It was around this time last year that we entered into the first lockdown in Victoria, with a realisation that this COVID-19 thing was a serious global issue as we saw cases spiralling out of control. I recall at that time I was at a music festival on the Great Ocean Road and as the event drew to a close we wandered back to the beach house feeling a great sense of uncertainty about what lay ahead, and whether that would be the last social gathering for some time. Those fears turned out to be well founded.
Reflecting on 2020, the initial shock on the whole economic system led to a record-breaking crash on the ASX and other global indices. The property market went on hold with no auctions or inspections allowed, and businesses across all sectors of the economy, particularly hospitality and retail, bunkered down due to the uncertainty surrounding the pandemic. With the exception of 2008 GFC, we had never had to deal with a pandemic on this scale before; there was no playbook or case study that we could refer to. This time around, rather than the consumer based economic stimulus the Rudd Labor Government deployed in October 2008, it was small business and the associated employment market that needed propping up through initiatives like JobKeeper, JobSeeker, tax relief and a relaxing of the insolvency laws.
Despite much debate at the time about the merit of these measures, there is no doubt that the swift action by the government to provide financial support to businesses averted deep and severe economic hardship, and helped prop up the small business sector. These measures, in particular JobKeeper, have been a significant win and have provided much needed cash flow for many business owners in covering operational costs and retaining employees through the lockdown periods.
There is however a flip side to JobKeeper, and it will be interesting to see how the small business sector will be impacted from Thursday 1 April, when stimulus measures are lifted. From one perspective, you’d be forgiven to think that everything now looks pretty rosy. We have had an unprecedented stock market recovery from that initial shock in March 2020, and only last week CoreLogic reported that property prices had increased by 2% in February alone – the biggest monthly gain since 2003. Moreover, many consumers and businesses are flush with cash from the various stimulus initiatives. Back in January it was reported that Australians had stockpiled more than $200bn in savings. Specifically, Treasury analysis has revealed that Australian households have amassed more than $112bn; while businesses, excluding financial institutions, have managed to stash away another $104bn in deposits, supposedly in preparation for a pandemic-fuelled recession.
So it seems there is a strong case for government stimulus to end and for businesses to start fending for themselves. The blanket approach to economic uncertainty through the various stimulus measures has meant that some businesses are in fact better off than they were before the pandemic. On the other hand, the stimulus has no doubt masked a number of systemic issues amongst businesses that are effectively ‘zombie companies’, and have used the various stimulus payments to keep afloat. Either way, there will be winners and losers that emerge at the end of the stimulus measures, and we will more than likely end up with some level of fragmentation in terms of economic recovery.
The role of the adviser in all of this becomes even more critical. Many analysts and economic observers are predicting uncertainty for some time ahead, with many indicating that it will be 12-24 months before we see the real negative impact of COVID-19 on the wider economy. The good news for advisers is that the pandemic shone a light on the need for good advice, particularly in areas of cash flow forecasting and advice on managing costs, applying for stimulus funding, delaying tax obligations, etc. The road ahead remains uncertain, albeit with some very positive signals, and it will be those advisers who remain closely aligned to their clients through the pandemic that will emerge much stronger, and with strengthened loyalty. It will be those advisers who lead the way to more prosperous times, and play a vital role in an advice-led economic recovery.
Author: Chris Ridd