Life After Covid, Part V

Feature Stories | Nov 20 2020

FNArena’s Life After Covid series wraps with a look at industry trends, geopolitical challenges and problems the Australian economy alone will have to face.

-Shift in industry trends
-Geopolitical ructions
-Australia’s unique headwinds
-Will life really be different?

By Greg Peel

Part IV of FNArena’s Life After Covid series picked up where Parts I-III left off, further down the track of life under covid, by which time post-covid trends were becoming more evident. (Links to all parts below.)

When the pandemic first hit, and then seemed to be brought under control relatively quickly, the assumption was life would soon return to normal. By the time the second wave hit, it had already become apparent that by 2021, any “normal” we might be able to return to would not be the same as the pre-pandemic “normal”. Things will have inexorably changed.

Post-pandemic, the world is looking at a “new normal”, impacting on industries, workplaces, consumption, geopolitics and more generally, “life”.

What will this look like?

Not in Kansas anymore

The Economist Intelligence Unit, related to The Economist magazine, publishes an outlook for global industries in the year ahead. In publishing its 2021 outlook, the EIU acknowledges its 2020 outlook, published around this time last year, proved to be wrong.

I doubt anyone blames them.

Underlying the political and economic volatility of 2020, industrial trends have either remained consistent with the past or have been amplified by the pandemic, the EUI notes. Trends vary from industry to industry, and to that end, the EUI has highlighted at least four trends that are already reshaping the global economy.

Even before the second wave it was clear a recovery would likely be fitful, and not all companies would be able to take advantage. The consumer goods and retail sector in particular is likely to see a wave of bankruptcies and store closures as more businesses go on line, EIU warns.

The financial sector will have to cope with a sharp rise in non-performing loans that may overwhelm provisions put in place.

Note that in Australia, analysts consider our major banks to be well provisioned, possibly above and beyond, but even as we seem to have nipped the virus in the bud, the winding down of government support is the offset. Some companies simply will not survive, either because of a lack of capacity to hold out until an economic recovery, or because they find they have no place in the post-covid “new normal”.

A “non-performing loan” is one which banks continue to hold on the books despite no repayments being made, before making a decision whether or not to bite the bullet and bankrupt that company, thus crystallising a loss, if it is apparent that company may never recover. As referred to in Part IV of this series, these are the “zombie” companies.

Japanese banks have been carrying non-performing loans since the nineties. Others have been carrying them since the GFC, particularly in Europe.

Covid-driven restructuring will reshape even those industries such as telcos, which have been relatively unscathed, EIU suggests. There will be winners and losers as markets consolidate around surviving companies and opportunities open up for new business models.

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