2021 Predictions: What is our next black swan?

As we’re approaching the end of the year, Andrew Mattner presents his predictions for 2021. 

What a strange old year we have seen. Never in my near 30 years consulting to and advising businesses, have I experienced anything like it. Global pandemics, compulsory home lockdowns, the shutdown of entire segments of the economy, unprecedented levels of Government spending and support payments, rogue political leaders and emerging economic wars with our country’s major trading partner have meant we have never been short of a headline.

Never short of an opinion I thought I would share what I think we will face in 2021. What is our next black swan?

Firstly, I think 2021 will present a year of tremendous opportunity for those that are brave. We have seen an increase in GDP for the September quarter on the back of consumer sentiment and spending which should give the business community a shot of confidence for the new year. Business-wise I think we will see a greater return to what we could call “business as usual”. Based on reports I think we will likely see a COVID-19 vaccine sometime in the second quarter of 2021 which will serve to further buoy people’s confidence and a return to a great many of the activities as we enjoyed pre-pandemic.

A lot of businesses, courtesy of JobKeeper payments, are more cashed up than ever before. As a result, those businesses are now presented with choices. With strong balance sheets in play, opportunities exist to drive marketing for growth or to make acquisitions. We have seen an increasing demand from buyers for good quality businesses that are looking to exit. Therefore, if you are considering a business exit now is the time to get your house in order and be ready for sale when a buyer comes knocking.

I think funding will continue to be tight as banks will not only want to recover some of the pain they endured through the shutdown but will want to ensure that they protect their balance sheets against future bad debts. Even though we will see a relaxing of the responsible lending framework that was established post Royal Commission my view is if you want funding you better have a compelling business case and have a well-prepared application, or you will most likely miss out. Also, be prepared to wait. Nothing will move fast in this space so if you think you will need funds in 6 months’ time, better get started now.

Interest rates will hold at current levels or go to zero. We may even see negative interest rates in Australia for the first time. I think that this will have numerous effects as follows:

• Share market prices will continue to set new records as investors need a place to invest their money
• Infrastructure and equipment spending will increase as cashed up businesses upgrade
• Property prices in most sectors (especially residential and industrial) will remain strong
• Regionally, land prices will remain high as agricultural operators will seek expansion due to the fact borrowing and holding costs will become comparatively cheaper than leasing rates. This may be partly counterbalanced if commodity prices suffer a significant correction, particularly around a dispute with China

It may take some time but the return to domestic travel will gain greater traction with the potential for international travel toward the mid-end of the year. Domestic travel for business however will never be the same in my view with everyone learning a new way through the utilisation of online platforms such as Zoom or Microsoft Teams remaining central to efficient business dealings. Only if you absolutely need to be seen in person, will we be seeing people getting on planes for work. This also does not bode well with commercial office space. Working from home arrangements will continue which will reduce demand for this type of area. My view is that this framework will stay in vogue, especially for business sectors can function effectively with less collaboration and personal interaction. This would include a lot of technology sectors and some professional services. The obvious negative to this, aside from the impact on commercial landlords, is the social.

I am genuinely worried about Australia’s trade relationship with China. It is no secret that we are heavily reliant on China for exports in several key sectors including agriculture, mining, tourism, and education. I see agriculture, tourism and education being particularly impacted through trade restrictions or social policy in China. This will place a significant economic burden in this space and has the potential to significantly stymie our economic growth potential. Unfortunately, this could significantly impact commodity prices (grain, grapes, stone fruit, beef, wool) which will place pressure on our regional farming sectors. I only see a potential easing in this space if there is significant trade pressure exerted on China by other economic allies such as the US or from Europe.

Overall, I see 2021 in a really positive light. On the back of public confidence around a COVID-19 vaccination, I believe that business growth and opportunity for those owners that are savvy and innovative will far outstrip what we experienced post GFC. So, with that in mind, gear up, look for opportunities and focus on maximising returns over that period.