Australian Economy – The Australia economy has finished its remarkable recession-avoiding run, which lasted almost 30 years. This has been driven by a number of factors including our large resources sector (that has often been a reliable counterbalance), good demographics (based on a solid labour force built through natural population growth and immigration), and strong foreign investment flows (especially into resources industry and property). Due to the global nature of the current economic downturn, it will be at least 30 years until any other developed economy might be able to surpass this feat.
Global Economy – The early indicators of the effects of Covid-19 on the global economy have been in line with much of the consensus of a sharp and deep recession. The Chinese economy shrank almost 10% in the first quarter of 2020, whilst these types of numbers are expected for much of the rest of the globe in Q2. Regardless of the extent of the pandemic within any particular country, all economies will likely suffer a significant contraction1.
Investment Markets – Most markets (other than Hong Kong) continued to bounceback from their Covid lows throughout May. The US market has led the way, recouping all their losses on the back of a reopening economy and generous support from government. Bond markets gave up some of their recent gains, but are still well up over the past 6 months2.
Outlook – There are many unknowns that will need to be resolved over the next 6 months in order to give markets a clear picture as to future earnings and growth. These include:
- How quickly can economies realistically reopen?
- Will excessive debt levels and money printing lead to consumer price inflation?
- Will economic troubles spill over into the geopolitical arena?
S&P/ASX 200 – 12 months to 31 May 2020
Source: Core Equity Services
Footnotes: 1. TradingEconomics; 2. Bloomberg data .