Australia / Coronavirus Insights
IBISWorld Reveals Industries Set to Fly and Fall in 2020-21

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by IBISWorld
Jul 15 2020

From Agriculture to Zinc mining, IBISWorld analysts have reviewed over 750 industries to reveal five industries set to perform well and those set to underperform, over the course of the 2020-21 financial year.

The Australian economy has been significantly undermined by the COVID-19 pandemic. This disruption has created new top performers, and relegated previously growing industries to the underperformance category. Overall, GDP in Australia is expected to decline by 1.0% in 2020-21, to total $1.85 trillion. Ongoing support from expansionary fiscal and monetary policy is expected to assist most industries. However, the ongoing closure of international and interstate borders, in conjunction with deteriorating consumer sentiment and employment rates, is expected to hinder the economy throughout the current year.

Industries to fly in 2020-21

Cotton Growing

Australian cotton farmers have faced horrid growing conditions over the past two years. Severe drought over most of the Murray Darling Basin has meant minimal irrigation water availability. As cotton is the most water-intensive crop grown in Australia, revenue in the Cotton Growing industry can decline to drastic lows during drought. The industry was therefore significantly affected by the drought conditions occurring over the two years through 2019-20. Industry revenue totalled $2.8 billion in 2017-18 but only $433.7 million in 2019-20.

The Cotton Growing industry is projected to grow by 128.8% in 2020-21, to $961.8 million. Rainfall over the Murray Darling Basin was above average over the six months through June 2020, with some regions reporting their highest rainfall on record. In addition, as of July 2020, the Bureau of Meteorology has forecast above average rainfall across most of the Murray Darling Basin over the four months through November 2020. Therefore, the amount of water available for irrigation is expected to rise strongly in 2020-21, boosting industry output. Cotton farmers are also anticipated to report strong demand in export markets (via the Cotton Ginning industry), despite some constraints due to the COVID-19 crisis. However, the world price of cotton is projected to decline in 2020-21 due to high global supply, partially limiting revenue growth over the year.

Debt Collection

The Debt Collection industry is expected to grow by 10.4% in 2020-21, to $1.6 billion. Growth in the household debt to assets ratio is anticipated to support demand for debt collection services over the year. The negative economic impact of COVID-19 is expected to continue through to the first half of 2020-21. The unemployment rate and number of business bankruptcies are also projected to increase after COVID-19 is contained, which is forecast to support demand for debt collection services.

To combat the economic impacts of the COVID-19 pandemic, temporary changes were made to the debt recovery and bankruptcy system in March 2020. These regulatory changes provide a temporary safety net for individuals and businesses. The minimum threshold for a creditor to initiate bankruptcy proceedings has increased from $2,000 to $20,000, with an increased timeframe of six months for a response to bankruptcy proceedings. During this period, unsecured creditors cannot take action to recover debt. Despite the temporary measures introduced by the Federal Government to reduce the number of business bankruptcies, some businesses are projected to face cash flow problems. This factor is anticipated to lead to a strong growth in industry revenue in 2020-21.

Water Freight Transport

The Water Freight Transport industry is expected to perform strongly across 2020-21, as the economy recovers from the negative effects of the COVID-19 pandemic. Industry revenue is expected to rise by 9.4% over the year, to an estimated $2.1 billion, as Australia’s international trade recovers from the COVID-19 related decline. Industry services are forecast to rise strongly in 2020-21 as strong growth in the Online Shopping industry drives an anticipated recovery of merchandise trade imports.

Despite its forecast appreciation, the value of Australian dollar will likely remain weak over the year, ensuring that domestically produced products remain comparatively cheaper in overseas markets. Existing free trade agreements with China, Korea and Japan are forecast to contribute to the industry’s strong growth over the year. In addition, a potential free trade agreement with the United Kingdom may further assist the industry.

