Invest
Why we aren’t heading for a great depression
Despite concerns that the COVID-19 pandemic will cause another great depression, a fund manager believes the extraordinary government response means history is unlikely to repeat itself.
Why we aren’t heading for a great depression
Despite concerns that the COVID-19 pandemic will cause another great depression, a fund manager believes the extraordinary government response means history is unlikely to repeat itself.
While the unemployment rate has spiked around the world and large financial institutions are grappling with forecasts of a long recession, Franklin Templeton’s head of equities, Stephen Dover, does not believe it is the same as the Great Crash of 1929.
“I do not agree with comparisons to the Great Depression, given the stark difference in the fiscal and monetary policy responses,” said Mr Dover. “During the Great Depression, policymakers tightened monetary policy, misdirected fiscal aid, raised trade barriers and increased the regulatory burden on banks and industry. Policymakers have learned from that mistake; the current global response has been the opposite.”
The Great Depression in Australia saw both the state and federal governments adopt deflationary policies, moving to balance their budgets as incomes fell and unemployment rose.
At the time, it was seen as being prudent management. It was later viewed to have aggravated the crisis and led to a more protracted period of unemployment. During the crisis, unemployment peaked at just below 20 per cent, while today Australia’s unemployment rate is tipped to be 8 per cent before the government’s intervention.
The coronavirus crisis has seen the government move to support employment and maintain consumer spending through a series of surplus packages.
The outlook for equities is also more favourable, with a strong government response and the fact that the crisis is health-driven, putting a floor beneath falling prices.
“As we are better able to access the length, health consequences and costs of the virus, the volatility in the markets is likely to abate,” Mr Dover said.
“Companies are strengthening their balance sheets: the results may be that companies will need to have stronger balance sheets going forward, and investors, especially individuals, will need to have larger ‘rainy day’ accounts,” he continued.
“In a world where central banks lower government bond yields to, or in some cases below, zero and governments are adding massive fiscal spending, equities should outperform dramatically in relative terms… I also expect some support to equities as institutions and retail investors, especially in balanced funds, rebalance their portfolios.”
About the author
About the author
Economy
COVID consequences ‘will come home to roost’
Markets are enjoying an easy ride despite the economic damage wrought by COVID-19, but “there will be a reckoning”. ...Read more
Economy
Global economy predicted to pause before soaring in 2021
2021 will provide investors the opportunity to cash in on private markets and businesses hurt, but not permanently damaged, by the pandemic as accommodating policies and pent-up demand drive global gr...Read more
Economy
5 predictions for the Australian economy in 2021
The Australian economy is tipped to be one of five nations to outshine, with a win on the health front likely to act as tailwind, a new report has revealed. ...Read more
Economy
Deloitte calls vaccine a ‘game changer’ as 77% of Aussies welcome jab
As many as three-quarters of Aussies are willing to be vaccinated once a new coronavirus vaccine becomes publicly available, new research has revealed, as Deloitte Access Economics calls the vaccine ...Read more
Economy
Markets react to Biden’s stimulus package
The US markets have reacted negatively to President-elect Joe Biden’s US$1.9 trillion ($2.44 trillion) bailout proposal, amid mass job losses as the US continues to struggle with the COVID-19 pandem...Read more
Economy
‘Aussies to keep economy ticking with $200bn in savings’
The government is counting on Aussies to use their savings to drive economic recovery once temporary support measures are wound back at the end of March. ...Read more
Economy
Business improves but COVID threat remains
The Australian economy continues to show signs of life, with businesses’ payment times improving despite recent outbreaks of COVID-19, new research has revealed. ...Read more
Economy
10 impacts the US ‘blue wave’ will have on investors
With the US Senate run-off falling to the Democrats, a new blue wave is spurring optimism for investors, a chief strategist has said. ...Read more
Economy
COVID consequences ‘will come home to roost’
Markets are enjoying an easy ride despite the economic damage wrought by COVID-19, but “there will be a reckoning”. ...Read more
Economy
Global economy predicted to pause before soaring in 2021
2021 will provide investors the opportunity to cash in on private markets and businesses hurt, but not permanently damaged, by the pandemic as accommodating policies and pent-up demand drive global gr...Read more
Economy
5 predictions for the Australian economy in 2021
The Australian economy is tipped to be one of five nations to outshine, with a win on the health front likely to act as tailwind, a new report has revealed. ...Read more
Economy
Deloitte calls vaccine a ‘game changer’ as 77% of Aussies welcome jab
As many as three-quarters of Aussies are willing to be vaccinated once a new coronavirus vaccine becomes publicly available, new research has revealed, as Deloitte Access Economics calls the vaccine ...Read more
Economy
Markets react to Biden’s stimulus package
The US markets have reacted negatively to President-elect Joe Biden’s US$1.9 trillion ($2.44 trillion) bailout proposal, amid mass job losses as the US continues to struggle with the COVID-19 pandem...Read more
Economy
‘Aussies to keep economy ticking with $200bn in savings’
The government is counting on Aussies to use their savings to drive economic recovery once temporary support measures are wound back at the end of March. ...Read more
Economy
Business improves but COVID threat remains
The Australian economy continues to show signs of life, with businesses’ payment times improving despite recent outbreaks of COVID-19, new research has revealed. ...Read more
Economy
10 impacts the US ‘blue wave’ will have on investors
With the US Senate run-off falling to the Democrats, a new blue wave is spurring optimism for investors, a chief strategist has said. ...Read more
More articles
Website Notifications
Get notifications in real-time for staying up to date with content that matters to you.
