Invest
Why we aren’t heading for a great depression
Despite concerns that the COVID-19 pandemic will cause another great depression, a fund manager believes the extraordinary government response means history is unlikely to repeat itself.
Why we aren’t heading for a great depression
Despite concerns that the COVID-19 pandemic will cause another great depression, a fund manager believes the extraordinary government response means history is unlikely to repeat itself.
While the unemployment rate has spiked around the world and large financial institutions are grappling with forecasts of a long recession, Franklin Templeton’s head of equities, Stephen Dover, does not believe it is the same as the Great Crash of 1929.
“I do not agree with comparisons to the Great Depression, given the stark difference in the fiscal and monetary policy responses,” said Mr Dover. “During the Great Depression, policymakers tightened monetary policy, misdirected fiscal aid, raised trade barriers and increased the regulatory burden on banks and industry. Policymakers have learned from that mistake; the current global response has been the opposite.”
The Great Depression in Australia saw both the state and federal governments adopt deflationary policies, moving to balance their budgets as incomes fell and unemployment rose.
At the time, it was seen as being prudent management. It was later viewed to have aggravated the crisis and led to a more protracted period of unemployment. During the crisis, unemployment peaked at just below 20 per cent, while today Australia’s unemployment rate is tipped to be 8 per cent before the government’s intervention.
The coronavirus crisis has seen the government move to support employment and maintain consumer spending through a series of surplus packages.
The outlook for equities is also more favourable, with a strong government response and the fact that the crisis is health-driven, putting a floor beneath falling prices.
“As we are better able to access the length, health consequences and costs of the virus, the volatility in the markets is likely to abate,” Mr Dover said.
“Companies are strengthening their balance sheets: the results may be that companies will need to have stronger balance sheets going forward, and investors, especially individuals, will need to have larger ‘rainy day’ accounts,” he continued.
“In a world where central banks lower government bond yields to, or in some cases below, zero and governments are adding massive fiscal spending, equities should outperform dramatically in relative terms… I also expect some support to equities as institutions and retail investors, especially in balanced funds, rebalance their portfolios.”
RELATED ARTICLES
About the author
About the author
Economy
Rising CPI reinforces RBA’s stance as rate cut expectations remain: State Street
State Street Global Advisors says the Reserve Bank of Australia (RBA) is likely to hold its current policy outlook following the release of September quarter inflation data, which showed an unexpected ...Read more
Economy
NSW SES boosts tsunami preparedness ahead of World Tsunami Awareness Day
As World Tsunami Awareness Day approaches on 5 November, the New South Wales State Emergency Service (NSW SES) is ramping up efforts to enhance tsunami preparedness along the east coastRead more
Economy
Lifesaving Regional Response Strengthened with New NSW SES Vehicles
In a significant boost to regional emergency services, the NSW State Emergency Service (SES) has unveiled 11 new Community First Response (CFR) vehicles, designed to enhance the speed and safety of ...Read more
Economy
Australia's June quarter GDP growth driven by consumer and government spending
Australia's economy has shown unexpected resilience in the June 2025 quarter, with household and government consumption driving growth despite a significant decline in public investmentRead more
Economy
Australia's GDP surprise is real but operators should heed the growth mix warning light
Australia’s June-quarter growth beat expectations on the strength of household consumption and government spending, even as public investment sagged. The upside surprise signals resilience, but the ...Read more
Economy
Households carried the quarter: what Australia’s upside GDP surprise means for strategy now
Australia’s economy expanded faster than expected in the June 2025 quarter, with GDP up 0.6 per cent quarter-on-quarter and 1.8 per cent year-on-year — the strongest pace in two years. The kicker ...Read more
Economy
Inflation dynamics in Australia: Electricity subsidies and labour market in focus
In a recent economic analysis, experts from State Street have highlighted significant developments in Australia's inflation landscape, attributing the changes primarily to the withdrawal of ...Read more
Economy
Australia's economic growth driven by consumer and government spending: A closer look at the June quarter
Australia's economy has delivered a surprising performance for the June 2025 quarter, surpassing expectations with a growth rate of 0.6% quarter-on-quarter and 1.8% year-on-year. This unexpected ...Read more
Economy
Rising CPI reinforces RBA’s stance as rate cut expectations remain: State Street
State Street Global Advisors says the Reserve Bank of Australia (RBA) is likely to hold its current policy outlook following the release of September quarter inflation data, which showed an unexpected ...Read more
Economy
NSW SES boosts tsunami preparedness ahead of World Tsunami Awareness Day
As World Tsunami Awareness Day approaches on 5 November, the New South Wales State Emergency Service (NSW SES) is ramping up efforts to enhance tsunami preparedness along the east coastRead more
Economy
Lifesaving Regional Response Strengthened with New NSW SES Vehicles
In a significant boost to regional emergency services, the NSW State Emergency Service (SES) has unveiled 11 new Community First Response (CFR) vehicles, designed to enhance the speed and safety of ...Read more
Economy
Australia's June quarter GDP growth driven by consumer and government spending
Australia's economy has shown unexpected resilience in the June 2025 quarter, with household and government consumption driving growth despite a significant decline in public investmentRead more
Economy
Australia's GDP surprise is real but operators should heed the growth mix warning light
Australia’s June-quarter growth beat expectations on the strength of household consumption and government spending, even as public investment sagged. The upside surprise signals resilience, but the ...Read more
Economy
Households carried the quarter: what Australia’s upside GDP surprise means for strategy now
Australia’s economy expanded faster than expected in the June 2025 quarter, with GDP up 0.6 per cent quarter-on-quarter and 1.8 per cent year-on-year — the strongest pace in two years. The kicker ...Read more
Economy
Inflation dynamics in Australia: Electricity subsidies and labour market in focus
In a recent economic analysis, experts from State Street have highlighted significant developments in Australia's inflation landscape, attributing the changes primarily to the withdrawal of ...Read more
Economy
Australia's economic growth driven by consumer and government spending: A closer look at the June quarter
Australia's economy has delivered a surprising performance for the June 2025 quarter, surpassing expectations with a growth rate of 0.6% quarter-on-quarter and 1.8% year-on-year. This unexpected ...Read more
