The economic recovery is expected to continue through the second half of 2021, underpinned by rising vaccination rates and the rebound in consumption as restrictions are lifted. Australia’s gross domestic product (GDP) has now returned to its pre-pandemic level and the labour market has retained its momentum, even with the end of the JobKeeper Payment Scheme.
Australian shares fell over the past week although still closed higher than at the beginning of the June. Falls mid-week were due to a delayed reaction to the previous weeks falls in the US, and partly due to talk of earlier rate hikes at home as well as COVID-19 concerns.
Australian shares were hit hard in mid-May due to inflation fears and concerns regarding China diversifying its iron ore supply away from Australia (which is not likely short term as there is not much spare capacity outside of Australia, with Australia accounting for 50% of global iron ore exports). Our market has clawed its way back though with strong gains in information technology, health, and retail.
Australia data has been strong. Consumer confidence rose in April to an 11 year high, business confidence remains strong and business conditions rose to their highest on record, all of which suggests that despite vaccine setbacks and snap lockdowns, the recovery remains on track and robust.
Resurgence of COVID-19 is the primary risk to recovery in Australia. However Australia's economy is expected to normalise more quickly than those in other parts of the world with growth around 4% in 2021 and output reaching its pre-virus level by the third quarter of 2021. GDP data for the fourth quarter of 2020 is scheduled to be released Wednesday, March 3.
The 2020-2021 budget was delivered on 6th October 2020, having been deferred from its original date of 12th May 2020 due to the COVID-19 pandemic. The budget is firmly focused on supporting Australia’s recovery from the first recession since 1991 and worst economic performance since 1959. The overarching goal of the budget is to create jobs, increase economic resilience and create a more competitive and income generating economy.
The global economic recovery continues, however growth is uneven across regions and there were signs of a loss of momentum in Europe through the September quarter. The Australian economy officially entered a recession for the first time since 1991 as the national accounts showed June quarter GDP fell 7.0%, following a 0.3% fall in the March quarter.
Hopes of a V-shaped recovery faded as COVID-19 cases worldwide ticked over 15 million. Policy settings remain incredibly favourable as central banks and governments support economies via monetary easing and fiscal measures. Cyclical indicators such as unemployment figures and PMIs remain weak but are showing signs of improvement as the global economy adapts to the pandemic.
The rise in the number of COVID-19 cases globally continues to create uncertainty about the shape of economic recovery. An important factor in coming months will be the extent to which governments continue with fiscal measures to support businesses and households. Meanwhile, tensions between the US and China are elevated, and the outcome of the US presidential election in November remains unclear.
The world economy remains in the grip of the COVID-19 shock. Governments are deploying stimulus measures, including extensive employment subsidies to retain work-firm relationships. March quarter economic growth points to a sharp downturn globally, while the contraction could be more pronounced in the June quarter given lockdown measures were in full force in most regions by April.
As the COVID-19 pandemic sweeps the globe, shutting down countries and closing borders, the Australian Government had to quickly come to terms with the severity of the health crisis and the inevitability of an economic recession. A series of economic measures have been announced since early March to mitigate the impact on the local economy and people's lives.
There is not a lot of constructive action you can take when the markets are falling and you are watching your retirement savings fall alongside - but as we have previously mentioned, one thing that can help is to reduce drawings and relieve some pressure on falling balances. The government is now providing you with that option.
We are being sent some interesting queries from clients that we thought we would share for the interest of everybody – please keep sending in the questions. ALSO - Blueprint Advice has a COVID-19 policy of which some of you would already be aware – in brief, we are now maintaining contact with clients via telephone, video conferencing and email only. All face to face meetings have been cancelled until otherwise advised. This is to protect you (clients), us (staff) and all of our families as well as in trying to assist the wider community in this fight.
After a positive end to 2019, it would appear we have a tumultuous start to 2020. Most of what happens in the markets is driven by psychology, by emotions – greed and, especially now, fear. Fear is what seems to have driven these massive losses in the last few weeks, suggesting that a market recovery is as simple as a consequence of a change in perspective. I suppose the concern from here, though, are the long-term economic effects of businesses needing to close (permanently and temporarily), the loss of revenue and jobs, the cancellation of major events, the ability to travel between countries (people and goods) etc. etc. These effects may be longer lasting and have the potential to push any form of recovery out.
There are significant changes coming to income protection contracts with insurers to cease offering 'AGREED VALUE' contracts as of 31st March 2020. An agreed value contract means that the sum insured is based upon your current earnings and should you go on claim, the insurer agrees to pay this amount (less any applicable offsets) regardless of your earnings since. This means that if your income is lower at time of claim compared to time of application, you may be entitled to the higher amount. This type of cover provides certainty in that you know what you are insured for in times of need.
The Australian economy grew at 1.7% in the September quarter and most likely less than 2.0% in the December quarter, well below the growth rate required to lift wages and inflation and to keep unemployment from rising. The RBA has indicated that if it drifts further away from achieving its inflation and unemployment targets, rates will be cut. The unemployment rate currently sits at 5.1% , up slightly from 5.0% a year ago.