Dr John Hewson joined us this month for our In Conversation Series to discuss the implications of the COVID-induced recession for the Australian economy.
Below is a summary of the discussion between our Chief Investment Officer Jason Hazell and Dr Hewson.
What does it mean to be in a recession?
We are in Australia’s first recession in nearly 30 years, after a substantial decline in the June quarter following an initial decline in the March quarter. These 2 quarters of negative growth officially put us in a recession.
Can you give our super fund members an update on how you are seeing the Australian economy performing?
While Australia hasn’t done as badly as other developed countries, we are experiencing the biggest collapse in social and economic terms since the great depression.
The magnitude of economic impact is significant and it is a period for which there is not a real historical experience from which to draw on. Therefore, the government is learning by doing, as it goes along and naturally this means there is a lot of uncertainty.
From an Australia Islamic super perspective, it will be interesting to watch what the Government announces in its budget on the 6 October 2020. Many people are anticipating Morrison to use this budget as an opportunity to reset.
The budget is likely to be very supportive with a lot of government spending and possible tax cuts. The winding back of existing assistance packages, including JobKeeper will mean a difficult transition period for many households and businesses.
How much stress will the phasing out of JobKeeper put on the economy?
As JobKeeper and assistance packages are removed, it will cause a significant amount of stress for some.
Our economy has been slowing down since 2018 and it is likely that businesses that are dependent on JobKeeper at the moment we’re already feeling the pain of a slowing economy.
Extending lending to businesses is necessary for a period of time, but more debt isn’t the best answer. The business community has already received substantial cash injections during the pandemic and have been able to borrow on easier terms, so as the Government phases out JobKeeper, the aim is to endure short term pain for mid to long-term prosperity.
How will the US election put pressures on the stock market?
Global elections naturally have a significant impact on the financial markets.
The US election will result in the greatest destabilisation of the markets if there isn’t a clear winner on the day – for example, neither candidate has enough of a lead and it hangs on the postal votes. If this happens, there will be a long period of uncertainty while postal votes are counted.
The million-dollar question….
“I do think Biden will win, Trump will be obstructionist, markets will be volatile for a long time but in the end, there will have to be a transition,” Dr Henson says.
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Talal currently serves as a Non-Executive Director on the Whitlam Institute and Western Sydney University Foundation Council Board. He also serves as Chairman of First Quay Capital and Chairman of the Australian Arab Dialogue. Talal has also served on the Australia Post, Board of Sydney Ports, Macquarie University and the Western Sydney Area Health Service and the Chairman of the Department of Foreign Affairs and Trade; Council of Australia Arab Relations. In an executive capacity, Talal spent 10 years at PwC as a director and strategist, and at investment firm Babcock & Brown in the Corporate Finance Group and later in the Technical Real Estate Division. Later Talal held leadership positions in Better Place Australia, Platinum Hearing and Star Transport Australia.