It’s hard to say how quickly the economy will turn around as there are many unknowns related to COVID-19 – the main one being how quickly a vaccine or cure can be developed. This in turn has an impact on global economies. It’s now almost certain that the Australian economy will enter its first recession in almost 30 years during the course of 2020.

The great depression was classified as having several years of steep declines in the economy. While the impact of the worldwide shutdowns is unknown and we can’t say how long recovery will take, it is unlikely to be as long or as severe as the great depression because of the fiscal and monetary policies governments around the world have been putting into place.

Most economists agree one of the major forces behind the depression were the mistakes made in fiscal and monetary policies which saw governments reducing the money supply and cutting government spending. This turned out to be exactly the wrong thing to do because it only deepened the negative economic situation.
With COVID-19 we are seeing global, co-ordinated stimulus packages provided by governments and central banks which provide a jolt to the economy and investment markets.

While we can expect the rest of 2020 to be challenging, activity will pick up as economies being to reopen. Undoubtedly it will take some time for economic activity to return to normal, even after restrictions have been lifted. We therefore expect investment markets to remain volatile and have chosen to position our portfolios somewhat cautiously in light of this volatility.

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