Unquestionably the coming months will be extremely testing as the coronavirus spreads. But this will be temporary and Australia can then bounce back.
Debelle’s message was one of reassurance.
First, he made a strident defence of last week’s rate cut, rejecting criticism from some business leaders on day one of the Summit that falling rates aren’t flowing through to the economy.
“Monetary policy still works,” Debelle said bluntly. Maybe business and the public won’t spend immediately, but the cut will bring forward the day when these groups will feel comfortable enough with their balance sheets that they’ll start spending again.
Debelle underscored the RBA’s willingness to support the economy by promising the central bank would “absolutely” consider quantitative easing, even after cutting rates again.
He also made it clear that while the RBA is prepared to act if volatile financial markets are no longer functioning normally, that is not the case right now. He also pointed out the banks are in very good shape, and while their margins would be hurt by the rate cut, the credit quality of their loans books would receive a boost from lower rates.
Like everyone in the country, Debelle and the RBA are waiting to see what Morrison and Treasurer Josh Frydenberg will reveal on Thursday in their fiscal stimulus package. As RBA governor Phil Lowe has done repeatedly, Debelle emphasised that it is the combination of fiscal and monetary policy that helps steer economies through soft patches.
“They will also help ensure the Australian economy is well-placed to bounce back quickly once the virus is contained,” he said.
But Debelle’s most important message was the reminder that the coronavirus won’t last forever. The rebound will come – and the rate cut will act as a multiplier.
“Once we get beyond the effect of the virus, the Australian economy will be supported by the low level of interest rates, the lower exchange rate, a pick-up in mining investment, sustained spending on infrastructure and an expected recovery in residential construction.”
So while coronavirus inevitably dominated discussions during the Summit, there were plenty of other lessons and insights for the business community to take away from a fascinating program.
Here are some more nuggets Chanticleer unearthed across the event.
US gives Australian business stark choice on China
One of the highlights of the Summit is the annual dinner on the first night, which is jointly hosted by the Business Council of Australia, the Financial Review and PwC.
Tuesday evening saw US Ambassador to Australia, Arthur Culvahouse, share a couple a terrific anecdotes about his time working as a special counsel to the Reagan White House.
In a time when everyone is working on contingency plans in relation to coronavirus, Culvahouse recalled being involved in the contingency planning for a nuclear attack on the White House. Fortunately, he had a spot on the second helicopter out – but he only had five minutes to get on the chopper once the big bomb was in the air.
Culvahouse also revealed what it was like to be in the Oval Office on Black Monday, 1987, as Wall Street fell 23 per cent: tense. But he admitted that at the age of 39 he was too inexperienced to give Reagan much good advice. “I should have been less profound and less certain and less confident than I was.”
But what really stood out in Culvahouse’s speech was his message to Australian business. Put simply: pick a side.
The China hawk argued that Australia is in the midst of “the great strategic competition” with China, which he described as an oppressive regime where the rise of one has come at the expense of many.
“It is a competition we must win,” Culvahouse said, calling on Australia’s private sector to throw its weight behind the interests of America, which remains the biggest investor in Australia, and a key ally.
“I hope that you will answer the call,” he told a room that included Rio Tinto chief JS Jacques, Wesfarmers boss Rob Scott, acting Caltex chief Matt “Doc” Halliday, Coles Group boss Steve Cain and directors Helen Nugent and Graham Bradley.
The world’s supply of rare earths, dominated by China thanks to what Culvahouse argues are unfair business practices, is a key battleground and an area that US and Australian interests can work together.
It was a stark and perhaps uncomfortable reminder for Australian business leaders, who are already thinking pretty damn hard about their linkages with China right now.
Debt investors borrow ESG priorities
Wednesday’s Summit breakfast brought fascinating news of a pioneering funding deal between Commonwealth Bank and Wesfarmers. The $400 million, three-year sustainability-linked loan (SLL) will be the first deal of its kind linked to a social target when it is signed next week.
In addition to containing an environmental metric linked to Wesfarmers’ reducing emissions from its ammonium nitrate production, the deal will see the conglomerate agree to a target for employment parity for Aboriginal and Torres Strait Islander team members, which should see its Indigenous staff member numbers rise from about 1700 to around 3000, or 3 per cent of its 100,000-strong workforce.
It’s a fascinating example of how ESG (environmental, social governance) priorities, which are now firmly part of equity investing, have moved into the debt sphere.
Andrew Hinchcliff, CBA’s head of institutional banking and markets, made it clear this trend isn’t going away – every lending decision his business makes now passes through an ESG lens.
Advice for life
The Financial Review’s Rich Lists are full of great yarns, and we loved hearing the story of how Nick Bell started his digital marketing business with a $100 website and a second-hand mobile phone. Within a month, he was making $100,000. On the 2019 list, he was valued at $217 million.
Rich List editor Julie-anne Sprague asked Bell what advice he would give his 18-year-old self. His humble answer struck Chanticleer as being handy advice for anyone in business.
First, start a business – and fail! “It’s like a PhD in life,” he said.
Second, invest in self-education. “Read, read, read – I wish I’d done more of that at high school.”
Finally, get help to build your networks. “I thought I could do it without anyone’s help.”
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