Nov 05 2020
The COVID-19 pandemic has had a stunning impact on the global economy, and has led to a permanent shift in the operating landscape for millions of businesses. As at 4th November, over 47.4 million cases of COVID-19 have been recorded and over 1.2 million fatalities have occurred globally. At a time when the accelerating spread of COVID-19 is disrupting much of the developed world, IBISWorld has examined how this historic pandemic has permanently shifted the global economic landscape.
This report examines how the COVID-19 pandemic has influenced national economies across the globe, including analysis of GDP, unemployment, consumer sentiment, business confidence, household discretionary incomes, monetary policy and fiscal spending. It looks at the top five industries to fly and fall in each country over the next 12 months. In addition, IBISWorld has investigated the outlook for COVID-19 restrictions and what a return to normal operating conditions will look like.
While COVID-19 may subside if a vaccine is developed and distributed, the economic impacts of the pandemic will likely continue for years to come.
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Australian real GDP is expected to decline by 2.7% in 2020-21, to $1.83 trillion. Although most states and territories have relaxed lockdown measures relative to 2019-20, several factors are expected to weigh on GDP during 2020-21. The ongoing lockdown of Victoria in the wake of a second COVID-19 outbreak has continued to hinder the economy, particularly as interstate borders have remained closed to recreational travel. Many service industries, such as food services, arts and recreation, education and personal services, are anticipated to continue facing trading restrictions in an attempt to limit further COVID-19 outbreaks. Negative consumer sentiment has also constrained household expenditure, further limiting the retail sector.
GDP is expected to recover over the second half of 2020-21, and rebound strongly in the following financial year. GDP is forecast to grow by 4.7% in 2021-22, to total $1.92 trillion. Pent up demand and the easing of restrictions on tourism, hospitality, and retail are likely to support growth. In addition, tourism may begin to recover as governments establish travel bubble arrangements with nations free of COVID-19, such as New Zealand.
Real GDP is projected to grow at an annualised 2.9% over the five years through 2025-26, to total $2.11 trillion. Strong monetary and fiscal stimulus is forecast to support a rebound in economic activity. Projected increases in state government spending will likely boost public sector capital expenditure, particularly through projects to expand transport infrastructure.
The national unemployment rate is expected to average 7.7% over 2020-21, an increase of 2.06 percentage points over the prior year. The second-wave of COVID-19 in Victoria has resulted in a surge in unemployment across the state. However, the Federal Government’s JobKeeper program has reduced the outbreak’s impact on unemployment. Although the economic effects of COVID-19 are anticipated to ease by the end of 2020-21, federal and state governments are set to reduce assistance programs, such as JobKeeper. As a result, unemployment is expected to spike.
In 2021-22, the national unemployment rate is forecast to fall 0.98 percentage points, to 6.72%. The forecast for unemployment and broader economic activity is dependent on the discovery and availability of a COVID-19 vaccine. Although uncertain, the likelihood of a vaccine being introduced either prior to or early in the financial year is promising based on current research progress.
Overall, the national unemployment rate is projected to fall at an average annual rate of 0.31 percentage points over the five years through 2025-26, to 6.17%. The Federal Government has stated that 6.0% unemployment is the threshold at which fiscal stimulus will begin to wind down. Therefore, Federal Government spending is forecast to remain high over the next five years, supporting an improvement in the unemployment rate.
The consumer sentiment index is anticipated to rise in 2020-21, but remain negative overall. Consumer sentiment is expected to average 94.4 index points in the current year, which represents an increase of 1.3% over 2019-20. Many Australians remain highly uncertain about the economic outlook, particularly in the wake of the damaging second wave of COVID-19 in Victoria. Concerns about job losses, falling house prices, and disruptions to the economy are expected to continue to support consumer pessimism.
Consumer sentiment is forecast to improve by 3.8% in 2021-22, to 98.0 index points. Despite this improvement, overall sentiment is projected to remain slightly negative. The ongoing effects of the COVID-19 pandemic are forecast to drive this negative outlook, including continued high unemployment and Australia’s borders remaining closed to international travel.
Consumer sentiment is forecast to recover gradually over the next five years, as the damaging effects of COVID-19 subside. Overall, the consumer sentiment index is projected to rise at an annualised 1.5% over the five years through 2025-26, to total 101.9 index points. A decline in the unemployment rate and recovering household discretionary incomes will likely drive this revival.
