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September update of latest COVID-19 initiatives.
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The fiscal cliff is more likely to be a fiscal slope
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Gifting and financial generosity during coronavirus
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Light at the end of the coronavirus tunnel
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Changes to pension drawdown and deeming rates
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Preserving retirement saving during COVID-19
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COVID-19: Early Childhood Education and Care Relief Package
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The coronavirus pandemic and the economy – a Q&A from an investment perspective
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Money challenges women face
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Data so large it's hard to comprehend.
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Is coronavirus driving a recession, depression or an economic hit like no other?
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Holding your nerve – why retirees fear a market plunge
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Historic $130bn wage subsidy to cover 6 million workers
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Stage 2 – Covid-19 stimulus package.
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Covid-19 Update - Small Business
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PM launches $17.6 billion virus stimulus plan
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The plunge in shares – seven things investors need to keep in mind
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Expected GDP by country 2010 to 2100
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Super investment options – what’s right for you?
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Life beyond work
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Statistical picture of Australia - Update
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Real Time World Population Growth - Wow!!
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Australia by the Numbers
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Superannuation changes
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Market Update 30 September 2019
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All Australia's vital statistics - October 2019
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DGP by country since 1800
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Australia by the numbers - September 2019
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Market Update 2019
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How the top 10 global companies have changes since 1998
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The longest US economic expansion ever
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When can I access my super
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Inflation undershoots in Australia
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9 money mistakes to avoid in retirement
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What a financial planner does to help.
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Australia's vital statistics.
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What kind of money parent are you?
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How to save money
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Federal Budget 2019 - Overview
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New Global growth slowing, plunging bond yields & inverted yield curves
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Women and Money
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Market Update - March 2019
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The problem with getting to 53 years of age.
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How to avoid a travel debt hangover
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Things to avoid as a newbie investor
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Budget Time - How's Australia going?
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Most older Aussies prefer home care over a nursing home
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Why growth in China is unlikely to slow too far
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Australia slides into a 'per capita recession'
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All you need to know about how Australia is going.
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Australian housing downturn Q&A
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5 life insurance questions you've always wanted to ask
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2019 a list of lists - regarding the macro investment outlook
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Part 4 - The major benefit of ‘behavioural coaching'
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How to adult—a quick guide to personal finances in your 20s
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How Australia is performing.
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The Australian economy in 2019
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Australia - a comprehensive run-down of our vital statistics.
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Your Adviser and Behavioural Coaching
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Stop!! Don't do a paper Budget, use our online budgeting tools instead.
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Information needed to be the BBQ expert.
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Would you like to retire by 40?
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Love and money? It’s not about control
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Australia. All you need to know to be the expert.
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Australian’s love affair with debt - how big is the risk?
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5 ways to keep a cool head in a falling share market
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2018 – a list of lists regarding the macro investment outlook
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Sports lovers enjoy better financial fitness
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Where Australia is at. Our leading indicators.
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The year that was and the year ahead
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Add some extra cash to your New Year
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Our Advent calendar for 2017
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Where are we in the global investment cycle?
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Australia's vital statistics
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One in three Aussies travel without protection
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Digital payment options could see you spend more this Christmas
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If you’ve always thought property prices only go up…
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Will Australian house prices crash?
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Money steps for women
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Australian Dietary Guidelines and healthy eating chart (PDF)
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Prepare for retirement without missing out today
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The Australian economy bounces back again
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Should you lend money to family?
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Money mistakes people make in their 50s and 60s
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Australian Dietary Guidelines and healthy eating chart (PDF)
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Eight steps to improved cashflow... and lifestyle
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Australia's leading causes of death - ABS
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Money can buy you happiness, you’re just spending it wrong
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Key Economic Indicators, 2017 – updated
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Ageing Parents
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2016-17 Federal Budget - AMP
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Aged Care - Changes to Assessment of Rental Income
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A bump in the road, then a new start
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Australian Government - Budget 2015
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The economic hangover of COVID-19: how long will it last?

 

As the Australian economy begins to emerge from hibernation, the question of what the recovery will look like – and how long it will take – is being hotly debated. 

 

       
AMP Capital chief economist Dr Shane Oliver says that although economic activity is unlikely to return to pre-COVID-19 (coronavirus) levels until late in 2021, just a few months ago we were questioning whether the shutdowns would stop the spread of the virus and, if not, whether there would be a recovery at all. 
 