A resurgence in economic activity across Asia is expected to drive demand for Australian exports, boosting demand for water freight transport services. The Comprehensive and Progressive Agreement for Trans-Pacific Partnership, a free trade agreement that came into force at the end of 2018, is also anticipated to continue supporting the industry. However, these forecasts rely on the COVID-19 pandemic subsiding in early 2020-21.

Buy Now Pay Later

The Buy Now Pay Later industry is projected to grow by 9.1% in the current year, to $741.5 million. An increasing number of high-profile retailers in Australia, including Amazon Australia, are offering buy now pay later (BNPL) services. Major retailers, such as Bunnings and Kmart, have introduced these services to attract consumers who do not use credit cards. The rising popularity of BNPL services is the result of fast approval, easier and more secure electronic payments, rising demand for online shopping and an increasing distrust of banks. Younger consumers have been particularly attracted to BNPL services.

The COVID-19 outbreak has changed the way consumers pay. Many retail stores have switched towards alternative payment methods, including online shopping, tap cards and BNPL. The COVID-19 lockdown has driven a new normal in retail shopping, where consumers are feeling more confident purchasing large-ticket items online. This trend has significantly benefited BNPL operators. While anticipated negative consumer sentiment over 2020-21 will likely prompt many households to scale back expenditure on discretionary goods or opt for cheaper alternatives, cash-strapped consumers are expected to choose BNPL services to purchase essential goods, such as groceries.

Data Storage Services

The Data Storage Services industry is expected to grow by 8.0% in 2020-21, to $3.0 billion. The outbreak of COVID-19 has resulted in a surge in demand for technology solutions, particularly to assist in remote working capabilities. Cloud services are an essential part of remote working for many businesses, and have greatly benefited from the rise in remote working needs. Data storage services are also required to host servers for video conferencing software, which has become highly popular among both businesses and consumers due to domestic and international travel restrictions.

The COVID-19 pandemic has resulted in many businesses either shifting to the cloud or upscaling their cloud capabilities. Even as the pandemic subsides, much of this capability is anticipated to remain in place, as employees are likely to desire more flexible remote working arrangements in the future. Growing demand for ecommerce solutions during the pandemic has also driven demand for data storage. Lockdown restrictions imposed as a result of COVID-19 resulted in businesses needing to significantly expand their online presence. Ecommerce is anticipated to continue expanding after the coronavirus is contained, as consumers become increasingly comfortable with online shopping, driving demand for data storage.

Industries to fall in 2020-21

International Airlines

Revenue in the International Airlines industry is forecast to decline by 31.5% in 2020-21, to $14.3 billion. This result is expected to represent the second consecutive year of significant decline for the industry, with revenue having fallen by 28.0% in 2019-20. The COVID-19 crisis has essentially brought industry activities to a halt. In the first month of fully closed international boarders, April 2020, only 69,000 people took international flights, a 98.0% decline from April 2019. Low air travel demand is expected to persist throughout 2020-21.

Global governments are likely to be hesitant about opening international borders while COVID-19 cases are increasing or remain high. International travel may not return to normal until a vaccine is widely released. However, the lifting of travel restrictions between nations with low infection rates is likely to support airlines. For Australia, these travel bubbles are likely to be determined at the state level. Melbourne’s second wave of COVID-19 in July 2020 has temporarily excluded Victoria from accommodating international flights, such as to and from New Zealand. Although the Australian and New Zealand Governments have supported trans-Tasman travel, the New Zealand Government (Te Kawanatanga o Aotearoa) has stated they would prefer to only allow flight routes from safe Australian locations. Nevertheless, some limited international flights may resume as early as September 2020. Airfreight services are also anticipated to partially support industry airlines in 2020-21.

House Construction

The House Construction industry is forecast to be severely hindered by the COVID-19 pandemic. The industry had already been showing signs of slowing during 2019-20, as first home buyers were being blocked from entering the housing market by high house and land prices and weak household income growth. The COVID-19 outbreak is projected to lead to a slump in the level of new housing commencements during the June and September quarters in 2020, as investors defer projects in response to growing economic uncertainty and increased job insecurity. The slowdown in population growth during 2020-21 due to the drop in net migration is expected to further erode demand for new housing construction.

