Economic recovery will be sprint, then slog as jobs dry up, says Charles Goode

Veteran investor Charles Goode says after an initial sprint, Australia’s economic recovery is likely to be a slow grind blighted by higher unemployment.

Charles Goode says Australia faces a protracted economic recovery. Picture: Stuart McEvoy

Liberal Party stalwart and former ANZ chair Charles Goode has warned the Australian economy will have a slow and protracted recovery from its first recession in 30 years as our historic economic drivers of population growth, a long housing boom and demand from China weaken.

The veteran investor, who is chair of listed investment companies Diversified United Investment and Australian United Investment, addressed shareholders of both investment houses at their AGMs on Thursday.

Speaking before Thursday’s unemployment figures were released by the ABS, he forecast that risk-averse investors would put a cap on private capital expenditure as they redirect any spare cash into replenishing savings.

Mr Goode noted in his chairman’s address for Diversified United that in the wake of COVID-19 investors were swinging between “fear and greed”. On one day hopes for a vaccine bolstered the sharemarket to only then swing back to the harsh reality of the recession, he said.

Mr Goode told shareholders Australia has fared relatively well compared to other countries during the global pandemic.

However the nation should reflect on the underlying factors behind its three decades of growth before this crisis arose. Those factors were now were less potent, he said.

“These factors included a population growth averaging 1.5 per cent while advanced countries averaged 0.6 per cent; a housing boom from the mid 1990s to 2017; the rise of China and its demand for our resources; and Government policy based on a strong government balance sheet,’’ Mr Goode said.

“The first three of these factors are not expected to be as strong in the future.”

Due to this Mr Goode said he expected that after the initial quick and partial recovery, there would be a slow recovery taking many years which would be characterised by higher unemployment.

“Unemployment is likely to recover slowly as some business will have reorganised and require less labour while some will go out of business. Inflation and interest rates are expected to be low as is wages growth.”

Mr Goode said people could be expected to be more risk averse and more cautious as they addressed their deferred mortgage commitments and sought to replenish their savings. In this environment, private capital expenditure was expected to be weak, he said.

“We will also be transitioning from government winding back transfer payments such as Job Seeker and Job Keeper to increasing direct expenditure on infrastructure and incentives to the private sector to encourage employment and investment.”

Mr Goode said there were expectations Commonwealth government debt would reach $1trn dollars and for Australia to have government budget deficits for the next seven years. “On the other hand we are fortunate that government policy, Reserve Bank policy and the banking system are working together and in the same direction; our banks have strong balance sheets and the financial system has good liquidity.

“(And) that while the government debt is rising sharply, it will still be low in relation to GDP compared to other countries and China appears to be making a strong recovery and its demand for our iron ore is expected to be strong for at least for the next few years.”

Diversified United has an investment portfolio, dominated by Australian shares, worth just over $1 billion. Australian United has an investment portfolio worth $1.15bn. Mr Goode said in this uncertain and complex environment the sharemarket has been volatile.

“Up days when there is progress on containing the virus or finding a vaccine, and when the mood is for investors to be looking across the valley to a better economy. On other days the harsh reality of the economic recession prevails.”

He said the high level of the stock exchange indexes in terms of high price-earnings ratios and low dividend yields is to be seen in the context of unprecedented liquidity, unprecedented low interest rates and investor fascination with the growth prospects of new technologies.