Five reasons why this downturn and subsequent recovery are different – and where are we in the Australian recovery now?

October 29th 2020

5 reasons main image

Key points

  • This economic downturn and recovery differ from those of the past in that: the downturn was driven by a government shutdown; fiscal and monetary support has been faster and bigger; forced asset sales have been headed off; it’s dependent on containing coronavirus, and it’s seeing more rapid structural change.
  • As a result, we have been seeing almost “deep V” downturns and initial rebounds but the subsequent part of the recovery will be bumpier and slower.
  • Australia’s recovery is likely to pick up the pace again with the reopening of Victoria and should benefit from better control of the virus, better stimulus and the faster recovery in our major trading partners.



From the get-go back in March, as coronavirus lockdowns hit, there has been much debate about what this recession would be like: how deep and long would it be? Was it going to be a recession like those in decades past or more like the Great Depression of the 1930s? Would it look like a V, a U, a W or an L? Or even a K, square root or a swoosh? These questions gained added currency when actual data showed a bigger hit to economies than what was seen at the end of WW2 or the Great Depression and then confusion reigned as much data showed very steep rebounds. But one thing that seemed clear at the start was that it would be very different from past downturns and this is now even more apparent.


Five reasons why this time is a bit different

There are basically five reasons why this downturn and subsequent recovery are different from those of the past:


5 reasons graph 1
Source: IMF, AMP Capital



5 reasons graph 2
Source:, Bloomberg, AMP Capital


The outworking of all this is likely to be:


The Australian recession and recovery

This pattern looks to have been what we have seen so far globally with very sharp falls in GDP in the first half followed by a strong rebound in the September quarter (with GDP data for the US and Europe to be released later this week likely to show an 8% or so rebound), followed by a more uncertain and gradual recovery going forward – particularly as the resurgence of the virus leads to tightening restrictions in Europe (as we are now seeing in France and Germany) and possibly the US. This can be seen in our projections for the level of real global GDP in the next chart. In particular, global GDP will take years to get back to its pre-coronavirus level which means a long period of spare capacity and low inflation/low-interest rates.


5 reasons graph 3
Source: AMP Capital


The Australian economy looks to be following a similar pattern, although the initial recovery has been slowed through the September quarter by Victoria’s hard lockdown. As a result, we only expect 1% or so growth in the September quarter, but a stronger rebound in the December quarter as Victoria reopens. Our forecasts for the level of real Australian GDP are shown in the next chart. Note that while a return to growth in the September quarter will mean that technically the recession is over – this really is just a technicality because the level of activity will still be a long way below its pre-coronavirus level.


5 reasons graph 4
Source: AMP Capital


Because most traditional economic data is infrequent, we have constructed Economic Activity Trackers for the US and Australia which track weekly data releases for things like traffic, direction requests from phones, confidence and spending. This clearly shows the initial hard decline in the economy into mid-April, followed by a strong bounce into July on reopening. The recovery then faltered a bit and now seems to be getting back on track with Victoria reopening.


5 reasons graph 5
Source: AMP Capital


A sharp hit followed by an initial “deep V” rebound can also be seen in Australian employment, which has now recovered about half the job losses seen in April and May.


5 reasons graph 6
Source: ABS, AMP Capital


Both our Australian Economic Activity Tracker and employment have seen a sharp rebound but remain a long way below pre-coronavirus levels. In terms of the jobs market, this is reflected in “effective unemployment” (ie, adjusting for JobKeeper and reduced participation) of 9.6% and underemployment of 11.4%. So, while Australia has seen some “recovery,” we have a long way go yet to say that we have “recovered”. Our assessment is that the recovery will continue but beyond a December quarter bounce fuelled by reopening, this will be more gradual and bumpy for the reasons noted earlier as some jobs take longer to recover and some won’t come back at all due to structural change and so will need to be replaced by new jobs which will take time, as government supports wind down and as the hit to immigration impacts the property market.

Concluding comment

As we noted back in May in The Lucky Country, Australia has performed far better than many comparable countries in controlling coronavirus, it has seen a stronger economic policy response and its major trading partner in China is well into economic recovery. This along with a bit of luck should result in a stronger, more assured recovery in the Australian economy compared to many other comparable countries which should ultimately benefit Australian assets relative to global assets.


If you have any questions about this please contact us.

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About the Author

Dr Shane Oliver, Head of Investment Strategy and Economics and Chief Economist at AMP Capital is responsible for AMP Capital’s diversified investment funds. He also provides economic forecasts and analysis of key variables and issues affecting, or likely to affect, all asset markets.

Important note: While every care has been taken in the preparation of this article, AMP Capital Investors Limited (ABN 59 001 777 591, AFSL 232497) and AMP Capital Funds Management Limited (ABN 15 159 557 721, AFSL 426455) makes no representations or warranties as to the accuracy or completeness of any statement in it including, without limitation, any forecasts. Past performance is not a reliable indicator of future performance. This article has been prepared for the purpose of providing general information, without taking account of any particular investor’s objectives, financial situation or needs. An investor should, before making any investment decisions, consider the appropriateness of the information in this article, and seek professional advice, having regard to the investor’s objectives, financial situation and needs. This article is solely for the use of the party to whom it is provided.