I’m here with insights for Australian businesses on Thursday 8 April 2021.
Welcome back from Easter. With the freedom to go away or do day trips, the long weekend this year seem to be even sweeter than pre-COVID-19.
In the briefing today, I’d like to look further into the future and consider different scenarios for what might be in store for us as we navigate our businesses over the coming 12 to 24 months.
As many of you will attest, the general economy is buoyant at the moment. There is pent up demand for many of your services and products, as consumers and businesses have spare cash available and are ready to spend it. Projects that went on hold last year are back on, in addition to the projects that would ordinarily have commenced this year. The main challenges many of us are is tackling is being able to recruit enough of the right people to keep up with the demand and being able to maintain supply of products imported from overseas (the blockage in the Suez Canal due to the Ever Given container ship didn’t assist).
Back in January I wrote about the potential for a strong economic climate and the need to prepare our businesses for those conditions – see my briefing: Why you should be very confident to grow your business in 2021-2024. Today, I’m going to play devil’s advocate and highlight two scenarios that could occur in the next couple of years that could diminish that rosy outlook. This is not a doomsday prediction, more of a ‘be alert’ reminder.
Scenario 1: Vaccine Effectiveness
There is a general mood that, with vaccines rolling out across the world, COVID-19 has been beaten and will not return. In fact, there seems to be more concern and discussion about the side effects of the vaccines than there is about their effectiveness. Let’s be honest, from governments to businesses to individuals we all want the vaccines to work, and that makes us biased. With our rose-coloured glasses, we are only looking for the positives but in doing so we aren’t considering the vulnerabilities of the current vaccines. Let me give you some insight into some of the medical thinking on the topic;
We all know that vaccines usually take years to produce, sometimes even decades, yet the coronavirus vaccines have been produced at breakneck speed in less than 12 months. One of the main reasons these vaccines have been able to get to market so quickly is that they have been designed to activate the immune system once the body sees one particular protein of the virus – the spike protein. Vaccines for other diseases typically activate the immune system based on identifying the entire protein of the virus.
The challenge for the COVID vaccines will occur as the virus mutates – the current vaccines will not be able to recognise the new shape of the spike protein. Because of that, there is a high chance the vaccine will be ineffective on the mutation. The good news is that there are other vaccines currently being developed to activate on the entire protein of the virus. This is more complex coding, which means the new vaccines will take longer to come to market. Hopefully the virus won’t have mutated so far in that time that the next iteration of vaccines is also ineffective.
There is clear scientific evidence that due to the wide spread of the virus, it has already mutated. The evidence suggests that the vaccines we have are still highly effective (90%+) against the UK strain of the virus but are only between 10% to 60% effective against the South African and Brazilian strains. While things are looking good with the success of the vaccine roll out in the UK, US and Israel (where the dominant mutation is the UK strain), the real threat comes from an outbreak of the virus from South Africa or Brazil.
As international borders start to open, there is more chance that those more virulent South African and Brazilian strains will make their way to other countries and into Australia. Be alert to the impact this could have on Australian business confidence.
Scenario 2: Interest Rates Increase
We’ve all witnessed the recent jump in property prices (many of you have even participated in it) – these are some of the fastest rises of property values on record. This is making people feel wealthier and encouraging them to spend.
Many businesses owners are starting to struggle to recruit good quality skilled staff. While there are good employees available, they are in short supply and recruitment timeframes are extending out. This has the potential to drive up wages over the short-medium term.
These two factors demonstrate a growing economy. The Reserve Bank have repeatedly communicated that they don’t intend to put interest rates up within the next 3 years, but if rising property prices and wage growth lead to inflation and lower unemployment, things might change.
I listen to several thought leaders in this area and want to share a prediction by Mark East the Chief Investment Officer of Bennelong Australian Equity Partners. Mark regularly meets with CEOs and business leaders and he believes that unemployment in Australia is coming down rapidly and predicts that it is likely to be at 4% by the end of the year. This would make it the lowest level in the last 30 years!
If property prices continue to rise rapidly, unemployment is low and wage growth is high, then inflation will escalate as prices increase across the board. Mark predicts that we will start seeing interest rate rises by the Reserve Bank sometime in 2022, much sooner than expected. Rate rises will slow some of the economic activity and downgrade Australian business confidence.
What this means for Australian businesses
I’m highlighting these two possibilities about vaccine effectiveness and interest rate increases to keep you informed and equipped, and I encourage you to work with your coach to plan for all eventualities. Take advantage of the current positive conditions but also listen carefully to us when we discuss bulletproofing your business. Be confident, and be alert.
If you’re interested in finding out more about these topics, then reply to this email and I’ll share some of the links to podcasts and articles.
Ashley Thomson B.Eng. (Hons), Grad. Dip. Mgmt, MEI
Tenfold Business Coaching