The current slump in new dwelling starts is forecast to have severe repercussions on the industry’s performance during 2020-21, with revenue projected to contract by 22.4% to $39.9 billion. Furthermore, new single-unit house commencements are forecast to fall to about half the level of the 2017-18 cyclical peak. Stimulus spending by the Federal Government may help mitigate the difficult conditions facing first home buyers. This includes the HomeBuilder scheme, which provides grants of up to $25,000 on the purchase of new homes or substantial renovation of dwellings. It also includes the next tranche of the First Home Loan Deposit Scheme, which provides guarantees for the purchase of up to 10,000 homes on a 5% deposit.

Pubs, Bars and Nightclubs

The Pubs, Bars and Nightclubs industry is expected to decline by 12.7% in 2020-21, as the fallout from the COVID-19 pandemic continues. By the beginning of the financial year, governments in all states and territories, except Victoria and the Australian Capital Territory have rolled back restrictions limiting the number of patrons allowed in industry establishments. However, customers are still expected to adhere to on-premise social distancing guidelines. The return to Stage 3 lockdown measures in Metropolitan Melbourne and the Mitchell Shire for six weeks from July 9 will severely impact local industry businesses, which are now restricted to takeaway and delivery options. Additional lockdowns in other states and territories represent a significant threat to the industry in 2020-21.

Even businesses unaffected by restrictions are expected to face subdued demand. Consumers, particularly those in high-risk older demographics, are expected to be increasingly risk-averse. A decline in discretionary income is also likely to restrict spending on activities such as travelling and dining out. Pubs, bars and nightclubs also rely on international tourists. As a ban on overseas travellers is expected to remain in place throughout 2020-21, this trend is expected to further contribute to a decline in industry revenue during the year.

Coal Mining

The Coal Mining industry is expected to decline by 6.9% in 2020-21, to $67.8 billion. Australian coal miners are highly reliant on foreign demand, with exports anticipated to account for 80.2% of industry revenue in 2020-21. Global coal prices fell significantly in the second half of 2019-20, and are expected to fall further in 2020-21. Weaker global activity has subdued demand for coal, which is used for electricity generation and steel production. While Australian coal production is anticipated to only slightly decline in 2020-21, lower prices are expected to lead to a significant decline in revenue. A significant proportion of Australian coal production is lossmaking at current spot prices.

Several major coal mining firms have announced production cuts for 2020-21, amid subdued demand. In addition, deferred investment in new mines as a result of the uncertainty caused by COVID-19 is expected to hinder industry performance over the next five years. For example, Coronado Coal has deferred an expansion of its Curragh mine in Queensland’s Bowen Basin.

Management Consulting

The Management Consulting industry is expected to decline by 4.5% in 2020-21. Declines in business confidence and capital expenditure by the private sector are expected to weigh on demand. Businesses across the economy are expected to scale back expenditure on non-core operating expenses, including management consulting fees. Major strategic changes and reviews are likely to be postponed until demand conditions normalise and economic uncertainty subsides, dampening demand for strategy consulting services.

Many major firms have introduced significant cost-cutting measures to sustain profitability, including the lay-off of junior employees and mid-level management. Large industry players are expected to be relatively more resilient than smaller competitors throughout the COVID-19 recession. Larger firms, such as Deloitte and KPMG, may use the disruption of the COVID-19 pandemic as an opportunity to acquire struggling smaller players. Industry consolidation has increased over the past five years as larger firms have acquired smaller competitors that have performed well in niche target markets, such as wealth management and IT consulting. Once COVID-19 is contained, digital transformations to boost agility and resilience are projected to become the main focus for industry players and their clients.

IBISWorld reports used to develop this release:

For more information, to obtain industry reports, or arrange an interview with an analyst, please contact:
Jason Aravanis
Strategic Media Advisor – IBISWorld Pty Ltd
Tel: 03 9906 3647