Assuming we beat the virus in this lockdown, it is easy to think that things will be normal again in four weeks and that the government stimulus will have fixed the businesses, right? I got nothing to worry about apart from which Netflix series to binge next? Well here’s why that’s not likely.
Well, the multi-billion-dollar travel/tourism industry will still be decimated as other countries will still have the virus and our borders will remain closed for many more months. If borders do open, I can imagine travel requirements very prohibitive, which will make travel so hard that it will be not worth it. Exports will massively reduce as other countries will still be in various stages of lock down or fighting the virus and won’t be buying our stuff.
But we have wage subsidies so business will just restart?
The wage subsidies are like a pea shooter against an elephant as business has greater overheads than might be known. A small hair saloon can have overheads of $30k a month. When I used to own and operate a car yard with 10 staff, the overheads were $80-100k a month. The wage bill is only a fraction of the costs of running a business. Therefore, with a few months’ disruption all the spare working cash will be gone out of the business. In fact, I read on Facebook Property groups, lots of businesses have hit immediate cashflow problems and causing flow on effects to suppliers and landlords. To be able to restart your business you will need cash that most small business owners will have already burnt through in a week or month of being closed. Even the ones that do open, they will have to operate in an environment of significantly less turnover than previously.
This will result in loss making operations until restructured or years later when the economy returns to current levels. Already 3.3 million Americans have applied for unemployment benefits.
What about personal habits?
Okay, so finally everybody has got a big scare and now knows that they will need to be saving for a rainy day. Doh!! Did we not learn that during the GFC? Did we not listen to our grandparents? Okay, younger people who have not experienced that can be forgiven here. Therefore, people with incomes will be spending but only a fraction of the amount pre-virus. While they sort their own financials, the ongoing consumer spending will reduce massively. Yes, the government relief will soften the blow. Unfortunately, it is still going to hurt and you can’t rely on the subsidies solely.
Things are looking a little grim so let’s prepare for the worst and hope for the best!
Peter Rollo, MBA