Below he shares his predictions for some of Australia’s key economic measures and the risks to watch out for on the road back. 
 
Economic growth
 
As measured by gross domestic product (GDP), economic growth in Australia has contracted and I expect and predict a very large hit to GDP – down about 10% – in the three months to June, with April’s retail sales figures recording the worst fall ever due to the COVID-19 restrictions and closures during this time. 
 
The good news is that the shutdowns have been much shorter than the six months initially forecast by the Prime Minister, and now that they’re beginning to ease restrictions, GDP should recover from June onwards. 
 
But the recovery won’t be fast – rather than a sharp rebound (or ‘V’ shaped recovery) I expect and project more of a ‘U’ shaped recovery – because while some parts of the economy will recover quickly, others will take longer. This is the sort of recovery that was experienced around the world following the global financial crisis. 
 
And globally, the fall in GDP is likely to be the biggest since the Great Depression of the 1930s. The blue line below, which tracks business confidence, shows how big the fall in global GDP could be, although it also shows that business confidence is beginning to pick up. 
 
Global Composite PMI vs World GDP

 
Source: Bloomberg, AMP Capital
 
Inflation and interest rates
 
Inflation – which is currently around 1.9% in Australia – is expected to remain low, which should make it easy for the Reserve Bank of Australia to keep interest rates low. I think interest rates will remain at their current levels of around 0.25% for at least the next three years, which is good news for people with mortgages, and also for the economy, as people with home loans are one of the groups that spend the most. 
 
Unemployment
 
If the Australian Government hadn’t introduced the JobKeeper assistance scheme, the unemployment rate in Australia today would probably be close to 15%. But thanks to this assistance it’s only 6% currently and I think it’s possible it may not even reach 8%, providing the economic recovery continues. 
 
The share market
 
At the peak of the crisis, the Australian share market fell by almost 37%, but since then it’s recovered up by around 29%. And although dividend yields have been cut, they’re still more attractive than bank deposits due to low interest rates. It’s difficult to predict where the share market will go in the short term – more falls could occur as the market responds to bad news such as a drop in company profits. But over 12 to 24 months, share markets should rise. 
 
House prices
 
There’s been a significant fall in the number of houses for sale and thanks to that we haven’t seen much of a fall in prices yet, but house prices are likely to fall if people are forced to sell as unemployment rises and as immigration falls. Sydney and Melbourne could also suffer from a lack of immigration-driven demand. I think prices on average could drop by about 10% which would take them to their mid-2019 levels. However, low interest rates continue to benefit the housing market. 
 
The Australian dollar
 
I think we saw the low point for the Australian dollar against the US dollar at around 55c in March and it will probably move slowly higher as our economy recovers as it is expected to recover faster than the US economy. 
 
The budget deficit
 
To support our economy, I think the Australian Government had to provide stimulus, and has done so in a way that’s affordable. Despite the assistance packages released by our government, the level of public debt in Australia is quite small compared to other economies. 
 
Risks to look out for
 
Despite a fairly positive outlook, there are some risks on the horizon including: 
 
• A second wave of infections 
A second wave of infections could lead to a second wave of shutdowns, which would slow the economic recovery.
 
• The end of government stimulus 
In late September when the JobKeeper assistance payments end and the JobSeeker payment for those looking for work is halved back to its pre-COVID-19 level, unemployment, bankruptcies and business closures could all rise, which would have impacts on consumer spending, house prices, economic growth and the share market.
 
• US/China tensions 
COVID-19 has re-ignited tensions between the US and China and I expect this will continue in the run up to the US election in November. History tells us that US presidents don’t get re-elected when unemployment is rising or when the economy is in recession, so President Trump is trying to shift blame to China for political gain, which could drive volatility in investment markets. Australia’s current trade tensions with China are also a risk, but as long as they don’t escalate, we are still well placed to benefit from the Chinese economic recovery.
To sum it all up, while it will take a little while – and a little luck – I think the Australian economy is in a stronger position for a faster recovery than many other countries, mainly thanks to our good health outcomes and the strength of our government assistance. 
 
 
 
 
©AMP Life Limited. First published June 2020