The business confidence index is expected to average -10.1 points over 2020-21, a decline of 2.1 points from 2019-20. Business confidence is expected to remain severely negative in 2020-21, as COVID-19 restrictions continue to hinder economic activity. Rising trade tensions between Australia and China have also weighed on business confidence in the current year. Weak margins, high uncertainty, and ongoing disruption from COVID-19 are expected to dissuade businesses from investing in new productive capacity throughout the year.
Business confidence is expected to recover significantly in 2021-22, as businesses benefit from federal and state governments loosening COVID-19 restrictions. Business confidence rebounded following the 1991 recession and GFC, and is likely to do the same after the COVID-19 recession. The business confidence index is expected to rise by 12.0 points in 2021-22, to average 1.9 index points.
Overall, business confidence is expected to increase at an annualised 3.1 points over the five years through 2025-26, to total 5.5 index points. Weakness in the Australian dollar is expected to support export-focused industries over the next five years, particularly in the mining and agriculture sectors.
The cash rate is expected to average 0.25% in 2020-21, representing a decline of 0.41 percentage points from 2019-20. The Reserve Bank of Australia has stated that the cash rate will remain at its minimum bound until both the national unemployment rate and the inflation rate achieve a sustained recovery. This recovery is unlikely to occur within the next three years, suggesting that a near-zero cash rate is likely to persist for an extended period. A small decline to 0.1% may occur in November 2020. The Reserve Bank of Australia has previously stated resistance to dropping the cash rate below 0%, as negative interest rates are unlikely to have a significant positive impact on the Australian economy. Instead of dropping the cash rate further, the Reserve Bank of Australia has opted for unconventional monetary policies such as the Term Facility Funding scheme, asset purchases and yield curve control.
The cash rate is projected to rise at an annualised 0.17 percentage points over the five years through 2025-26, to total 1.08%. Any rebound in interest rates is forecast to lag behind a recovery in GDP growth, unemployment, and inflation. The Reserve Bank of Australia has announced a willingness to allow inflation to run above the 2-3% target for an extended period, in order to ensure a faster rebound in the Australian economy.
Real household discretionary income
Real household discretionary income is expected to decline by 7.8% in 2020-21, to $499.8 billion. While the economy is expected to improve over the second half of the year, federal and state governments will likely scale back fiscal stimulus, which is expected to hinder household incomes. The JobSeeker Coronavirus Supplement is set to end as of January 2021, returning the fortnightly payment to $565.70 from the $1,115 fortnightly payment reported from March 2020 to September 2020. The Federal Government is also likely to end other policies, such as the early superannuation access scheme. However, additional stimulus in the form of tax cuts for middle-income and high-income households are likely to support average incomes. Household incomes had previously spiked by 8.8% in 2019-20 as a result of unprecedented fiscal and monetary stimulus.
Household incomes are forecast to increase 2.4% in 2021-22, to $511.9 billion. A recovery in unemployment and overall economic activity is expected to support a rebound in income growth. Real household discretionary income is projected to grow at an annualised 1.5% over the five years through 2025-26, to total $538.4 billion. Overall, incomes are forecast to recover gradually but will likely remain below the peak of 2018-19 over the next five years.
Fiscal support and stimulus measures
The Australian Government has implemented a range of supportive policies to assist the economic recovery from COVID-19. Combined, these support measures have led to a budget deficit of $213.7 billion in 2020-21, up from $85.3 billion in 2019-20. This deficit is equivalent to 11.0% of real GDP, an outcome not seen since the end of World War II.
Australia’s response to the COVID-19 pandemic was initially simple and broad-based, in order to quickly deliver necessary financial support to households. The Federal Government increased the JobSeeker unemployment benefit from $560 to $1,100 per fortnight, and introduced the JobKeeper wage subsidy scheme. Through JobKeeper, an employer received a wage subsidy of $1,500 per fortnight for full-time workers. As Australia has stabilized in the wake of the COVID-19 pandemic, these broad-based support policies have become more targeted, and have begun to shrink. These measures are expected to be removed entirely by March 2021. At that time, a spike in unemployment and business bankruptcies is expected to occur.
The Australian Government has introduced a range of targeted stimulus policies in the 2020-21 budget, released in October 2020. This includes tax reductions for businesses, including temporary full expensing of eligible depreciable assets for businesses with turnover up to $5 billion June 2022. The measure will be available to over 99% of businesses, which employ around 11.5 million workers.
