The economy and COVID-19: where to from here?
As we move beyond the initial shock of the COVID-19 pandemic, the end of the financial year is a time to pause and review where things currently stand and what we think lies ahead.
In March and April, the unprecedented shutdowns to protect public health triggered a corresponding halt across many sectors of the economy, and forced businesses to take extreme measures to ensure their immediate survival. While the easing of restrictions over recent weeks has allowed trading to return to some degree of normality in parts of Australia, there is an expectation that harder times are likely on the horizon.
Victoria’s regression this week to stage 3 restrictions across Melbourne is a reminder that the position can change quickly and the crisis is far from over. Despite this, many critical government measures are due to expire in less than three months.
Where do we currently stand? Economy, business and jobs
In response to the immediate crisis, governments introduced a raft of economic measures to help struggling businesses stay afloat. These stimulus initiatives had a significant impact on the economy, preventing even more widespread job losses and leading to extraordinarily low formal insolvency appointments.
However, Australia is now moving towards the conclusion of these relief packages, many of which will cease in less than three months:
- the final round of payments under the JobKeeper scheme is earmarked for the fortnight beginning 27 September 2020;
- the temporary safe harbour protections against personal liability of directors is set to end on 25 September 2020, along with relief surrounding statutory demands, bankruptcy and the insolvency regime; and
- the Coronavirus Small and Medium Enterprises Guarantee Scheme will only be available for new loans by participating lenders through until 30 September 2020.
These dates also coincide with the end to many other Federal and State government safety nets later in the year, including land tax concessions and three month deferrals for eligible landlords, as well as the extension of the $150,000 instant asset write off for eligible businesses.
The Victorian Government has foreshadowed further support measures for businesses. We expect these will be released shortly.
Commentators’ views
‘For some business owners, the smartest thing for them to do is wind it up now, and walk away with some equity.’
Mark Hand | ANZ Head of Retail and Business Banking
‘It’s wrong to expect a “snap-back” at shopping centres, food courts, cinemas and other places where people used to gather to spend money.’
‘First, even when governments relax restrictions, lots of people will still be worried and will go out less. Unless there are zero cases for several weeks in a state or city, many people will remain reluctant to go out.’
‘Second, we are likely to keep spending on different things, and using different channels, even after restrictions are lifted.’
‘Third, irrespective of COVID-19 regulations and behaviours, we are heading into an “old-fashioned”, globally synchronised, deep recession.’
John Daley | Grattan Institute CEO
‘There is certainly a confluence of events that is going to put stress on the economy come the beginning of October because everything is coming off at once.”
John Winter | Australian Restructuring Insolvency and Turnaround Association CEO
‘Governments can provide the safety nets that allow people and firms to adjust, but cannot uphold private sector activity, employment and wages for a prolonged period.’
‘It would be catastrophic for the Australian economy if every single means of support were withdrawn simultaneously in the space of a week.’
‘It’s a bit like trying to whip out the tablecloth from under your set of china.’
Nikki Hutley | Deloitte Access Economics Partner
‘Companies were in trouble even before coronavirus but the changes to insolvency laws have meant they haven’t gone into insolvency, yet.’
Patrick Coughlan | CreditorWatch CEO
What are our clients experiencing?
Our clients are echoing many of these broad concerns about the state of the economy, and have highlighted that a wide variety of factors have combined to cause disruptions to their operations.
These have ranged from problems directly arising from the restriction of activities and movement of people, supply-chain problems, the rapid need for technological solutions, and challenges with commercial arrangements that ceased to be financially or logistically viable once the country entered lockdown.
The impact of COVID-19 is unique to each business. Many businesses that have successfully adapted to the hurdles presented by the pandemic had strong digital strategies, were able to comprehensively assess the available data, balance and mitigate potential risks, and made critical decisions quickly to ensure that they were not left behind. Many expect that things won’t return to any degree of normality in the foreseeable future, and therefore understand the importance of taking proactive steps now to safeguard themselves against the turbulent times ahead.
Our Turnaround & Corporate Renewal team is able to look at the risks and issues businesses are facing and identify the best solutions going forward. Our team works collaboratively across all our offices and practice areas including Employment, Property, Banking and Finance, Corporate and Commercial, Tax, Dispute Resolution and Insolvency.
This collaborative approach is part of our culture and extends to working with you, your clients and your existing advisors. Through our referrer networks (both local and international) we can introduce non-legal skills (such as financial and corporate advisory) to help you solve the most complex business problems.