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Recession 2020

Written and accurate as at: Sep 03, 2020 Current Stats & Facts

Recession 2020

Australia - the lucky country's almost 3-decade long recession-free run was a world record! Due to China's demand for our natural resources, even the global financial crisis of 2008 didn't bring Australia into a recession. Also, though the economy slumped during the mining sector downturn of 2015, we avoided another recession through borrowing and depleting our reserves.

Now, after almost thirty years of unprecedented growth, the Australian economy is officially in recession. We define a recession should our economy continue to slide during two consecutive quarters. The Australian economy, as measured by GDP, fell a whopping -7% during the June quarter, following the -0.3% decline suffered during the March quarter.

We have been heading this way for a while, having already experienced a "per capita recession" in 2018 after output per person declined over two consecutive quarters. Further "headwinds" saw a barrage of climatic catastrophes from raging bushfires to massive floods, adding additional pressure on the economy leading into 2020. We never stood a chance once the COVID pandemic hit our shores.

A financial pandemic?

Despite the severe drop in economic activity, we are doing better than most other advanced economies. Recent June quarterly results have seen the US economy fell by 9.5%, the UK's economy by 20.4%, France's economy by 13.8% and Japan's by 7.6%. Our treasurer Josh Frydenburg says his economic support packages provided a softer landing than initially thought as the actual quarterly decline of 7% is less than the earlier predictions of 8-10%. There are new fears that the economic effects of Victoria's current Stage 4 restrictions will add more pain.

The initial impact of the pandemic saw share markets unanimously collapse across the globe. Incredibly the US market is now above it pre-COVID collapse reversing all of the 36% fall first experienced. Chief executive of Australia's Future Fund, Dr Raphael Arndt, said asset markets are currently close to pre-pandemic levels, despite economies around the world suffering their worst recessions in many decades. This is largely due to the trillions of dollars the world's central banks have thrown into their markets to thwart a financial crisis.

Additionally, household savings are at almost 20% whereas, in the last five years, they had fallen from around 8% to less than 3%. ABS statistics show if household income from government initiatives, including early access to super was included, the savings ratio would be closer to 25%. During the GFC, household savings were less than half this amount. Josh Frydenberg says this high accumulation of savings will be useful in the recovery, giving people the capacity to spend when restrictions ease.

Many economists, however, are forecasting that the second-quarter figures have shown the worst of the hit to the GDP.

The Government will need to continue its stimulus spending, but there is also a need for significant economic and market reform to support business investment and job creation once the stimulus packages cease.

What does this mean?

Changing Patterns

The current climate is bringing about a changing world. Some companies are financially supporting and rebranding to support black lives matter protests, where working from home forever could be the new normal and governments and businesses rethinking what is normal when it comes to urban design and transportation. Virtual education, zooming, online shopping and heavily reduced migration will change the way we use and think about physical spaces. These can all have an impact on property prices.

Interest Rates

During the 1990's recession "we had to have", interest rates were very high, over 17%. The RBA reduced its official cash rate target to below 5 per cent over three and a half years, in order to pull the economy out of recession. In the current recession, interest rates are already at a record low of 0.25%. The RBA has revealed it will keep interest rates at their current level for some time in order to support the nation's economic recovery.

Government Stimulus

As there is not much scope for the RBA to lower interest rates further, our economic recovery and the future of our property market will depend upon fiscal stimulus. The Government stimulus packages of JobKeeper, JobSeeker and JobMaker are still going strong. Treasury announced on 21 July 2020, an extension of the JobKeeper Payment for a further six months until 28 March 2021 as well as targeting businesses and not-for-profits who continue to be significantly impacted by the Coronavirus.


Traditionally, China has been Australia's largest trading partner and has accounted for over 40% of its exports, including iron ore, coal and gas, education, tourism, agriculture and wine. But last month, China imposed an 80% tariff on Australian barley, after a fall out over a call for an investigation into Covid-19's origins. China has also suspended some major Australian beef imports, as well as warning students and travellers of racism in Australia. Australia will need to focus on diversifying trade relations with other countries but carefully manage the relationship with its main trading partner in the meantime.  


Peter Costello, Future Fund Chairman said government stimulus packages and extremely low-interest rates fuelling money into equities were responsible for the quick pick up of the stock market, after the massive fall in March. Interestingly, after the recession was announced the share market went up 1.8% exactly reversing the decline from the day before. Raphael Arndt's explains the rebalancing as a result of global government stimuli which has reduced the pain that recession would ordinarily bring. The released GDP figures give us an insight into the overall country's economic picture in the past half-year. But the ASX share market represents investor confidence about the future economic prospects of the listed businesses. So although there are many small and medium enterprises suffering, some ASX share retailers are doing well. This is thought to be largely due to the Government stimulus packages.

The benefits of having a well thought out and highly disciplined investment strategy are many. The available Government funds left for the age pension will diminish with increased spending on healthcare, aged care and social welfare. It has never been more important to diversify and appropriately allocate your assets across different asset classes and global markets with a focus on success over the long term.



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