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Without a doubt, 2020 will be a year for the economic textbooks. It started with so much promise. Global share markets were at record highs. Economies were expanding. Unemployment was low in many developed economies.

It wasn’t perfect. There were concerns about whether trade talks between the US and China would result in better outcomes. Britain and the European Union were still working through details of Brexit.

But it was promising.

Then on 3 January, China officially notified the World Health Organisation of an outbreak of a “pneumonia of unknown etiology”.

The health crisis created an economic crisis. During March, share markets around the world crashed. The globe was thrown into recession as governments and citizens grappled with the size and extent of the COVID-19 outbreak.

Within months, possibly weeks, all the major developed western economies contracted. Government spending soared as authorities worked hard to support economies and keep them afloat. Jobless rates jumped, along with underemployment. In not much more than eight weeks, the outlook for the global economy went from good to bad.

For members of the dismal science, it was an incredibly fascinating year to be a participant in, and learn from, albeit tragic with the loss of more than one million lives.

“The biggest surprise for me this year is how quickly governments responded and the huge scale of their support measures,” said AMP Capital’s chief economist and head of investment strategy, Dr Shane Oliver. He doesn’t want to give his age away but concedes he has seen a few global economic crises in his time. “Governments were quick to throw ideology out the window to do what they could to save the economy.”

Australia was a good case in point. For decades the ruling conservative government had preached of the need for fiscal prudence. Before this year, the government had outlined a path to budget surplus.

By October, that proposed surplus in the 2021 financial year was a deficit of $214 billion. It wasn’t a political debate. The spending was broadly supported by the federal Labor opposition. It was a case of doing everything possible to help households and businesses.


AMP Capital’s senior economist Diana Mousina has been impressed by the power of governments, through spending, to keep an economy ticking over.

“The past year has shown the control that governments really have,” Mousina said. “They have an ability to turn industries on and off. It’s not something that people thought much about beforehand, but what the coronavirus pandemic has put into focus is the control that government has.”

“Next time people go to the polls they will better understand just how much power a government holds. Just how rapidly they can turn on the fiscal tap. This year has taught us that when there’s a big crisis, the government will step in.”

With that comes other challenges, Mousina said.

“There’s a moral hazard involved when voters think governments will always step in, particularly if the next economic crisis is nowhere near as severe as the COVID-19 pandemic. And of course, there’s a large fiscal repair that needs to be addressed in coming years,” she said.

“But during this crisis, governments have bailed out companies. That might have happened during the Second World War or the Great Depression, but not since then,” she said.

Oliver said he’s been taken with how resilient the Australian economy has been. “It bounced back much faster than I thought it would. It’s bumpy and confusing and messy, but it’s heading in the right direction.”

He attributes that, in large part, to government spending measures such as JobKeeper, a wage subsidy, and JobSeeker, an income support payment for the unemployed. The recent Federal Budget continued the trend.

“While there is a tendency to get lost in the details of the Budget, and each spending measure, the key takeaway from it is that it is actually pumping significantly more stimulus into the economy.”

“The total direct fiscal support for the economy this calendar year as a share of GDP is now just above 10 per cent, which is well above that in other comparable countries including the US,” he said.

We have access now to mobility data – how people are moving around cities. We have access to credit and debit card information. It will all become part of what we look at.”

– Diana Mousina, senior economist, AMP Capital


Mousina agreed, saying economies in the Asia-Pacific region have bounced better than initially anticipated. “There’s no doubt that consumers have responded to the cash handouts and wage subsidy schemes. And the consumer sector has been stronger across most developed economies.”

This has meant some retailers have performed much better than you would expect in an economic recession. “Normally in a downturn, retailers sell fewer discretionary goods – things like furniture and electronic goods. But this time around the money allocated to the family holiday went on some of those goods,” Oliver said. “That was a surprise.”

Mousina said the response from business was more muted. “Business confidence and conditions are still low. There were big falls globally in manufacturing and industrial production, though in those sectors there has been a rebound,” she said. “It’s been tricky to read because often the headline number and even the data didn’t tell the full picture.”

Economists rely on data to create forecasts. Statistical bureaus are the prime source, though much of that information is old news by the time it’s released. The coronavirus pandemic has forced providers to develop a swathe of real time data.

“We have been bombarded with information,” Oliver said. “Economists have suddenly got access to high frequency data. It’s good but it can also add to the uncertainty around an economy. Social media has helped facilitate this information.”


All this information will change the way economists work, Mousina said. “We have access now to mobility data – how people are moving around cities. We have access to credit and debit card information. It will all become part of what we look at.”

The share market also taught economists a few lessons this year. Some were more rational than others. The share markets on Wall Street and in Australia were trading close to record levels in February, only to plunge to lows around 23 March. The S&P500 fell by 34 per cent in a little over a month but has recovered all that ground and, as at mid-October, is trading close to 60 per cent above its low. The local S&P/ASX200 fell 36 per cent and hasn’t yet recovered all those losses. It is still 13 per cent below its peak in February.

“The fall was steep and so was the bounce back, particularly in the US,” said Oliver. “Was it irrational? Well, the share market often leads the real economy and it had been supercharged by ultra-low interest rates and the printing of money. Maybe it’s not as bad as it seems.”

The biggest surprise for me this year is how quickly governments responded and the huge scale of their support measures. Governments were quick to throw ideology out the window to do what they could to save the economy.”

– Shane Oliver, chief economist, AMP Capital


Mousina said that one thing the market crash and rally highlighted was the strength of technology stocks, particularly in the US. In share markets without such a large portion of tech stocks, including Australia, Japan and parts of Europe, markets didn’t rebound as hard. There’s a lesson in that, Mousina said.

In all, 2020 has been a year in which even veteran economists learnt a lesson or two.

“I think this year played out about right in terms of direction. It’s just the levels that were a surprise,” Oliver concludes.

Important Notes

While every care has been taken in the preparation of these articles, AMP Capital Investors Limited (ABN 59 001 777 591, AFSL 232497) makes no representation or warranty as to the accuracy or completeness of any statement in them including, without limitation, any forecasts. Past performance is not a reliable indicator of future performance. Performance goals are merely goals. There is no guarantee that the strategy will achieve that level of performance. The information in this document contains statements that are the author’s beliefs and/or opinions. Any beliefs and/or opinions shared are as at the date shown and are subject to change without notice. These articles have been prepared for the purpose of providing general information, without taking account of any particular investor’s objectives, financial situation or needs. They should not be construed as investment advice or investment recommendations. An investor should, before making any investment decisions, consider the appropriateness of the information in this document, and seek professional advice, having regard to the investor’s objectives, financial situation and needs. This document is solely for the use of the party to whom it is provided and must not be provided to any other person or entity without the express written consent of AMP Capital.


Running a credit desk through the crisis of a generation

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