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Slow Going: Potential Recession Spells Good News for Some

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by Yin Yeoh
Mar 09 2020

Industry research firm IBISWorld anticipates that households will see little benefit over 2019-20, due to uncertainty surrounding Australian economic growth. The COVID-19 virus outbreak is expected to have a significant impact on the domestic economy, through disrupted trade supply chains, weaker inbound tourism, and an additional decline in consumer sentiment. Prior to COVID-19, the catastrophic 2019-20 Australian bushfire season had already weakened consumer confidence. In addition, productivity growth, the key driver of higher wages, is anticipated to be limited in 2019-20. The overall increase in real GDP is expected to be supported by government expenditure and a potential fiscal stimulus package to cushion the economic impact of the 2019-20 bushfire season and COVID-19 outbreak over the year.

While the recently approved income tax cuts and historic low interest rates will likely provide a boost to household incomes, consumer confidence is expected to become negative in 2019-20. Many consumers have viewed record-low interest rates as a sign the economy is struggling. Therefore, government policies are unlikely to be sufficient in rousing meaningful economic growth. As a result, the weakening economic landscape is expected to benefit the Debt Collection; Temporary Staff Services; Antique and Used Goods Retailing; Furniture, Appliance and Equipment Rental; and Buy Now Pay Later industries.

The top five industries set to defy the slowing economy

Slowing economic conditions negatively affect most industries due to a combination of lower consumption expenditure, reduced investment in capital growth, and weaker consumer and business sentiment. However, some industries are likely to excel during an economic contraction, with demand for their goods and services remaining strong or increasing.

Debt Collection

Firms in the Debt Collection industry retrieve debt payments from individuals and businesses that have failed to meet their loan obligations. Debt collectors act as an agent on behalf of a creditor, for which the firm receives a fee or percentage of the total amount collected.

‘A significant opportunity for debt collectors may arise if economic growth stalls. Household debt as a share of disposable income rose to a record high of 190% in 2018 (latest available data). At the same time, the national household savings ratio is expected to decline to a record low of 2.0% in 2020,’ said IBISWorld Senior Industry Analyst Ms Yin Yeoh.

Households have maintained expenditure consumption over the past five years through reducing savings and increasing debt, to offset sluggish wage growth. Revenue for the Debt Collection industry is expected to increase by 3.0% in 2019-20.

Temporary Staff Services

‘Businesses typically desire greater flexibility in their workforces when economic uncertainty rises. As businesses may need to quickly downsize their labour forces to remain profitable, short-term contractors become a more attractive option than permanent employees,’ said Ms Yeoh.

This trend provides a significant opportunity to firms in the Temporary Staff Services industry, which supplies short-term staff to clients on a fee or contract basis. Temporary staff provided by industry firms work for clients at their respective work sites, but remain legally employed by the temporary staff provider.

In August 2019, contractors accounted for 8.2% of the total Australian workforce. Revenue for the Temporary Staff Services industry is expected to increase by 1.0% in 2019-20.

Antique and Used Goods Retailing

Used goods retailers, such as Cash Converters or the Salvation Army, typically excel during economic downturns. When economic growth declined in 2013 due to the end of the mining boom, Cash Converters posted the highest revenue growth of any retailer with over $100 million in sales.

‘As consumer sentiment weakens, households divert spending to cheaper used items rather than purchasing more expensive new products. In addition, as unemployment rises, consumers are more likely to sell off assets to cover their expenses, increasing the supply of goods for firms in the Antique and Used Goods Retailing industry,’ said Ms Yeoh.

Slowing economic conditions are anticipated to support strong revenue growth for the Antique and Used Goods Retailing industry in the current year. Industry revenue is expected to grow by 0.7% in 2019-20.

Furniture, Appliance and Equipment Rental

Firms in the Furniture, Appliance and Equipment Rental industry provide basic household goods, such as fridges and washing machines. The industry is counter-cyclical, as rental firms generally benefit from increased demand when economic conditions are uncertain or weak.

‘As economic uncertainty rises, consumers become more hesitant to commit to large purchases such as appliances and furniture. In order to retain wealth, households tend to rent basic amenities until economic conditions improve,’ said Ms Yeoh.

Revenue for the Furniture, Appliance and Equipment Rental industry is expected to grow by 1.9% in 2019-20.

Buy Now Pay Later

Operators in the Buy Now Pay Later (BNPL) industry provide payment solutions to consumers and merchants that allow consumers to purchase goods and services, and make interest-free repayments in instalments over a specified period of time.

‘Volatile consumer sentiment has prompted many households to scale back expenditure on discretionary goods or opt for cheaper alternatives. Nevertheless, the industry is well placed to benefit from this change in consumer behaviour, as industry players allow consumers to purchase goods and services they may not be able to afford immediately,’ said Ms Yeoh.

Revenue for the Buy Now Pay Later industry is expected to grow by 39.3% in 2019-20.

IBISWorld reports used to develop this release:

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