Economic Outlook: A ‘K-shaped’ recovery

The economic shutdown of 2020 was like nothing we have ever seen before.  Well, not in our lifetimes, at least.  

The global pandemic closed down the engine room of our economy.  First it was the travel industry, but this quickly shifted to the hospitality and retail industries as the world went into lockdown.  Business, consumer and investor confidence all fell through the floor as fear of unemployment took hold and the impending global recession became a reality.

It ended Australia’s world-leading economic run.  For the first time in 28 years we are in recession.  After a small contraction in the March quarter, our economy slumped a further 7% in the June quarter.  That is the biggest fall on record, and we have now lost $100 billion of economic activity this calendar year.

Looking forward to the recovery

Economists like to describe economic recoveries with letters that reflect the shape of trajectory.  ‘V-shaped’ recoveries refer to quick rebounds, while ‘U-shaped’ recoveries take longer.

In recent weeks we have heard economists talk about a ‘K-shaped’ recovery; where an economy recuperates unevenly.  The economy segments into winners and losers and their trajectories follow the direction of the two spokes that poke out from the vertical line in the ’K’.

Businesses in some sectors are positioned better than others to outperform.  Sectors like telecommunications, technology and financial services are well-placed, while sectors like travel, hospitality and the creative arts aren’t.

What this means for your investments 

This is no time for complacency.  There are things you can do to invest to make the most of the K-shaped recovery. 

It starts by understanding what you’re currently invested in.  Some super funds are more transparent than others, and it can be hard to see where your money is invested.  If you don’t understand what your super fund is investing in, you should find out right now.

At Daniel Crump Financial Planning we are not tied to any product providers or super funds.  We know what questions to ask your super fund for you to help you understand your investments. 

You can control how you invest, and you are free to choose investments that have exposure to the winning sectors in the K-shaped recovery.

Daniel Crump is the founder of Daniel Crump Financial Planning.  This article is general and does not consider your personal circumstances.  If you would like advice specific to you please visit danielcrumpfp.com.au or give us a call on 0418 148 622.