Economic outlook: No v-shaped recovery
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The economic shutdown of 2020 was like nothing we have ever seen before. Well, not in our lifetimes, at least. And while the economic impact and share market falls were immediate, it has become clear the recovery won’t be.
In hind sight, the drought and bushfires had little economic affect beyond directly impacted localized communities. The surging share market certainly didn’t seem to care much about the drought either. In the last few years it had extended gains beyond previous record highs.
Now it’s different
But that was a long time ago. In late March 2020 everything changed.
The global pandemic closed down the engine room of our economy. First it was the travel industry, but this quickly shifted to the hospitality and retail industries as the world went into lockdown. Business, consumer and investor confidence all fell through the floor as fear of unemployment took hold and the impending global recession became a reality.
In Australia, we have already experienced one quarter of economic contraction. When the June quarter figures come out, we will learn that the economy has contracted a further 8% or so. And it will be confirmed that Australia is experiencing its first economic recession in around thirty years.
But not all businesses in Australia have experienced a downturn. Sure, while most businesses have been negatively affected, most have survived, and many have even thrived.
Research shows that those businesses that have thrived through the pandemic are the ones that have adapted to the new environment. They have ceased all non-essential expenditure, changed their customer experience to be COVID-safe, and shifted to online sales.
History shows that human beings are the best species at adapting to change. In the 1970s the late paleontologist Stephen Jay Gould introduced what was then a controversial concept: punctuated equilibrium. It challenged the idea that evolution is about gradual change. Gould contended that in the natural world, species experience long periods where they remain constant. But from time to time, they experience so much stress from external sources they are required to adapt and change to their new circumstances in order to survive.
Looking forward to the recovery
And that’s what we’re seeing in Australia today. We are adapting to our new circumstances.
As the shutdown ends in most states, business and investment confidence is returning. More than 100,000 jobs were created in May. And with this new confidence, the consumers have returned.
But there will be no v-shaped recovery. Things won’t bounce back to where we were at the end of 2019. While we all still hope for a vaccine it’s likely that COVID-19 will be with us for months and years to come.
The world has changed forever, and there is just too much uncertainty for a sustained recovery in the short-term.
What this means for your investments
Markets hate uncertainty. Uncertainty means volatility, where markets over-react to good and bad news.
But there are things you can do to invest to make the most of these uncertain times. Keep in mind that as retirees, there’s a lot you can control. You can control how much you spend, and when you spend. You can control how you invest, and when you buy and sell your investments.
At When Financial Solutions we can provide you with confidence that you can still achieve the things that are most important to you. We can help you plan for important expenditure items and protect you from market falls while making sure you’re still participating in long-term market growth.
The economy will recover but it will take some time. With When Financial Solutions, we will provide you with confidence that you can spend today while being responsible for the future. It won’t be a matter of ‘if’ you feel financially secure again, but ‘when’.
Michael Bowman and James McMaster are co-founders of When Financial Solutions. This article is general and does not consider your personal circumstances. If you would like advice specific to you please give us a call.