How will the pandemic challenge the future of the Australian economy

 

How will the pandemic challenge the future of the Australian economy

David Chu, Head of International Business, discusses the challenge of the pandemic on the future of the Australian economy.

2020-03-18

David Chu, Head of International Business, recently joined Thomas Sung (host) on the SBS Radio Cantonese Program to discuss the challenge of the pandemic on the future of the Australian economy. Listen to the podcast episode in Cantonese or read the transcript of his interview in English below.

English transcript:

Host: After my brief on the international securities market, we will put our focus back onto the Australian economy. We are seeing the S&P/ASX 200 lingering on the brink. To date, how much is this pandemic affecting the Australian economy? Today we have David Chu, Head of International Business of ShineWing Australia to share with us his analysis.

David Chu: It is correct that the government has introduced some measures to save the market. The whole package costs about $18 billion, of which more than $6 billion is provided as aid to SMEs, each receiving up to $25,000. In addition, $700 million in aid will be provided to companies if they  satisfy certain  requirements. If they buy more equipment, they will immediately receive 100% depreciation deduction  as expenses for the year. A company can benefit  up to $150,000 or so. For the elderly and some government assistance recipients, they may receive an allowance of about $750. This package is intended to relieve  the difficult situations of low income earners, who are living a tough life due to the economic slowdown caused by COVID-19. Also this may encourage some companies to invest  in  new equipment, which will help with production.

Host: Then what are the reactions?

David: Of course nothing is absolutely good or bad. At least having assistance is better than having none. This is point  one. Point  two, some experts said this package seems to have come too late. Point  three, some experts said this package may not necessarily address the immediate need of the present.

Host: What does the present immediate need refer to?

David: A recent report indicates that there are always some receivables in the accounts of SMES, and according to statistics these receivables have amounted to around 776 billion. A typical SME now has around 30% of revenue locked up  in receivables. If liquidity is insufficient in the market, their operations will be affected. For example, if some companies are earning less revenue but still have to pay employee salary without any rental cut, there might be  a chance to  cut staff and even wind up? The recent two years have seen the retail industry, particularly the garments sectors, having a lot of businesses being  wound up due to rental pressure t of reduced turnover. Some larger restaurant businesses  have come across similar  situation. That being spoken, some experts said the most important for the present is to help these businesses secure financing, to get through the cash flow difficulties. 

Host: Right. We can also see the RBA trying to help more with financing channels recently in line with the global situation. The issue is, however, that banks sometimes are concerned with  repayment of the loans; therefore, they have become rather cautious  in processing loans. They may not necessarily lend to those businesses with problems or in the face of difficulties. If so, the package may not be virtually helpful to them. Is this the case?

David: Yes. If you are the bank, you will naturally be concerned  about whether the money will be recovered. Even if you have money now and are in a position to lend, will you just grant  loans to help some SMEs? From the commercial perspective of the bank, they may not have that much money. In that regard, the government needs to work harder on how to encourage banks to lend more money to the SMEs. The government may need to spend more time working this out. 

Host: Yes. According to some other reporting, the upcoming budget in May might include a stimulus package from the government for the second round. Now, however, it is more words than actions. I understand Roy Morgan has produced a research report trying to diagnose the current economy of Australia. What is that like?

David: Right. This report, published in mid March,  mentions the impact of COVID-19 on Australia.  They interviewed more than one thousand Australian companies for this report, with an observation that around 60% of the business have been impacted by the COVID-19 in the past few months. Annualized there could be 70%. The sectors that  impacted most are, of course, manufacturing, wholesale and SMEs. In state terms, the more affected  are NSW, Victoria and South Australia. No one could  manage to escape. It is a matter of degree. 

Host: Sounds like there is little prospect, is it?

David: As we can all see, this is not just about Australia, but about the whole world. Australia will definitely be affected, and of course the travel and aviation industries will naturally be more greatly impacted. City and borders shutdowns have resulted in less people traveling by air . The aviation industry is under greater pressure , suffering a decline of 90%. The lack of foreign tourists has also impacted the food and beverage industry. Another thing is about the manufacturing industry,  as raw materials and parts might not be available. Even if China has resumed production now, from the recommencement of production to the completion of products, and to the delivery of products to Australia, it takes time. In manufacturing, a machine just will not work  if a couple parts are not in place.

Host: In the face of so many issues, it seems the RBA will inevitably decide to cut interest rate in the upcoming routine interest review session. Now the point is how much they will cut by, right?

David: Yes. Most economists  will be looking at  a rate cut in March.  It will be at least cut to 0.25%, from the present 0.5%. This is pretty mc\uch the expectation. , as  the Federate Reserve in the States made a sudden rate cut almost to zero. New Zealand also effected a big  cut from 1% to 0.25%. The Australian interest rate, as compared to other economies, such as the USA, New Zealand and even Europe, is high.  This  could  push up the Australian Dollar, which,  as discussed in the last interview, may impact export. The RBA does not like  to see this.

Host: The interest rate of Australian Dollar is actually not high, but the issue is ours is higher than others, which is adverse to export.

David: Correct. The audient might have noticed negative interest rates in a lot of European countries. That means you no longer receive interest by putting deposits in the bank, but instead  pay charges to the bank.

Host: Right. Ok. Let us what the final decision of RBA will be. I know it will be more than this. There will also be some quantitative easing measures.

David: Yes. The RBA has also mentioned that if the interest rate is cut to 0.25%, they will launch some quantitative easing measures for the purposes of releasing money into the market, increase market liquidity, with the hope of recovering the economy and alleviating the people’s hardship.

Host: That’s right. All we can do may be just to see how things will go, since now we are in the midst of uncertainties. Alright. Big thanks to Mr. David Chu, Head of International Business of ShineWing Australia for sharing with us his analysis of the current Australian economic condition, including quantitative easing. Thank you.

David: Thank you. Thanks everybody.

Get in touch

David is attuned to the Asian listed company market, international taxation issues, corporate regulations and various stock exchange requirements and is highly regarded in the market place. Reach out below to discuss how we can support your business during this challenging time.

David Chu

E dchu@shinewing.com.au


This podcast was originally published on SBS Cantonese Radio on 18 March 2020.

Disclaimer: The material contained in this page is in the nature of general comment and information only and is not advice. The material should not be relied upon. ShineWing Australia, and related entity, or any of its offices, employees or representatives, will not be liable for any loss or damage arising out of or in connection with the material contained in the publication.