Economic Update

By Craig Turnbull, Active Super Chief Investment Officer
August 2021

The Australian share market continued to edge higher and make modest gains despite the extended Greater Sydney lockdown and increase in the number of COVID-19 cases.

The S&P/ASX 200 hit another record high during the month and is now trading above 7500 points for the first time. As the earnings season gets underway, there have been encouraging signs of a robust performance by Australian corporates which also helped drive the market.

The benchmark index, which reported its 10th straight month of gains in July, is finding further support from the central bank which remains optimistic that the economy can weather this latest outbreak. The Reserve Bank Governor Philip Lowe said policymakers were ready “to act in response to further bad news on the health front that affects the outlook for the economy over the year ahead”.

While the national economy is expected to fall into negative territory this quarter due to the virus-induced contraction, stimulus measures such as a record low interest rate of 0.1 percent and the central bank’s bond-buying program should see a return to positive growth later in the year.

“The economy is benefiting from significant additional policy support and the vaccination program will also assist with the recovery,” Mr Lowe said.

Australian businesses should benefit from this stimulus which will underpin corporate revenue and profitability. This in turn will feed into higher stock prices and better superannuation returns. 

Some of the confidence around the resilience of the recovery can be attributed to the improving labour market. Prior to the lockdowns, the unemployment rate hit a decade low of 4.9 percent in June. 

While there will likely be a spike in unemployment as the economy contracts, over the long term the RBA forecast unemployment to fall to 4.25 percent by the end of 2022 and to 4 percent by the end of 2023.

Some elements of uncertainty that remain on the horizon are the low vaccination rates and the risks of broader and more-prolonged lockdowns.

In the current earnings season, the market will remain on the lookout for any signs from corporates about the long-term impact of the pandemic on profitability and growth.

Important changes to MySuper

Active Super is enhancing and simplifying its default MySuper product with changes designed to provide members with more super in retirement.

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