Are We Getting Complacent in an Artificial, Stimulus-Boosted Economy?

I was scrolling through the news cycle earlier this week when I stumbled upon an article about the accounting software company MYOB who recently cut 130 of its employees. While it’s absolutely tragic that 130 hard working employees will have to look for other means of employment in the near future, the job cuts weren’t the most important takeaway of this article at all. What caught my eye was that Greg Ellis, MYOB’s current CEO warned of the dangers of an artificial economy, which comes at a particularly crucial time, considering we’ve just weathered the first wave of the pandemic and borne witness to its impact on our personal and professional lives. 

Ellis told the Sydney Morning Herald that “frankly because of the necessary government stimulus you’ve actually got an artificial economy at the moment… it’s not a private public economy at the moment it’s pretty much a public supported economy,” pointing toward the falling number of invoices issued signalling trouble for the future. “If invoices aren’t being raised, that’s a fair indication SMEs will hit cash flow problems down the track. This is particularly pertinent considering the recovery work to be done as restrictions are lifted and businesses seek to rescale on the other side,” Ellis concluded. 

We’re swimming in a pool that has been topped up with $320 billion on a scorching hot summer’s day, and it’s unrealistic to expect the water level will stay high. We’re still in the stimulus’ infant stages where it’s too early to tell how much of the buoyed economic activity is due to the $20 billion a month injected into businesses, or whether they’re creating their own value from the payments; and that figure doesn’t include the JobSeeker payment which has been increased, with 1.6 million recipients each fortnight and 6.3 million workers receiving JobKeeper payments. This pool is at a tremendous risk of its foundations shattering and losing all its water in the face of an economy-ravaging second wave, and that is why we cannot be complacent about where we sit right now. 

Economists are well aware of this. When rumours of a potential vaccine made their way around Wall Street, the markets were confident. When the randomised trials reported back with the truth that they weren’t yet able to treat the COVID-19 virus, markets dropped due to the way in which market confidence is inextricably linked to a vaccine, so the world can go back to business as usual as soon as possible. Matthew Ross of Goldman Sachs has said that in spite of Australia being “relatively well positioned in terms of virus suppression and the scale of its fiscal and monetary response,” that he remained “sceptical about how quickly activity will recover given the risk of a second wave of infections when social distancing measures are relaxed, and the impact of both cyclical and structural changes to the economy that the lockdown has likely induced.”  

It’s vital to remember that the money that floats the cheques being written today needs to come from somewhere, and I’m worried that we’re not considering the second-wave of the virus and the potential for further economic turmoil with a cash-strapped government forced to intervene- again. 

While the PM has stated that “it is very important that as the economy starts opening up again, and as we start getting out from under this doona that we’re under, that people do go back and start seeking those opportunities,” if you consider the fact that we haven’t witnessed the second or third phases of the pandemic on the economy, it’s far too early to forecast a return to business as usual. 

Greg Ellis’ claims that we’re living in an artificial economy are even more ominous when you consider the Reserve Bank’s forecasting that was released earlier this month. The RBA said that its projections were based on three models, the first of which “involves the relaxation of domestic activity restrictions over coming months, with most of these restrictions lifted by the end of the September quarter.” In its most optimistic of predictions, Australia’s economy would contract by 10% in the June quarter and 6% by the end of the year, household consumption down 9%, and business investment will shrink by 8% in the June quarter, and down by 13% by the end of the year. 

Let me repeat that: one of the most optimistic forecasts for the remainder of the year has business investment down 13% with unemployment sitting around 8.5% in June of 2021. If you needed any more convincing that preparing yourself for a potential second wave of economic damage as a result of the pandemic is worthwhile, those two statistics should be enough. What’s more, we need to consider the impact of the JobKeeper program, which some business operators are now exploiting with manipulated cash flow reports to lessen their monthly revenue, ensuring that they receive the next fortnight’s payment for their staff.  

While it’s sad to concede that right now there are significantly more questions than answers, one thing I believe everyone can do to protect their business, their bank account and their family is to avoid getting complacent. The fact that the economy has stabilised today has no impact whatsoever on tomorrow’s numbers, and I think it’s healthy to be exercising caution right now. 

While it’s remarkably depressing to write, we may well be heading toward a great depression, and I think it’s worthwhile acknowledging this, planning for this and doing everything in our power to minimise the impact of this if it does transpire. We’re living in unusual times, and we have been for some time now, but it would be wrong to state confidently that the worst is behind us. I hope it is, but there’s no assurances in the world of economics, and quite often those who haven’t at least hypothesised of the worst can be on the receiving end of a rude surprise.

Don’t be delusionally optimistic about where we’re sitting in an artificially-buoyed economy; do your homework and prepare for how a second wave could impact you today. 

Thank you, as always, for your time.

I’ll see you in the next piece.

Kobi Simmat, Director & CEO of the Best Practice Group.