While the calendar might have turned over to a new year – and a new decade – the economy wasn’t so lucky to start afresh. According to KPMG’s Quarterly Economic Outlook, released in October, Australia’s economy remained weak, thanks to consumer and business confidence remaining low and the unemployment rate increasing slightly.
Despite this, however, KPMG’s Chief Economist, Dr Brendan Rynne, remained optimistic that growth would pick up gradually as the year progressed, consistent with the Reserve Bank Govenor’s view that the Australian economy had reached a ‘gentle turning point’ in the middle of this year. Brendan noted: “The recent easing of monetary policy and the fiscal stimulus in the form of tax cuts and public spending are predicted to support economic growth and inflation.”
With a number of significant international events set to occur this year that have the ability to impact global markets, we asked Brendan to share his insights into how four major events will affect international markets, our local economy, and, importantly, Australian SMEs. Read on to find out what your business can expect in 2020. It’s not all doom and gloom, we promise.
Following a resounding win by Boris Johnson and the Tory Party in the December election, the United Kingdom is now set to officially leave the European Union on 31 January, unless additional extensions are requested and approved. This significant move has been keenly watched since the outcome of the Brexit referendum surprised the world back in June 2016.
The good news is that the Australian economy isn’t expected to feel too much of an impact, not directly anyway, because the UK isn’t one of our top trading partners. However, that doesn’t mean we won’t be impacted at all.
“Where it will have an effect on Australia is in an indirect sense; if our more significant trading partners like China and our Asian neighbours have strong trading relationships with the UK and their trade drops off, then this slow down may dampen their domestic activity,” says Brendan.
However, any decline isn’t expected to be sharp, but rather a continuation of an already softer UK market than it would have been had the Brexit referendum never taken place.
“We know that the UK economy is tracking softer because investment activity is softer, people are unsure about purchasing major equipment or building new properties and there’s reduced productivity. Basically, people in business are focusing on how to plan for the departure from the EU at a business level, and that’s taken their focus off the activities associated with growing their business in a normal sense,” says Brendan.
If you’re an Australian-based SME who has operations or products in the UK market, you’ll likely be feeling the effects of the softer economy already. And if expansion into the UK is on the cards, you might want to rethink this for now
“It’s more likely to be those businesses who have existing business relationships in the UK that will be feeling the impacts, but it also has the potential to impede growth prospects. Now is not a good time to think about expanding sales products into the UK, whether that’s through channels into the UK or directly setting up operations there,” says Brendan.
Tokyo Olympic Games
Tokyo will host the 2020 Olympic Games from 24 July to 9 August with the Paralympic Games following from 25 August to 6 September. As with major events like this, Japan can expect a significant amount of tourism activity, which may benefit Australian businesses that supply to the Japanese market.
Japan’s tourist numbers will likely get a good boost in the lead up to, during and just after the Games, with 10% to 20% more visitors expected during the Olympic period. This includes tourists there to see the Games, and the huge number of athletes and administrators that each country brings. The event is expected to also generate ongoing tourism activity for a few years.
“They will likely experience an effect where the boost in tourism activity induces people to come into the country as a result of seeing it on television and that tends to follow through for a year or two afterwards,” says Brendan.
So, how might Australian businesses benefit from increased tourism in Japan?
“We’ll be seeing a whole lot of activity centered in Japan that is going to call for a lot of Australia’s export goods that go to Japan at the moment to service the normal population. The population is going to be so much larger temporarily because of the Games, and they’re going to need more Australian goods and services to help meet all that additional demand,” says Brendan.
The biggest beneficiaries are likely to be those in the agricultural and meat product markets, with the effects felt closer to the event.
“Because of the short-term nature of food products, you would imagine that they are going to be sourced closer to the time to meet the spike in demand and ensure they have enough food to feed everyone who comes to Japan,” says Brendan.
Australia is also a large exporter of energy to Japan, including coal, LNG and hydrogen, however these needs should be well and truly sorted by now, says Brendan: “They wouldn’t want to leave that too long before getting that additional energy supply in place, if in fact they need an additional supply.”
Expo 2020 Dubai
Dubbed a ‘global stage for business’, the next World Expo will be held in Dubai, opening 20 October 2020 and running until April 2021. The event is intended to be a global platform for countries and businesses to showcase and secure investment opportunities and agreements.
Australia’s pavilion has been developed to promote the country’s natural wonders to tourists and ingenuity and innovation to industry. And if done right, the benefits could flow through to all levels of business in Australia.
“The good thing about Expos is that you’re not only showcasing goods and services so that people know that you’ve got the existing capacity for them, but it’s an opportunity to showcase things that other countries may not realise you have the capacity for. For Australia, that could be in the fields of high-tech bio medical development, high tech manufacturing, specific food products and food development; it’s about showcasing our ability to deliver new and emerging technologies on an international stage,” says Brendan.
But being at Expo is as much about keeping existing relationships strong as it is trying to attract new ones, says Brendan: “In some regards there is an element of FOMO (fear of missing out) associated with these World Expos, in that if you’re not there you might miss out on something; if you don’t go, will some of the current organisations that you do business with be there and in fact source products from somewhere else?” says Brendan.
So, what opportunities does World Expo present for Australian SMEs? The event organisers have committed to allocating 20% of their overall spend to supporting SMEs and have invested in the Expo 2020 Dubai online marketplace to provide a platform for SMEs to view suitable opportunities and connect with investors and suppliers. In the lead up to the event, the Australian Government is inviting expressions of interest for business partnerships. And as for the flow-on effects of international business coming to our shores in the years to come, well, we’ll have to wait and see.
US Presidential Election
The United States is set to head to the polls for the 2020 Presidential Election on 3 November. While there is a level of unrest and uncertainty that comes with any federal election, this event isn’t really expected to impact Australia’s economy.
“The US is at an interesting point in its economic cycle. It’s been experiencing a period of strong growth; the longest period of sustained positive economic growth since the Second World War. Normally those growth paths tend not to run out of steam, but rather policy intervention influences its capacity to continue,” says Brendan.
While the US economy is slowing compared to where it was two years ago, Brendan says this is likely because of policy changes that were put in place in 2016 and 2017 which stimulated consumption and investment activity, and in fact the slowing down is probably more a case of the economy coming back to its long-term trend levels.
Currently, 75% of the US economy is consumption-driven and its unemployment is at the lowest rate it’s been in 60 years. Brendan believes these factors will continue to stoke some activity within the US, but external factors are likely to have more of an impact on the economy than the internal events, such as the election.
“External factors to consider are the US/China trade war and a step up in trade conflicts with other economies, including recent tariffs on steel and quartz from Brazil and Argentina and the re-setting of the North America free trade agreement,” says Brendan.
Australia’s trade activities are still considered favourable for the US, in that they export to Australia more than they import from us. While this continues, it will be a case of those Australian businesses that have an operational footprint within the US that are going to feel more of an effect than businesses who don’t currently have business in the US.
Here’s to 2020
While on the surface it looks like the world’s big economies are in for a shake up with some big events set for 2020, infact Australian SMEs shouldn’t feel too many shock waves; not on home soil anyway.