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Why Australia’s economic recovery won’t be a V or W – it’ll be a Nike Swoosh

Anastasia Santoreneos
·3-min read
What Australia's economic recovery will look like. Source: Getty
What Australia's economic recovery will look like. Source: Getty

EY Oceania chief economist Jo Masters will be speaking at Yahoo Finance’s All Markets Summit on 17 September about Australia’s economic recovery, and investing during a recession.

Australia’s economic recovery will look more like the iconic Nike swoosh “with a very bumpy bottom”, according to Ernst and Young chief economist Jo Masters.

“We are operating in a world where we don’t really have a roadmap, there’s no precedent, no rulebook on how to do this,” Masters told Yahoo Finance.

While Q2 figures set to be released next week may show a “confronting GDP contraction” of around 6 to 7 per cent, Masters said compared to the rest of the world, Australia is faring well.

“We’ve seen the UK up in the 20 per cent for the quarter, and a lot of economies around that 10 to 11 per cent – so we’ve done relatively well.”

And asked whether the economic recovery will look like a V (that is, drop and bounce back) or a W (drop, bounce back slightly before falling again and then recovering completely), Masters said neither.

“We talk about a sawtooth shape recovery – and I describe that as a Nike swoosh with a bumpy bottom,” she said.

“What you’re seeing in Melbourne and Victoria more broadly is exactly what creates that bumpy bottom.”

But there’s no way to tell how deep each bump is, or how long it will last, or when the next one will be.

“Being nimble is going to be really important, whether that’s government, business or households,” Masters said.

Luckily, the chief economist thinks Australia is well placed, with strong financial stability metrics to weather the storm.

“We have low government debt, a healthy central bank balance sheet, well capitalised commercial banks, not a massive problem around corporate debt, we remain attractive for skilled migrants, and we do have a comparative advantage in med tech and renewables.” she said.

But there are some headwinds: high unemployment means a lot of spare capacity in the labour market and businesses that have been supported by the economy may not be able to survive in the long-term.

And with each new wave of Covid-19, things could continue to get worse.

“With each wave comes increased economic scarring,” Masters said.

“That is firms that just never reopen, people who never get back into the workforce…Each additional wave is another hit to an already big shock, and we have fewer resources to throw at it.”

On the plus side, with each wave, we are learning more about the virus from a health perspective and from an economic perspective.

“When we impose restrictions, we know that [it] has a devastating impact on economic activity in the labour market, and you need support to get through that,” Masters said.

But perhaps a full recovery isn’t too far at all.

“We do expect the economy to stabilise and expect positive growth in 2021, after a very significant contraction in 2020.”

EY Oceania chief economist Jo Masters will be speaking at Yahoo Finance’s All Markets Summit on 17 September about Australia’s economic recovery, and investing during a recession.

Don't miss Yahoo Finance's All Markets Summit on 17 September! Register here for your tickets.
Don't miss Yahoo Finance's All Markets Summit on 17 September! Register here for your tickets.

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