WA small business to bear brunt of pandemic recession

The West Australian
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The “COVID-19 recession” in WA will be a case of mining versus tourism, accommodation and retail, with small businesses tipped to bear the brunt of the economic fallout.

EY chief economist Jo Masters said while the recession would be broad-based, small businesses had been, and would be, at the coalface of the impact.

“The crisis has hit predominantly the services part of our economy,” she said.

“Small businesses are working in those sectors that have been most heavily impacted. In accommodation and food services, they are typically smaller businesses and it is the same in arts and recreation and tourism.

“Small businesses tend to have less surplus cash flow to survive when conditions are very weak.

“They’re a big employer in Australia, so it’s very important to keep them in business.”

Chamber of Commerce and Industry WA chief executive Chris Rodwell said COVID-19 had hit faster than previous crises, and had fallen harder on services.

“Small businesses are suffering worst of all, with a higher proportion of WA small businesses suffering a more than 50 per cent loss of demand, as customers have bunkered down,” he said.

But analysts said while the initial economic impact of COVID-19 had focused on the services sectors, reduction in consumption and investment would work its way through the economy, affecting sectors in the medium-term that were not initially impacted by stringent social distancing measures.

“Think about the restaurant chain that is forced to cancel that planned expansion due to low demand, and the flow-on impact that has to the construction contractor who may have secured the job to fit out the new premises, and subsequently to the building products supplier who would have supplied that contractor,” Deloitte Access Economics WA partner Noel Richards said.

Reserve Bank governor Philip Lowe last month warned Australia was likely to experience its biggest contraction in national output since the Great Depression, with national output estimated to fall 10 per cent over the first half of this year, with most of the decline in the June quarter.

Professor of economics and dean of the University of WA business school Peter Robertson said “we don’t have a recession in the usual sense of the word”, but the forced closures could lead to a recession as confidence dwindled.

He said WA being less exposed to tourism meant the downturn would have less overall effect on its economy, compared with other States, though business-to-business the effect would be similar.

“Because mining dominates the WA economy, it will have a cushioning effect,” he said. “In WA there is a unique opportunity to re-establish some economic normality. International conditions, however, will dictate a lot of the outcomes for Australia.”

Mr Richards urged WA industry and policymakers to view the crisis as an opportunity to develop a long-term, sustainable platform for growth and development.