The government has also introduced personal income tax cuts. Around 11.6 million individuals will receive a tax cut in 2020‑21, compared with 2017-18 settings. For an individual on an income of $80,000, tax will be reduced by 11.3%, while an individual on income of $180,000 will receive a tax cut of 4.4%. Taxation cuts are currently expected to expand over the next five years, until around 95% of taxpayers face a marginal tax rate of 30% or less in 2024‑25.
Other notable stimulus policies include an increase in infrastructure construction, including $14.0 billion for new projects over the next four years. The Government has also introduced the HomeBuilder scheme, which provides eligible owner-occupiers, including first home buyers, with a grant of $25,000 to build or renovate a home. Six major manufacturing industries have been identified as priorities in the recovery from COVID-19, and have received $1.5 billion in funding via the Modern Manufacturing Strategy. These industries include food and beverage manufacturing, clean energy and recycling, defence, space, critical minerals, and pharmaceutical production.
Operators in the Australian Fishing industry have faced significant disruption as a result of the COVID-19 pandemic, as most of the industry’s output is destined for export markets. The reduction in air travel has reduced air freight availability, making it difficult for industry players to transport high-value fresh seafood, such as rock lobster, to export markets. Global economic turmoil caused by the pandemic has also negatively affected prices, further eroding earnings for fishing businesses. Consequently, industry revenue fell by 22.5% in 2019-20.
Industry revenue is anticipated to rise by 23.1% to $1.7 billion in 2020-21, as economic conditions stabilise and industry activity recovers. The Federal Government’s International Freight Assistance Mechanism was launched in April 2020, and is funded until mid-2021 to support exporters of high-value and perishable goods. This program is forecast to both support industry revenue growth and limit freight costs in 2020-21, bolstering industry profitability. Furthermore, recovering demand for Australian rock lobster from China is anticipated to drive industry revenue growth in 2020-21. As rock lobster exports to China fell by 29.0% to $502.1 million in 2019-20, improved international freight capacity is expected to substantially benefit the industry in 2020-21.
The Online Food Ordering and Delivery Platforms industry is expected to perform strongly over 2020-21. Industry operators facilitate meal and food deliveries through bookings made on their online platforms. These platforms connect users of their applications with food-service providers and delivery drivers. As a result of the COVID-19 pandemic, state-level governments have placed restrictions on food service providers’ ability to offer services to seated patrons. While the majority of these restrictions have been lifted, consumer concerns regarding the spread of COVID-19 have increased demand for takeaway services. Overall, revenue for the Online Food Ordering and Delivery Platforms industry is expected to increase by 12.1% over 2020-21, to $847.9 million.
While the COVID-19 pandemic has provided operators with a key opportunity for expansion, its overall effect has been mixed. The outbreak has prompted a sharp rise in the national unemployment rate, which is expected to reduce discretionary incomes over 2020-21. Takeaway food is generally discretionary in nature, with consumption correlating with household incomes. Therefore, the forecast decline in discretionary incomes over 2020-21 is expected to slow revenue growth for the Online Food Ordering and Delivery Platforms industry in the current year, compared with the previous years.
The Road and Bridge Construction industry is projected to remain an important driver of the Australian economy during 2020-21. Ongoing demand for the construction of large-scale developments in each major capital city is expected to support industry expansion over 2020-21. Government stimulus spending on shovel-ready infrastructure projects, which include upgrades to local and arterial roads, is also expected to support the industry. The projects include core construction phases of the WestConnex Stage 3 in Sydney (M4-M5 Link) and The Northern Road Upgrade and Bringelly Road upgrades as part of the Western Sydney Infrastructure Plan. They also include the continued construction of the WestGate Tunnel development and the Mordialloc Freeway in Melbourne, and the long-term upgrade of the Bruce Highway in Queensland.
Much of the impetus for major freeway developments comes from private equity involvement through public-private-partnerships (PPPs) with federal and state government agencies. Industry revenue is forecast to climb by 6.6%, to $35.0 billion, during 2020-21, despite weaker demand for roadwork on new residential subdivisions due to the COVID-19 outbreak. All tiers of government are expected to bring forward the pipeline of infrastructure projects to stimulate economic growth, with much of this investment focused on large-scale road developments.
The Internet Publishing and Broadcasting industry has bucked the trend of the wider economy. Industry players have largely flourished in the wake of COVID-19, with lockdown restrictions across the country forcing consumers to shift to digital spaces. Industry revenue is expected to grow by 6.1% in 2020-21, to $4.9 billion. Online publishing services are expected to have mixed results over 2020-21, with a fall in demand for items such as cars expected to erode the performance of online publishers. In contrast, streaming services such as Netflix, Stan and Disney+ have surged in popularity over the current year, as other forms of entertainment have been significantly restricted during the COVID-19 pandemic.
