests things won’t go back to the way they were.

Professor David Hencher, the director of the Institute for Transport and Logistics Studies, says the “new normal” for how Australia’s workforce balances time spent working from home versus time at the office might not become apparent until late next year. But he anticipates a substantial fall in work-related travel around big cities with major implications for the use of transport infrastructure, demand for office space and the character of our central business districts.

“There will be a decline in activity around our CBDs but quite a bit of that will relocate to the suburbs,” he said.

Loading

Meanwhile, the pandemic has been altering the way we consume and spend. A recent survey by the McKinsey consultancy found a majority of Australians had tried “new shopping behaviours” since the onset of the pandemic and most intended to continue with them. While many old spending behaviours will return once health risks fade, new habits picked up during the crisis will persist. That will also have sweeping repercussions.

The coronavirus-induced downturn has changed the way businesses, workers and consumers behave. Our economy will be fundamentally different as a result.

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The most important news, analysis and insights delivered to your inbox at the start and end of each day. Sign up to The Sydney Morning Herald’s newsletter here, The Age’s newsletter here, Brisbane Timeshere and WAtoday‘s here.

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Australian News

5 per cent first home loan deposit scheme extended


First home buyers will be spared thousands of dollars in mortgage insurance under the extension of a government scheme.

An additional 10,000 buyers will be able to build or purchase a new home with only a five per cent deposit from Tuesday.

Buyers usually need a deposit of 20 per cent or have to pay lenders mortgage insurance.

But under the First Home Loan Deposit Scheme, additional loan guarantees of up to 15 per cent will be available until June 30 for eligible buyers.

Treasurer Josh Frydenberg said the government recognised that saving for a deposit had become a more significant barrier to entering the housing market than the ability to service a home loan.

“The Morrison Government is helping more Australians purchase their first home sooner as part of our COVID-19 economic recovery plan,” he said.

“Helping another 10,000 first home buyers to buy a new home through our First Home Loan Deposit Scheme will help to support all our tradies right through the supply chain including painters, builders, plumbers and electricians.”

The price cap on eligible dwellings have also been increased across the states and territories.

NSW

– From $700,000 to $950,000 in the capital or regional centre

– From $450,000 to $600,000 in the rest of the state

VIC

– From $600,000 to $850,000 in the capital or regional centre

– From $375,000 to $550,000 in the rest of the state

QLD

– From $475,000 to $650,000 in the capital or regional centre

– From $400,000 to $500,000 in the rest of the state

WA

– From $400,000 to $550,000 in the capital or regional centre

– From $300,000 to $400,000 in the rest of the state

SA

– From $400,000 to $550,000 in the capital or regional centre

– From $250,000 to $400,000 in the rest of the state

TAS

– From $400,000 to $550,000 in the capital or regional centre

– From $300,000 to $400,000 in the rest of the state

ACT

– From $500,000 to $600,000 in the territory

NT

– From $375,000 to $550,000 in the territory

Eligible first home buyers may also be eligible for other grants and concessions.



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Australian News

NRL says 25 per cent of staff will lose their jobs as the league responds to COVID-19 financial crisis


The NRL has culled one-quarter of staff across all roles to achieve a saving of $50 million annually trying to keep the business afloat after COVID-19.

Chief executive Andrew Abdo informed the NRL’s more than 400 staffers of the cull over the phone on Monday morning.

“Our business has been hit by a hurricane called COVID which caused substantial damage. Our strategy moving forward is to stabilise, renovate and grow,” Abdo said.

The code has acknowledged it will take years to recover from the loss of millions of dollars in 2020.

Staffers will meet with their managers this week to find out if they still have a job.

“We will lose some talented people, this is a painful but necessary process to survive, we all want to leave the game in a stronger position,” Abdo said.

Developing the game is also part of the restructure.

“We will renovate by making our products more entertaining and dynamic for fans and develop bold plans for growth, looking at new products, new markets and how we can grow the game internationally,” he said.

The league will prioritise two strategies: delivering world-class sports entertainment and investing in participation and community growth.

“We are aiming to transform faster than others to remain competitive in a dynamic market,” Abdo said.

