Economics & Markets

How the Australian economy's recovery prospects are looking

By Diana Mousina
Economist - Investment Strategy & Dynamic Markets Sydney Australia

Perspective is key through the COVID-19 crisis, and although Victoria and New South Wales are battling to contain a second wave of the virus, we can’t lose sight of the fact that Australia still has some of the lowest rates of death and infection in the world. Our economy is also proving more resilient than those of our peers, and, barring a significant deterioration, should return to growth in the September quarter of 2020.

Local workers have been spared the worst of the fallout, with Australia’s unemployment rate of around 7.5% comparing well with the situation in the US, where more than 11% of the labour market are looking for work. Locally, unemployment is still at its worst level since the Great Depression, but the situation would certainly be more dire were it not for the impact of the JobSeeker and JobKeeper programs.

The success of Australia’s stimulus package can be attributed to the way in which it was primarily funnelled through to direct payments for businesses and households. Overseas, stimulus packages have tended to rely more heavily on loans and grants, and those who are eligible often don’t apply. Here, stimulus payments have landed quickly and directly in bank accounts and that money has been more effective in supporting businesses and shoring up consumer demand through the pandemic.

The extension of both programs by the Federal Government, announced well ahead of their September expiry dates, is a welcome move and we’re confident that a further extension will be granted if and where necessary before the new deadline in March.

The trade-off to the budget’s bottom line, deficits in the order of $85.8 billion for FY2020 and $184.5 billion in FY20211, will be eye-watering but not insurmountable, if history is anything to go by. Previous deficits of this magnitude were used to finance the country’s war efforts in 1914-18 and 1939-45, and there are strong parallels, at least from a fiscal perspective, with the current crisis. Those deficits were effectively erased by rising post-war inflation, and when we eventually do climb out of our current low-rate environment it should become clear that the magnitude of the task in front of us will diminish significantly.

Australia’s debt burden by international standards remains low, with our net public debt of 40% of GDP paling in comparison to countries like the US (more than 100%) and Japan (more than 160%).

There is an emotive argument to be made that younger generations will bear the brunt of repayments, but it is worth remembering that it is precisely these workers who are worst affected by the downturn, and for most the prospect of keeping their jobs will be worth the cost.

For more on this, you can watch the webinar with Diana Mousina:

  • Economics & Markets
  • Multi-Asset
  • Opinion
  • Politics
  • SMSF News
Share this article
Subscribe to SMSF News

Subscribe today to receive a must-read weekly publication for any SMSF trustee

You may also be interested in...

You may also be interested in...

You may also be interested in...

You may also be interested in...

Our Privacy Policy explains how we handle personal information and use cookies and website tracking. We will follow the cookie and tracking settings you have selected in your browser.

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.

Cookies & Tracking on our website.  We use basic cookies to help remember selections you make on the website and to make the site work. We also use non-essential cookies, website tracking as well as analytics - so we can amongst other things, show which of our products and services may be relevant for you, and tailor marketing (if you have agreed to this). More details about our use of cookies and website analytics can be found here
You can turn off cookie collection and/or website tracking by updating your cookies & tracking preferences in your browser settings.