The V-shaped Recovery

June 20, 2020

Several leading economists and the World Bank have predicted a very short & sharp recession that will impact more than 90% of economies. A recovery is expected by the first quarter of 2021.





In Australia, the unemployment rate hit 7.1% in May as the economy recorded its biggest back-to-back monthly job losses on record. Participation fell to 62.9%, the lowest level since 2001, as people who lost their jobs saw little hope of finding another. Youth unemployment rose to 16.1%. Loan deferrals reported by the ABA this week were a total of A$236bn, split between mortgages (A$176bn) and business loans (A$60bn). The same people deferring their mortgages probably also made a purchase from Temple & Webster (TPW) or Kogan (KGN)!


With Australia’s borders likely to remain closed to international arrivals for the rest of this year, sectors such as tourism and education will need ongoing support so that people employed in that sector on JobKeeper can pay off their Afterpay balances post September, when the scheme is unwound!


It’s going to be a delicate balancing act for the government and the banks.


Online shopping has become the temporary saviour of the retail sector as a whole. 


However, we don’t expect the overall retail sales uptick to continue.  When you are locked up at home and can’t go to the football, the pub or the casino, the wallet is full to either trade shares or buy something online. We see this as a predominantly one-off kick to online retail sales but with the potential to market to customers who were newer to online shopping.


While the ABS's preliminary retail figures showed an increase in retail spending in May (+5% YoY), newer data is already showing spending slowing in early June which is consistent with very subdued employment and household income conditions (hours worked fell 9% YoY in May).


Shares in online retailers may continue to do well, but they are looking very expensive to us. Household income remains subdued in absolute terms. In May, hours worked across all industries were 9% lower than the prior year and the under-utilisation rate was 20%. All of this while we have circa 3 million employees being supported by the Jobkeeper program, which is scheduled to finish in September.


Happy Investing








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