The restructure has streamlined the organisation into seven areas of focus:

  • Competitions
  • Partnerships
  • Fan Experience
  • Finance, Technology and Operations
  • Risk, Integrity and Performance
  • Brand, Media and Communications
  • Participation and Community

The NRL’s executive team has also taken a hit, already cut from 11 members to eight during the COVID-19 pandemic.

“In order to stabilise, we must secure revenues and reduce our expenses to ensure a strong foundation,” Abdo said.

The Australian Rugby League chairman speaks at an NRL media conference.
The NRL is in for more change under ARLC chairman Peter V’landys.(AAP: Joel Carrett)

These retrenchments come after the loss of former CEO Todd Greenberg, chief operating officer Nick Weeks, chief of corporate affairs Liz Deegan and chief financial officer Tony Crawford.

Australian Rugby League Commission chairman Peter V’landys made it clear when he was appointed in October last year his desire to make the organisation more productive and sustainable.

“Rugby league, under the direction of the Commission, has led the way in Australian sport and I am confident we will continue to do so,” Abdo said.



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Local News - Victoria

Extended lockdown tipped to push jobless rate past 10 per cent


The latest official economic updates, published in July, tipped unemployment to top 9 per cent, or 315,000 people out of work, by the end of September and for the state’s economy to shrink by 5.3 per cent or $21 billion.

But RMIT economist David Hayward said those Treasury predictions were now “out the window” in the wake of Sunday’s announcement, with the economic hit now likely to be more than 6 per cent and unemployment to be ‘north of 10 per cent’ with about 350,000 Victorians having joined the dole queue since the pandemic began.

“It’s a really unfortunate confluence of factors that are going to undermine Victoria’s latest [economic] projections and make coming up with a new budget very difficult indeed,” Mr Hayward said.

The economist warned the decisions announced on Sunday would cause Victoria to fall further behind the other states and territories in the process of economic recovery from the endemic.

Victoria's business sector fears the state's jobless rate will top 10 per cent

Victoria’s business sector fears the state’s jobless rate will top 10 per centCredit:Virginia Star

The Victorian Chamber of Commerce was angry on Sunday, saying Mr Andrews’ plans to open the economy was a “road to nowhere” and retail and tourism industry spokespeople also expressed disappointment with many complaining that they had been ignored by the government.

With pubs and restaurants in Melbourne unlikely to open until late October, and only with strict limits, the Australian Hotels Association said many businesses in the sector which employs 52,000 Victorians were “bleeding with debt” and demanding to re-open sooner.

The key construction industry welcomed the decision to move large building sites from the “heavily restricted category” and allow large jobs to operate with 85 per cent of their workers from September 28, with restrictions also to be eased on the house-building sector.

Victorian Chamber of Commerce chief executive Paul Guerra said the Premier’s plan was “not good enough” and that the chamber’s submissions to the government had been “ignored”.

“Today we have been delivered a road to nowhere,” Mr Guerra said. “We can’t continue to let business and jobs be decimated on the way to controlling the spread of the virus. This has to end. Whilst there is a glimmer of light for regional Victoria and some industries, nothing changes for two months and that’s not good enough.”

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Prime Minister Scott Morrison and Treasurer Josh Frydenberg said in a joint statement on Sunday that the Victorian government’s decisions would come at a further economic cost.

“While this needs to be weighed up against mitigating the risk of further community outbreak, it is also true that the continued restrictions will have further impact on the Victorian and national economy, in further job losses and loss of livelihoods, as well as impacting on mental health,” the statement read.

In a joint statement, the Master Builders Association and the building union the CFMEU broadly welcomed Mr Andrews’ plan, while expressing concern that some sub-sectors, like renovations subcontractors, remained unable to return to work.

“We are very pleased to see an increase to 85 per cent of workers allowed on-site for large scale construction,” Master Builders’s Chief Executive Rebecca Casson said.

“For other parts of our sector, and renovations especially, this news will be extremely tough.”

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Business

WA economy takes 6 per cent hit, but Treasurer says hard border saved worse pain


He said that result was a testament to the ‘hard border’ and he took aim at “eastern states commentators” who claimed the state was a drag on the national economy.

