EBO webinar on Covid-19 business outlook
The ECCT, together with the European Business Organisation World Wide Network (EBO WWN) hosted a webinar on the subject "Current market situations, business outlook and what else lies behind the shadow of Covid-19". The webinar was moderated by Jason Collins, Chairman of EBO WWN and also representing the European Australian Business Council. The webinar featured presentations by ECCT CEO Freddie Höglund, who was one of the panellists, together with representatives from European chambers in Australia, China, Japan, Malaysia and Singapore. Presentations were followed by a panel discussion, in which ECCT Chairman Giuseppe also participated.
In his presentation, Simon Crean, Chair of the European Australian Business Council and also former Australian Minister for Trade, expressed confidence that while Australia has been affected by the pandemic, it will recover quickly.
He cited estimates that unemployment would rise to 10% and the hit to the economy could reach A$279 billion. A forecast he cited is for a GDP contraction of around 7% in 2020, the first after more than 20 years without a recession, but to be followed by 6% growth in 2021.
Aspects of trade, such as iron ore exports, are holding up but education, another important sector of Australia's economy, is expected to take a huge hit given travel bans on foreign students. He cited an estimate of a A$19 billion loss facing Australian universities. The outlook also depends on how Australia's relations with China develop, since China is Australia's largest export destination. 90% of businesses in Australia are expected to feel an impact. But Australia has several advantages that will help it bounce back, including a high minimum wage level, incentives to businesses to keep people employed, a strong universal healthcare system, competent healthcare officials and administration, a healthy retirement fund and strong social safety net. This is in addition to government support initiatives which have amounted to around 10% of GDP.
In his presentation, Carlo D'Andrea, Vice Chair of the European Union Chamber of Commerce in China and Chairman of the EUCCC Shanghai, noted that China is ahead of the rest of the world in dealing with the pandemic but not yet fully back to normal. In particular, since 28 March, it has temporarily closed its borders to foreign nationals.
However, over 95% of industries have returned to work and the government has introduced a number of support measures including tax relief and rent reductions. Rent reductions were open to European companies renting buildings owned by state-owned enterprises but not for others. On 10 February, there was a partial lifting of lockdown measures, although with strict controls, which has helped to keep the number of infections down. The main issue now is the closure of borders. D'Andrea noted that, based on a recent business confidence survey, European chamber members are still committed to China. However, Covid-19 was a wake-up call and they are now talking about "China Plus One" strategies (keeping operations in China but diversifying some operations to other locations).
In his presentation, Michael Mroczek, President of the European Business Council in Japan, said that Japan's infection rates have been relatively low considering Japan's large and ageing population. The government waited until 7 April to declare a state of emergency, and lifted it on 26 May. Japan's GDP was already negative in the last quarter of 2019, partly due to the introduction of a consumption tax. Companies such as Toyota, which is a large exporter, have been especially hard hit during the lock-down in many of its target markets. Meanwhile the profitability of many other sectors is decreasing as people save money and stay at home.
The Japanese government has thrown a lot of money at the problem. If you add up the various stimulus and support measures, they total close to US$2 trillion. Nevertheless, the economy could still shrink by as much 22% in 2020. The postponement of the Olympic Games by a year has had a big impact as it had been an economic growth driver until it was postponed earlier this year, especially on the tourism and hospitality sector.
Sven Schneider, CEO of the EU Malaysia Chamber of Commerce and Industry (EUMCCI) noted that the number of reported cases in Malaysia of around 7,000 infections may increase in forthcoming holidays. Malaysia has done a lot of screening, since it is mandatory for industry. The government implemented a lock down for all but essential work on 18 March. There have been some economic stimulus packages, although they have been quite limited (amounting to around 2.5% of GDP). The biggest impact to the economy was in March and April when most production was shut down. While public spending fell in 1Q20, the government is now looking to increase infrastructure spending, which should provide a boost to the economy. The IMF has forecast a GDP contraction of 3% in 2020, followed by a 5.8% growth rate in 2021. The pandemic will provide some business opportunities, especially in the "low-touch" economy as well as logistics and automation.
Nele Cornelis, Executive Director of the European Chamber of Commerce Singapore said that Singapore has learnt from previous experience (especially SARS), which prepared Singapore well for the current pandemic. In particular, authorities increased the number of emergency units and isolation centres ahead of the pandemic. When the pandemic arrived, authorities started contract tracing and closed the border with China at an early stage. While Singapore has quite a lot of cases for its population size, the death rate of 23 is relatively low compared to Europe and the United States, thanks to a very good healthcare system. As evidence of this, the speaker cited an example of a 100-year-old patient who survived Covid-19.