This trend is anticipated to continue over 2021-22, as both consumers and businesses are likely to maintain COVID-normal restrictions, including limitations on gatherings and movement, for the foreseeable future. This makes home entertainment, such as streaming services, a more viable and attractive option for viewers. In addition, high levels of unemployment are forecast to encourage more subscribers. Streaming services can be a substitute for more expensive forms of recreation, particularly for consumers seeking to minimize their expenditure over the next year as the economy recovers from the effects of COVID-19.
The Pharmacies industry is set to post modest growth of 3.1% in 2020-21, with revenue totalling an estimated $21.8 billion. Higher dispensing fees implemented as part of the $18.3 billion Seventh Community Pharmacy Agreement, which came into effect on 1 July 2020, are likely to drive pharmacy remuneration revenue. Industry participants will also indirectly benefit from several measures contained in the Federal Government’s 2020-21 Budget, which includes a record investment into essential health services in the wake of the COVID-19 pandemic. These measures include reforms to protect the integrity of Australia’s medicine supply chain and enhance the government’s ability to respond to any future pandemics. In March 2020, the government enacted supply limits on dispensing and selling certain prescription medicines and OTC medicines, to halt panic-buying by Australian consumers. These limits will remain in place at this stage, thereby affecting the Pharmacies industry’s operating environment.
Increased pharmacy service revenue from providing patient-focused programs is also forecast to drive industry revenue growth, as pharmacies continue to cement their role in wider primary healthcare. Therefore, industry operators may benefit from government efforts to harmonise regulations around pharmacists administering vaccines. Pharmacy flu vaccination numbers rose significantly in 2019-20 amid COVID-19 fears, with higher pharmacist-administered vaccination numbers likely to occur again in 2020-21.
The Multi-Unit Apartment and Townhouse Construction industry is expected to significantly slow down as a consequence of the COVID-19 pandemic. Industry revenue is projected to fall by 31.4% in 2020-21, to $30.9 billion. The industry was already showing significant signs of weakening prior to the COVID-19 crisis, with an overabundance of apartments limiting overall industry expansion. Population growth in Australia has also slowed, with international migration down to a trickle from the pre-COVID-19 highs. Consequently, demand for high-density housing such as multi-unit apartments is expected to be low in 2020-21.
The introduction of stimulus measures, such as the Federal Government’s HomeBuilder program, is anticipated to further constrain the industry. The HomeBuilder program gives eligible builders a $25,000 grant towards constructing a residential property. Potential buyers may consider building a full residential property instead of an apartment with the support of the HomeBuilder grant. A surge in remote working as a consequence of the COVID-19 outbreak has further reduced demand for industry services, as the expansion of working-from-home capabilities has decentralised the working population. As a result, more homeowners are expected to more consider constructing or buying houses in regional areas, dampening demand for multi-unit apartments and townhouse construction in 2020-21.
The COVID-19 pandemic is heavily restricting the performance of the Travel Agency and Tour Arrangement Services industry. In March 2020, the Federal Government implemented border restrictions on inbound travellers, effectively stopping international travel to Australia. In addition, the government has banned overseas holiday travel. The ban on Australia's borders for inbound and outbound tourism has meant that demand for travel agencies has been extremely low since March 2020.
While most states and territories have relaxed COVID-19 restrictions, the easing of state border controls has been slower to implement. As a result, demand from domestic travellers looking to go interstate has been weak during the first half 2020-21. However, most states and territories are expected to open their borders to interstate travellers by Christmas 2020, which should boost demand for travel agencies. However, it is unlikely that Western Australia will open its borders before its state election in March, limiting demand for travel agencies that focus on WA tourism. Overall, revenue for the Travel Agency and Tour Arrangement Services industry is expected to decline by 28.9% during 2020-21, to total $5.3 billion.
Revenue for the Employment Placement and Recruitment Services industry is forecast to weaken significantly in 2020-21, dropping by 19.7% to $11.6 billion. This trend continues the large industry decline during the final quarter of 2019-20, as government-mandated lockdowns in response to the COVID-19 outbreak caused national unemployment to surge and business confidence to plummet. Demand for new staff across most markets immediately fell and remained weak over the first quarter of 2020-21. Domestic and global uncertainty surrounding the COVID-19 pandemic is expected to continue over the remainder of 2020-21, negatively affecting labour demand. As a result, requirements for services from employment placement and recruitment companies is projected to decline significantly over 2020-21.
