Westpac Banking Corp (ASX: WBC) has painted a grim picture for us for the rest of 2020 with predictions of a painful recession and rising unemployment.
Here are some of the highlights (or lowlights):
Prediction: Economy to contract in the first half
Initially, Westpac's chief economist Bill Evans had projected that the Australian economy would fall by 0.6% in the first half. But now the major bank is expecting a 1% hit to the economy in the first half and that it will rebound by 2.5% in the second half.
Prediction: Unemployment to rise
Westpac is now predicting that the unemployment rate will reach 7% by October, so the projection has worsened from its previous estimate of 5.8% to 6%.
The predicted unemployment number is due to the larger negative impacts to the labour intensive sectors like tourism, construction, education and so on.
Westpay says confidence has collapsed
The bank noted that confidence for people aged over 65 has fallen in its latest consumer sentiment survey, meaning that pensioners are likely to hold onto the cash rather than spend all of it.
It is particularly difficult with discretionary spending likely to be down significantly in the short-term and outbound & inbound tourism is expected drop by 80% over these two quarters.
My take
I can see why Westpac thinks the economy is in for a tough time over the next few months. It's not going to be easy. It could be painful for quite a few industries. I hope the government can provide a bigger support package for the economy in the next couple of weeks.
The S&P/ASX 200 Index (ASX: XJO) share market has been hit hard and it could keep falling if things keep getting worse.
But most businesses will get through this, just like they did with the GFC. In a few years the economic impact of this will have passed and 2020 will probably be seen as one of the most volatile times on the ASX. Yet it may prove to be a great time to buy shares. Letting fear stop you from investing in times like this could mean missing out on the stronger long-term gains, which is the most important thing with investing.
I've invested several times over the past few weeks and I will keep investing in great opportunities when I see them.
