2020 in Review, 2021 in Preview

The Past Year: 2020

Despite everything we’ve been hit with in the last year, from droughts to bushfires, major storms and COVID-19, the Australian economic recovery is well underway.  In the March quarter, we officially entered a recession, and then saw a steep fall in economic activity in the June quarter due to lockdowns and border closures.  Although the economy contracted by 7%, the biggest fall since the end of World War II, we ended the year down just 0.3%.  We saw an impressive 3.3% growth in the September quarter – the biggest lift since March 1976!

The ASX 200 ended the year down 1.5% at 6587, while the index hit records highs on February 20 at 7162 points.  We then saw it fall 37.5% over the next 22 days as COVID took hold before recovering fairly quickly.

While US indexes hit record highs in December 2020, world markets were a mixed bag by the end of the year: US Dow Jones (+7.2%); US S&P500 (+16.3%); US Nasdaq (+43.6%); Japan Nikkei (+16%); UK FTSE (-14.3%); German Dax (+3.5%).

Overall the economy has recovered well due to Government stimulus and our success in supressing the COVID-19 virus. While we are seeing record cash rates of 0.1 per cent, returns on shares rose by 3.6%. The Aussie dollar ended the year at US77 cents; unemployment stands at 6.8%; annual inflation is 0.7%; and the S&P/ASX 200 index ended the year at 6,587 points, down 1.5% for the year.

The Year Ahead: 2021

As we enter 2021, it is clear that COVID-19 still dominates the landscape. Although we are seeing fresh lockdowns and large case numbers in Europe and the US, the good news is that vaccine rollouts have begun across the globe which should allow economies to start repairing. Unfortunately we have no playbook for how to handle this pandemic, so each country and region will have had to make their own choices about the ‘right’ way to respond. While there were some hiccups with COVID outbreaks in Australia, we are in a fairly optimistic position. On the back of low virus numbers, vaccine rollouts, rock bottom borrowing, and Government stimulus, Australian consumer and business confidence is at 31-month highs.

After contracting around 2.5% in 2020, the global economy is tipped to rebound by 5.1% in 2021 with the Australian economy tipped to grow by 4.9%.  Cash rates are due to stay on hold at 0.1 % for three years. Unemployment will be a big focal point with economists estimating the jobless rate already peaking at 7.5% and will ease to closer to 5% by 2022.

Stimulus measures will need to stay in place through the first quarter of 2021 to avoid a loss of economic momentum, but it will be a tricky balance for the Government to strike when phasing out JobKeeper and JobSeeker.  Leaving it in place for too long may lead to business complacency.

We expect the Australian sharemarket to return to record highs by the end of the year on the back of infrastructure growth driving up Australia’s mining and energy sectors. The post-vaccine resurgence of global economies will further drive demand for Australian metal and ores as well as drive the Aussie dollar higher.

Overall, we expect the Australian economy to rebound in 2021 but obviously any forecast is at the whim of ‘second’ or ‘third’ waves of virus cases, vaccine setbacks,  early removal of support measures and/or extended delays in the re-opening of foreign borders. There are still a lot of moving parts, but Australia is in a great place for a comeback.

If you have any questions or comments, or unsure how the changes might impact you, please get in touch – the team at Apollo is always here to help.

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Federal Budget 2020
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Quarterly economic and market update

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