The attached note takes a look at the relative outlook for the Australian economy through this period of global misery driven by coronavirus. The key points are as follows:
- Australia has performed better than many countries in “controlling” coronavirus, it has a stronger economic policy response and its major trading partner is 2-3 months ahead of the rest of the world into economic recovery.
- If, as a we expect, this results in a relatively stronger recovery for the Australian economy, then Australian assets should benefit relative to global assets.
- This could be felt via a stronger Australian dollar though as has occurred since March.
Back in January when the bushfires were raging, I feared Australia’s luck had ran out. But right now, I thank god I live in The Lucky Country! Donald Horne’s original conception of the term in the 1964 book of the same name about Australia being run by “second rate people who share its luck” always seemed a bit too negative to me. Sometimes it may seem that way for a patch and yes mistakes are made, but when it really matters, I reckon we are led pretty well. Particularly in times of crisis. Think the 1980s when Hawke and Keating opened up and modernised the economy. Or through the GFC when a rapid policy response was a big reason Australia avoided recession. The response to the current crisis will likely also go down as a time when Australia rose to the occasion.
Of course, we are still not out of the woods on coronavirus and there are some bad stats ahead on the economy. This is indicated by our Australian Economic Activity Tracker which is based on high frequency alternative data and is running down 40% on year ago levels, reflecting a preponderance of components most affected by the shutdown.
Source: Bloomberg, AMP Capital
The good news is that it is up from its early April low, but there is still bad news ahead of us in the official statistics. Unemployment likely spiked to around 10% last month which is the highest since the 20% seen during the Great Depression and official data to be released in the months ahead is likely to reflect a 10 to 15% contraction in the economy in the first half of the year, all of which risks further depressing confidence.
But three things suggest Australia looks likely to come through this period of global misery relatively well compared to many other countries and this may mean the Australian economy contracts less and rebounds faster, ultimately supporting Australian asset classes relative to other countries’ assets.
First, Australia has performed better than many countries in controlling coronavirus
While things were bleak in late March, Australia’s success in “controlling” coronavirus (touch wood) stands out globally. After a rapid escalation in new cases, Australia imposed a shutdown around 22 March. New cases peaked in late March at over 500 a day and have since declined to less than 30 a day, albeit with a few clusters still causing problems. New cases may have peaked in the US but are still averaging around 29,000 per day.
Comparing OECD countries in how they are managing the coronavirus outbreak (based on recovery rates, active cases per capita, total cases per capita adjusted for the number of days since the first case and testing per capita) Australia ranks first, with NZ 2nd (guess where your next overseas holiday might be!) compared to Italy at 28th, the UK at 31st, Sweden at 36th and the US the worst performer in the OECD at 37th.