We’re now six weeks into 2021, and predictions that Australia will continue to fare better than its global counterparts are holding up. Here, we revisit key positives about Australia in 2021, which could have an impact on investment markets.
In recent months, we have spoken a lot about Australia’s relative success in handling the pandemic. This has a significant impact on the ability for local markets to recover, and is seeing the Australian dollar pushed to recent highs. We continue to see several key reasons that Australia remains in a relatively good position this year.
1. Better virus control compared to other countries
Since the beginning of the pandemic, over a year ago now, Australia has been among the best in the world in its control of COVID-19.
Controlling the virus is crucially important for public health reasons. It’s also an important economic imperative because it affects mobility – basically, the more under control the virus is, the more freely people are able to engage in ‘normal’ life.
You can see in the chart below that economic activity has been gradually tracking upwards, after a big dip when the first round of lockdowns first hit.
Source: Bloomberg, AMP Capital
2. Better targeted stimulus than most
Monetary and fiscal stimulus are crucial to keeping the economy breathing, and staving off a depression. Australia has had substantial stimulus injections relative to global counterparts that has gone directly to households and businesses, rather than loans and guarantees which rely on banks making loans to stimulate economic activity. See the chart below for a comparison of where Australia sits in relation to other countries.
Source: AMP Capital
Australia is in a good position to benefit from our biggest export market – China – having a strong recovery from the pandemic which is good for commodities demand. China has now returned to its pre-COVID levels of growth, which is the strongest result of OECD countries. Further, many of Australia’s Asian trading partners are also doing a relatively good job of controlling COVID-19. There are of course risks to consider here – including that the virus can re-emerge in any country and prompt lockdowns and Australia/China trade tensions.
What are the risks?
There are several risks to consider during a pandemic – one of the first and foremost, as mentioned above, being that the virus can re-emerge and prompt lockdowns. However, we think Australia is overall heading in the right direction for recovery, albeit with a challenging and bumpy road ahead.
Diana Mousina, Economist - Investment Strategy & Dynamic Markets
THIS ARTICLE WAS RELEASED BY AMP CAPITAL 12 FEB 2021, FOR MORE AMP CAPITAL UPDATES GO TO WWW.AMPCAPITAL.COM.AU
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