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“What today’s data highlights in particular in respect of the June quarter is that Western Australia, and indeed those states with hard borders or strong borders like South Australia and Queensland are certainly no drag on the national economy,” he said.

“We all had the strongest results for the June quarter compared to those states that have been more liberal with their borders.

“I want to put to bed this idea that Western Australia is a drag on the national economy, it has been an important contributor, not just to the economy of Australia but to the finances of every single treasury in our federation.”

Both Mr Wyatt and Federal Treasurer Josh Frydenburg noted the mining sector’s role in propping up state and federal economies.

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“As always I’m thankful to Western Australia and its strong mining sector and Queensland’s mining sector, and indeed mining right around the country,” Mr Wyatt said.

“It is a highly productive sector, it’s a big export earner and it is a big employer.”

Chamber of Commerce and Industry WA chief economist Aaron Morey said WA businesses reliant on discretionary spending felt the biggest impacts.

“Significant losses of activity were recorded in hotels, cafes, restaurants and transport businesses, with their high proportion of young workers,” he said.

“Outside machinery and equipment investment by the mining sector, the few items Western Australians spent more on were rent, insurance and alcohol.”

Mr Morey said another economic storm was approaching when supports such as JobKeeper eventually expired.

“To recover from this crisis, WA must foster better conditions to support business growth, investment and confidence,” he said.

“Today’s result illustrates the urgency for national cabinet to work towards creating a more competitive business environment by reducing or eliminating uncompetitive taxes.”

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United Workers Union National Secretary Tim Kennedy called on the federal government to stop plans to reduce the JobKeeper payment.

“This government needed to expand JobKeeper not strip it back while we’re still in the middle of this crisis,” he said.

“Now we have workers facing a reduced rate that’s below the minimum wage or who will be removed from the scheme all together.”

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Local News - Victoria

Traders feel strain as consumer spending plunges 22 per cent


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“But if we stay in stage four much longer, it’s going to get harder and harder.”

Mr Enaty is not surprised at new data that shows consumers’ spending at cafes in Victoria is down 42 per cent compared to before the pandemic.

By contrast, in NSW, where restrictions have eased, cafe spending is up 18 per cent, according to the research covering August 17-23 by data analytics firm AlphaBeta and credit bureau illion.

Overall, spending in Victoria continues to decline, hitting 22 per cent below normal levels, whereas in NSW it is 3 per cent below average.

Spending across Australia is down 5 per cent on normal levels, which the report says is largely due to the situation in Victoria.

AlphaBeta director Dr Andrew Charlton said: “It’s clear that the Victoria lockdown is having a psychological spending impact across Australia.

“Confidence will only get back on track once there are clear measures in place – across all governments – about how we manage to live and work with the threat of COVID going forward.”

In Victoria, spending on fashion and leisure has dropped to 54 per cent of its normal level while in NSW, it is up 25 per cent. Spending on Victorian gyms is down 25 per cent compared with its pre-crisis level, whereas in NSW it is back to normal.

One sector that has boomed in Victoria is health services — including dentists, pharmacies and GPs — with spending up 100 per cent on normal levels.

And the online retail sector has spiked again in Victoria, up 21 per cent. NSW is down 14 per cent.

Supermarket spending has dropped to 12 per cent below normal in both Victoria and NSW, after spiking in Victoria during panic buying early in the stage four lockdown.

Mr Enaty, who has owned Scintilla Cafe for 14 years, says he lost many customers who live outside the five-kilometre travel radius dictated under stage four, and tradespeople who are out of work no longer work pop in.

“I’m a person who never stresses,” Mr Enaty said. “At the moment? It’s very mentally challenging and stressful. The financial side of it, just trying to stay afloat.

“I don’t think we’re in danger of folding, but it has set me back financially a long way.

“If stage four goes on longer – I’m hearing rumours it might go on a few more weeks – it’s going to be harder. I’m not making money. I’m here 70 hours a week and I’m making nothing.”

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Business

Treasury Wine Estates’ profits slump 25 per cent amid COVID lockdowns


Penfolds maker Treasury Wine Estates has seen its profits slump by a quarter as the coronavirus pandemic prompted restaurant and hotel closures around the world and the company faced a wine glut in the US, one if its key markets.