Singapore began screening passengers from China in January and later blocked all visitors from China. This severely affected the tourism sector since a large portion of tourists normally come from China. In terms of financial support, the government has launched a special budget in four phases to help companies with cash flow, to maintain jobs and in the form of tax rebates, focused on the worst-hit sectors for extra help. The latest budget was for $70 billion. On 27 May, the government announced that the lock-down would be gradually lifted, starting in phases on 2 June. She cited predictions of GDP contraction of around 5.7% in 2020. However, based on a survey of members, most expect the economy to recover within 3-9 months.
In his presentation, ECCT CEO Freddie Höglund pointed out that Taiwan has been extremely successful in dealing with the coronavirus owing to its early and coordinated response, a well-functioning healthcare system for treating those infected and effective contact tracing efforts. He went on to give a short overview of the timeline of Taiwan's response, noting that by acting early, there were very few local outbreaks in the beginning and Taiwan never needed to impose a complete lockdown on the economy and that Taiwan was also the first country in the world to restart sporting events.
In terms of the economic and business impact, thanks to the government's effective response, ECCT members have not had to make large adjustments to their local operations. While all have contingency plans, which include various combinations of remote working and splitting work forces between locations, most have only tested but never had to fully implement them.
He pointed out that no one has any reliable model for projecting economic growth that can account for so many variables but, as an export-driven economy, Taiwan will inevitably be affected by the pandemic. However, recent indications are that Taiwan is doing better than others. While the travel, hospitality, luxury retail and related sectors have obviously taken a hit, most ECCT members will be affected not as much by local conditions but more by how the pandemic affects their global operations. For example, the shut-down in China in February resulted in severe supply chain disruptions, especially for the electronic and automotive sectors.
He noted that several ECCT members have reported project delays due to disruptions in supply chains and the movement of people. For example, restrictions on the passage of vessels, the offloading of equipment and materials, the processing of work permits and visas and quarantine requirements for professional and marine crews is holding up work on Taiwan's offshore wind farms.
Looking ahead, Taiwanese companies, like their global counterparts, will seek to increase resilience of their operations from both geopolitical and other risks, like future pandemics, by increasing geographical and supply chain diversification. US-China trade tensions have already prompted Taiwanese companies to increase investments in Taiwan, south-east Asian and other countries while European investments into Taiwan continue to rise. He concluded that while Taiwan has done well with closed borders, no one can accurately predict what will happen when the island opens up to international flights again.
In the panel discussion, Simon Crean said that Covid-19 has prompted a reassessment of Australia's strategic strengths and how to plug holes in the supply chain. In terms of future possible business opportunities, he said that there will be extra public and private investment in infrastructure helped by low interest rates. Energy is another area with great potential. He noted that private industry is investing heavily in renewable energy and hydrogen technologies. The defence industry also offers opportunities for Australia to collaborate with Europe. There are also big opportunities in healthcare.
Carlo D'Andrea noted that China is conducting research on vaccines and treatments but a vaccine is not likely to be commercialised before 2H21. He added that social distancing and other good habits are keeping infection rates low in China. Even when it's not mandatory to do so, people are wearing masks and practicing social distancing.
Michael Mroczek noted that EU exports to Japan have risen 6% since the EU-Japan trade agreement and the deal will open more trade and investment opportunities for Europe, including in the digital economy and green industries. There are also opportunities for joint EU-Japan investments in third countries, such as Africa. He noted that some of the government's support measures are open to European companies but all information is only available in Japanese.
Oliver Roche, chairman of the EUMCCI, was asked about EU-Malaysia FTA negotiations. Roche said the government is positive on restarting negotiations that have been stalled since 2012. There are several mega projects that European firms are interested in, including the high speed rail project connecting Singapore and local metro projects in Kuala Lumpur, that could be restarted in the not-too-distant future. He added that Malaysia has a national savings scheme that will help to protect vulnerable people from the global recession. Malaysia has had almost full employment in the past. This may rise to 5-10%. However, this may affect migrant labourers in Malaysia more than local citizens when migrants are able to return home.
Federico Denato, President of European Chamber of Commerce Singapore, noted that the government was efficient in distributing stimulus to where it was needed. He said he expects the crisis will not affect Singapore's status as a regional financial centre. On the issue of tracing, he said he believes that you can't export the same system to every country and how each country implements tracing will depend on the history and culture of each country.
Asked about the impact on global supply chains, ECCT Chairman Giuseppe Izzo said that the semiconductor industry has shown great resilience so far in the crisis, thanks to the demand for ICT products and services during the pandemic. Taiwan, which occupies about 22% of the global semiconductor industry supply chain, was a beneficiary of this. Nevertheless, the industry will still be affected by the pandemic as well as other factors such as US-China trade tensions, which is prompting many companies to reconfigure their business models. Those highly dependent on the US will probably choose to invest in the US. This includes companies like TSMC, which has announced a US$12 billion investment in the United States. However, this does not automatically mean companies will stop investing in China. He noted that Chinese investments into the US have actually dropped in recent years while US investments in China have remained steady. Nevertheless, it remains to be seen how the political and economic factors will play out and what will happen to these and future investment flows.