Coronavirus: ‘Hammer blow’ of closures will crush firms

The forced closure of non-essential businesses in Melbourne will deal a ‘hammer blow’ to the city’s manufacturing and construction industries.

Victorian Chamber of Commerce chief executive Paul Guerra says many manufacturers and builders would be damaged in this latest round of restrictions.

The forced closure of non-essential businesses in Melbourne will deal a “hammer blow” to the city’s manufacturing and construction industries, with business groups warning many firms will struggle to survive a six-week shutdown.

The comments came as exclusive modelling from KPMG showed the imposition of stage four restrictions across the city would cost Victoria’s economy $830m in lost output in August alone, more than erasing months of hard-fought economic recovery since the lows of April.

Premier Daniel Andrews on Monday issued a similarly dire prediction that stage four restrictions would double the state’s stood-down workers to 500,000.

Manufacturing and construction employ around 610,000 Victorians. Most of the firms employing these workers have managed to escape relatively unscathed through the early months of restrictions and shutdowns, as the accommodation and hospitality industries bore the brunt of the severe social distancing restrictions announced in late March.

But Victorian Chamber of Commerce chief executive Paul Guerra said many manufacturers and builders would be damaged in this latest round of restrictions.

“The danger … is that if we lose employees from those sectors, our ability to bounce back quickly is impacted,” Mr Guerra said. “If they are not able to supply to local, national or even international factories, that means they will lose those contracts and this will impact their ability to come back.”

Tim Piper, head of Ai Group’s Victorian branch, said the decision to close or severely curtail manufacturing and construction “will be a hammer blow to employers and employees in both sectors”.

“These are very widespread closures across the two most significant areas of business activity areas in the state,” he said.

“Manufacturers are going to need huge support to re-engage and indeed to ensure they can compete once they reopen. There is nothing straightforward about reopening a manufacturing plant – you can’t just turn a switch on and off.”

KPMG chief economist Brendan Rynne also warned that the recovery from stage four will be more fraught as manufacturers and construction firms find it more difficult to bounce back from weeks of shutdown.

But Dr Rynne said the renewed restrictions would also be particularly hard to bear for many services businesses, such as hairdressers, which had started reopening just as the second wave of infections hit from late June.

 

“That’s where I think the bigger risk is: those businesses which have been struggling to keep afloat up to now. This (announcement of further restrictions) is putting a nail in the coffin.”

Josh Frydenberg on Monday flagged he was open to easing eligibility requirements for JobKeeper 2.0, which would allow newly affected firms to receive the wage subsidy beyond September

“In terms of the eligibility for JobKeeper, we are now looking at that in the context of the Victorian situation,” the Treasurer said.

“You may have had Victorian businesses that were not eligible for JobKeeper in the June period because, for example, they had strong retail sales in May or June, but they are, obviously, in the September period seeing a lot of hardships. So in that case, we’re looking at some flexibility around the eligibility requirements for JobKeeper for businesses beyond the end of September.”

Mr Guerra called for the income support program to be extended in its current guise out to March, and that employees who weren’t employed by businesses in February to be eligible for JobKeeper, albeit limited to the pre-COVID headcount.

“For certain sectors that have had good Junes, that shouldn’t mean they lose JobKeeper” from October, he said.

Mr Piper also said Victorian manufacturing and construction companies would be looking to the federal government to provide support beyond September.

“Some have gone from hero to zero, and that in itself will have a devastating impact,” he said.

Dr Rynne estimated that Victorian monthly state gross output will fall from $35.2bn in July to $34.3bn in August – almost 10 per cent lower than pre-COVID levels of economic output in March.