Notwithstanding the recent stay-at-home orders that affected half of the Australian population, the economy has been booming. Just over a year ago, many of us were madly scenario planning our responses to the anticipated economic doom and gloom. To be sure, the shut-downs caused an economic slump that had to be addressed through stimulus. Now, however, the global economy is in full swing. Iron ore and oil prices are soaring, unemployment is plummeting, and indications are that stock markets will hit all-time highs this year.

However, whether you live in a country where the borders and the economy are re-opening, or in a country like Australia, there are a few rifts that businesses should watch in the year ahead:

The Tension between Supply and Demand:

Shortages are rife. Forget about pasta and toilet paper. Products as essential and as varied as microchips, timber, and almonds are in short supply, precisely when people want to buy more electronics, renovate their homes, or binge on gluten-free snacks. Logistics are also strained: in addition to one-off global bottlenecks like the Ever Given cargo ship in the Suez Canal, there is a global crisis in shipping container availability. Add in the lack of international passengers flights further suppressing available cargo space, and it is obvious why the costs of shipping goods between countries has quadrupled - or more. This impacts Australia severely as an island nation. Labour shortages are also being keenly felt in the hospitality, transport, and service sectors. And housing prices have soared, with rents likely to follow.

The Race between Vaccines and Variants:

With fewer than 1 in 10 Australians fully protected against the virus, our country is on a knife-edge, susceptible to new COVID strains, more rounds of closures and frustrated citizens who may make their voices heard at the ballot box. Without increases in the availability and delivery of the vaccine around the country, businesses remain exposed to risk and uncertainty. Once ample supply is available at convenient locations, Australia will begin to contend with the balance between the jabs and the jab-nots, as has happened in the United States.

The End of Financial Stimulus and Economic Support:

At some point, global COVID fiscal support must end – and, in fact, be reversed. Each time there is a new outbreak in Australia, it seems some additional stimulus is now expected/demanded. This will have to end eventually. And as First World central banks contemplate how to extricate themselves from the $10T in assets they bought up since the pandemic began, we may be seeing a sign of what is to come, in China of all places. The PRC, which did not experience economic shrinkage in 2020, has tightened credit policy in 2021, slowing its growth.

So Get Ready to Hunker Down:

The economic recovery has been exuberantly V-shaped in Australia, leaving the slump far behind in only a year. Perhaps over the next 12 months, most Australians will get vaccinated, businesses will have adjusted to the new demand cycles, and stimulus will be unwinding in a reasonable way. But then again, as the old Danish proverb goes, “Prediction is hazardous, especially about the future.”

Yours sincerely,