The industries most vulnerable to rising COVID-19 cases and rising costs

Australia’s retail, hospitality, arts, and service sectors appear more susceptible to the financial impact of rising COVID-19 case numbers than other industries, as the economy juggles minimal public health restrictions, a consumer spending slowdown, and waning government support payments.

However, economists suggest broader economic factors may now play a bigger role in the fortunes of small business than rising case numbers alone.

COVID-19 case numbers have surged through winter, due to the emergence of the highly infections BA.4 and BA.5 variants and the cessation of many public health restrictions enforced through 2020 and 2021.

In Victoria alone, active case numbers have surged by nearly 25,000 over the last month. Rising hospitalisation rates have stretched the state’s healthcare system, leading the state government to increase specialist staff and secure private hospital capacity to assist public patients.

Nationally, new cases are expected to peak in August.

But unlike prior phases of the pandemic, when vaccination rates were far lower, there is little political will among state and federal leaders to reinstate business mask mandates, density limits, and work-from-home orders to slow the tide of infections.

Retail and hospitality on the front line

Brick-and-mortar retail and hospitality trade could decline if enough Australians choose to stay home during the current wave, or in the unlikely event federal and state governments return to the harsher restrictions abandoned in early 2022.

Rising COVID-19 cases and the flu season have made their mark on the workforce, too. Already, Australian Bureau of Statistics data shows the number of hours worked in June fell slightly, reflecting a higher-than-average number of workers taking leave due to illness.

On Monday, Paul Zahra, CEO of the Australian Retailers Association, said “the next couple of months will be challenging with daily caseloads set to remain high”.

The outlook is far from rosy. CreditorWatch data also suggests food and beverage service businesses are significantly more likely to default in the next 12 months than any other sector, with an average projected default rate of 7.2%. Arts and recreation businesses came in second, at 4.7%, with retail trade trailing at 4.1%.

However, economists suggest immediate fear over COVID-19 cases is just one factor affecting SMEs, with broader economic conditions more likely to impact their bottom line.

In its latest Business Outlook report, released Sunday, Deloitte Access Economics noted “the risk of a further surge in cases has not disappeared, but the outlook for industries is starting to look a little less linked to the spread of the virus”.

Spiking consumer spending helped to prop up the retail and hospitality sector when lockdowns came to an end, but “the rebound in household spending is likely to ease from here,” Deloitte Access Economics said.

Recent bank data shows consumer confidence has fallen in response to sharp inflationary pressures and rising interest rates, meaning consumers may be less likely to spend big on retail goods, dining, and in-person luxuries like beauty treatments than they were even six weeks ago, regardless of COVID-19 case numbers.

Life after support payments

Retail and hospitality operators were granted something of a reprieve on the weekend, when concerns from state and territory leaders led the Albanese government to reinstate the Pandemic Leave Disaster Payment.

The payment, which provides up to $750 to to workers who need to isolate for seven days after COVID-19 infection and do not have sick leave entitlements to draw upon, originally ended on June 30.

Following a crisis National Cabinet meeting, Prime Minister Anthony Albanese said: “I want to make sure that people aren’t left behind, that vulnerable people are looked after, and that no one is faced with the unenviable choice of not being able to isolate properly without losing an income and without being put in a situation that is very difficult”.

But with the Labor government concerned over its budgetary position — the extension alone is projected to cost the taxpayer some $780 million — it appears unlikely further financial support will be extended past the end of September.

“They can’t continue forever given the fiscal constraints that are on governments at all levels, but that this is an appropriate measure going forward,” Albanese said.

Should that be the case, industries which hire a large proportion of Australia’s casual staff, retail and hospitality included, will once again be left exposed to the financial impact of COVID-19 infections.