COVID-19: A shock for business and it’s far from over

In the first half of 2020, Australia suffered our first recession in over 30 years due to the COVID-19 pandemic. Recovery commenced in Q3, but the economic fallout from this event for Australian business will continue well into 2021 and beyond.

According to an Ai Group report released at the end of last year – Business experiences in 2020 and outlook for 2021 – despite the partial recovery underway and the considerable adjustments made over the course of 2020, most Australian businesses continue to report negative impacts as a result of COVID-19.

Throughout 2020, Ai Group provided assistance, information and advice to thousands of businesses experiencing activity restrictions, adjustments to workplaces and work practices, reduced demand and reduced incomes due to COVID-19.

In the course of our work, we collected almost 1,900 detailed reports from Australian businesses about their experiences, through sources including emails, surveys, web queries, phone calls and (remote) meetings.

The latest report continued a series of monthly insights Ai Group has been compiling into the business experience of COVID-19 since the start of the pandemic, and found that in November 84 per cent of businesses reported continuing negative impacts from COVID-19 – the total proportion of businesses reporting a negative impact peaked close to 90 per cent in April, fell to around 78 per cent in June but then rose to 87 per cent in September due to the “second wave”.

By November, the top five negative impacts reported by businesses were:

  • Reduced consumer demand (reported by 43 per cent of businesses);
  • Activity restrictions (22 per cent);
  • Disruptions to supply (9 per cent);
  • Reduced productivity (7 per cent); and
  • Increased costs (5 per cent).

The types of assistance sought by businesses changed over the course of 2020, with clear information and directions needed in the early stages, followed by financial assistance as the pandemic worsened. Jobkeeper became an essential support for many businesses from May onwards, proving decisive in stemming job losses and business closures.

By September, businesses mainly wanted to see evidence of a safe path to easing out of local activity restrictions and border restrictions.

Meanwhile, businesses have continued to adapt to the COVID-19 shock with the top five responses adopted in November being:

  • Increased use of technology (54 per cent of businesses);
  • Reduced employee costs (27 per cent);
  • Having staff work from home (21 per cent);
  • Changed business strategy (8 per cent); and
  • Changes to accommodate social distancing (6 per cent).

Our report maps the changing impacts on and responses of business over the COVID-19 period since February 2020 and highlights the dominant place that weak demand for goods and services has among business concerns with the ongoing impacts of COVID-19.

Looking to 2021, most businesses are set to retain at least some of the operational and workplace changes adopted in response to the pandemic. They are, however, acutely aware of weak demand for their goods and services.

Further, despite the introduction of tax incentives for capital expenditure, most businesses have no plans to invest in the near term and non-mining business investment in 2020-21 is currently anticipated to be between five and ten percent lower than in 2019-20.

The economic recovery to date has been led by decisive policy measures on the part of the federal, state and territory governments and the Reserve Bank. While businesses are picking themselves up and bringing people back to work, many still worry that what we are seeing may be merely a bounce rather than the onset of self-sustaining momentum.

The notion that COVID and its impacts would magically disappear when the calendar clicked over to 2021 was clearly a fallacy. We are going to have to work harder than ever on rebuilding and regenerating our economy at a time of continued intense domestic pressure and increased global uncertainty and volatility.

The next couple of months will be critical in signalling whether higher household confidence translates into enough additional spending to convince businesses to continue to lift employment and to commit to additional investment.

At the top of the risks to our economy are the federal government reducing or removing fiscal support from business and employment too early, and the spreading geopolitical trade problems with China. State and territory governments will need to get their infrastructure pipelines flowing and the federal government in particular will need to be ready with fiscal reinforcements if private sector demand does not accelerate.

Unprecedented’ was probably the most used word in 2020, but it described the crisis well and the response to it. I know the crisis is not over yet, and conditions are still tough and uncertain for many, but with the development of the vaccine the risks are beginning to diminish, and I believe we can look ahead to the New Year with greater confidence.

The full report Business experiences in 2020 and outlook for 2021 is available here.

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