Net income fell 25 per cent to $315.8 million in the year to June 30, the Melbourne-based company said in a statement to the ASX on Thursday morning. Sales revenue for Australia’s biggest wine company fell 6 per cent to $2.65 billion, with COVID-19 affecting its trading performance across the world.

Tim Ford, CEO of Treasury Wines.

Tim Ford, CEO of Treasury Wines.Credit:

Treasury Wine, which recently appointed long-term executive Tim Ford as its new chief executive, reported total EBITS (earnings before interest, tax, the agricultural accounting standard SGARA and material items) of $533.5 million, which was down 22 per cent on the previous year and in-line with a downgraded forecast of between $530 million and $540 million the company gave earlier in the year.

Despite the profit slump, Treasury declared a final dividend of 8 cents per share, fully franked, taking its payout for the year to 28 cents per share, or 64 per cent of net profit.



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Australian News

Commonwealth Bank boss expects 10 per cent drop


The coronavirus pandemic has not hit the property market as hard as first thought, according to head of the Commonwealth Bank.

CBA chief executive Matt Comyn had tipped three months ago house prices could drop by 30 per cent in a “worst-case scenario”.

But the boss of Australia’s biggest bank has now revised that figure to at least 10 per cent, saying the property market had been more resilient than expected.

He said prices had drifted only slightly lower and described the bank’s original prediction as “just a scenario that we need to be prepared for”.

“I think a reduction … in the order of 10 to 12 per cent is still a reasonable assumption,” Mr Comyn told journalists Wednesday as the bank delivered a full-year cash profit of $7.3 billion.

“We do have an expectation that in some areas, particularly in inner-city areas, there has been downward pressure on rental yields, so we think that that’s going to weigh on house prices.

“We would say overall, and looking at the numbers in the last few months, the housing market has been more robust than perhaps we would have anticipated from March.”

RELATED: Commonwealth Bank’s cash profit slides as loan deferrals rise

In May Wesptac forecast a 20 per cent fall. All four of the nation’s big banks were predicting double-digit falls with rising unemployment amid the pandemic.

CBA has also published modelling that shows unemployment rising to 9 per cent by the end of this year, before falling to 7.5 per cent by the end of 2021.

Mr Comyn said more government support would be needed to stimulate the economy.

“There’s going to need to be some policies and investments at both the federal and state level to support greater jobs creation so we can bring that unemployment rate down,” he said.

Earlier the bank revealed the extent of the damage caused by the pandemic, with its cash profits sinking by 11.3 per cent.

COVID-19 hardship measures have caused a blowout in deferred loan repayments of more than a billion dollars, impacting its cash position for the year ending June 30.

“Overall, we’re lucky that we came into this period in a very strong position so the bank’s been able to operate very effectively during that time, but of course we have been impacted,” Mr Comyn said.

The bank warned dampened credit growth and low interest rates would place pressure on its revenue income for the current financial year.



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House prices set to tumble at least 10 per cent, according to Commonwealth Bank economists


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However, he said a fall in house prices of 10 to 12 per cent, from peak to trough, was more realistic, as falling rents put pressure on house prices in inner-city areas.

“I think a reduction … in the order of 10 to 12 per cent is still a reasonable assumption,” Mr Comyn told journalists.

“We do have an expectation that in some areas, particularly in inner-city areas, there has been downward pressure on rental yields, so we think that that’s going to weigh on house prices.”

Even so, Mr Comyn said property had so far proven to be more resilient than the bank had expected initially, with prices in Sydney and Melbourne last month still higher than a year earlier, despite recent falls.

“We would say overall, and looking at the numbers in the last few months, the housing market has been more robust than perhaps we would have anticipated from March,” Mr Comyn said.

The comments came as CBA also published modelling showing unemployment rising to 9 per cent by the end of this year, before falling to 7.5 per cent by the end of 2021.

This is slightly less gloomy than the Reserve Bank’s latest forecasts, and Mr Comyn said while Australia was “relatively well-positioned” more government support would be needed to drive unemployment down.

He said that with public borrowing costs at record lows, it would be appropriate for the government to spur investment that could create jobs.



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