Australia’s contraction won’t be as bad as feared — but then we’ll return to stagnation

After an extended period of optimism about an imminent recovery from pandemic lockdown, sharemarkets in the United States and Australia finally succumbed last week to the realisation that any recovery will be slow and grinding.

In the US, community cases of COVID-19 are trending upwards again, especially across southern states, in what could be the beginning of a second wave engendered by the overly rapid reopening of a number of states. If that happens while the Chinese regime struggles with a new cluster in Beijing (guess that victory lap by a maskless Xi Jinping was a tad premature?), the outlook for global growth for the rest of the year is bleak.

Markets in Asia (including Australia with a 2%-plus slide) continued to be sold off on Monday and were heading lower on Wall Street overnight until the US Federal Reserve revealed the details of its corporate bond buying policy, first announced more than a month ago.