Despite overall industry weakness, some markets are anticipated to perform better than others in 2020-21. For example, demand from the healthcare and medical sector for industry services is expected to increase as a share of revenue, as the focus on people’s health and testing for COVID-19 symptoms increases. Similarly, demand for delivery drivers is expected to rise as a portion of industry revenue in the current year, due to a surge in online shopping.
Furthermore, the Federal Government’s JobKeeper Payment limited national unemployment increases in 2019-20 and 2020-21, as employers have been subsidised to retain their staff. However, the program is likely to subsequently restrict the number of people requiring jobs during the economic recovery process in the second half of 2020-21 and through 2021-22, hindering industry demand growth.
Revenue for the Cheese Manufacturing industry is expected to decline by 12.5% in 2020-21, to $2.9 billion. Downstream demand from the food service sector has declined significantly due to state government restrictions, especially those in Victoria, which is the second most populous state in the country. While retail sales have increased, the product mix has changed as a result of the economic fallout from the COVID-19 pandemic. Rising unemployment and falling household disposable incomes have already prompted a shift from higher priced specialty cheeses towards more affordable everyday cheese varieties.
Cheese manufacturers also derive a significant share of revenue from export markets. The value of exports is forecast to fall by 8.5% in 2020-21, with demand constrained by the weak global economic environment in the wake of the COVID-19 pandemic. Demand from Japan in particular, which accounts for almost half of all Australian cheese exports, is expected fall. Furthermore, weak demand has prompted a global oversupply of cheese. Consequently, the world price of cheese is expected to decline in 2020-21, limiting the value of industry exports.
Operators in the Real Estate Services industry are expected to face significant challenges in 2020-21, as economic conditions deteriorate due to the COVID-19 pandemic. Revenue is expected to fall by 8.1% over the year, to $26.5 billion. At the height of the COVID-19 outbreak, government-enforced restrictions on auctions and inspections weighed heavily on the number of housing transfers, with buyers and sellers withdrawing from the market. Residential housing prices have come under increasing pressure over 2020-21, with national prices falling by approximately 1.1% in the September quarter. Victoria has contended with tighter restrictions than other parts of the country, and Melbourne house prices fell by 3.3% in the quarter.
The cash rate has fallen to a record low of 0.25%, providing some support for the sector through reducing borrowing costs. Mortgage relief offered by the major banks is also expected to alleviate pressure on some households. However, properties are likely to remain on the market for longer and auction clearance rates are forecast to remain weak until economic conditions stabilise. Rising unemployment and weak consumer sentiment are expected to constrain demand for industry services over 2020-21, especially as support packages such as the JobKeeper Payment are wound back. Economic uncertainty is set to continue weighing on residential property and rent prices.
Outlook for COVID-19 Restrictions
Australia has been successful in its attempts to control COVID-19, relative to other developed nations. Over the week through 26 October, Australia recorded only 137 new cases of COVID-19. Over the past three months, most Australian states and territories have recorded minimal COVID-19 cases, and most economic activity has resumed. However, Victoria, one of Australia’s most populous states, has endured one of the world’s longest and strictest lockdown periods to contain the pandemic. The second wave of COVID-19 in Victoria led other states and territories to introduce interstate travel restrictions. Plans for an international travel bubble arrangement with New Zealand were also postponed.
In August, Victoria recorded 8,673 cases of COVID-19. In October, it has only recorded 177 cases. As Victoria has now successfully contained COVID-19, recording 0 cases over the two days through 27 October, interstate border restrictions are expected to ease by Christmas 2020. A travel bubble arrangement with New Zealand also commenced in October 2020.
While Australia has successfully contained COVID-19, the virus remains and is unlikely to be fully eradicated. State governments have ramped up contact tracing capacity to quickly contain outbreaks without requiring broad and damaging economic lockdowns. Although economic activity has resumed in most sectors across the economy, some restrictions remain. Face masks must still be worn in public in Victoria. International travel remains restricted, significantly hindering tourism and accommodation businesses. These restrictions are expected to remain in place as a preventative measure against a resurgence of COVID-19.
Public gatherings remain subject to caps in most states, and these restrictions will likely remain in place until a vaccine for COVID-19 is discovered and distributed. In Queensland, groups of up to 40 people can gather in homes and public spaces. In New South Wales, groups of up to 30 can attend hospitality venues. Other states, such as Western Australia, have reported minimal COVID-19 cases for several months and are operating with weaker restrictions.