Market Update - May 2020

The pulse

  • Shutdowns, isolation, and social distancing measures have had a profound impact on consumer-facing sectors and have resulted in large spikes in unemployment.

  • Central banks around the world have embarked on unprecedented emergency lending and bond buying programs to combat the economic effects of the coronavirus.

  • The Bank of England forecasts UK GDP to contract by 14% in 2020, driven by a 25% decline in the June quarter, to be followed by a rapid recovery.

  • The Reserve Bank of Australia kept rates on hold at 0.25% at its May meeting and continued targeting the 3-year government bond yield at the same rate.

  • Growth in new coronavirus cases in Australia slowed significantly in April, although a second wave of infections could eventuate if restrictions are eased too quickly.

Global economies

The world economy remains in the grip of the COVID-19 shock. Governments are deploying stimulus measures, including extensive employment subsidies to retain worker-firm relationships. March quarter economic growth points to a sharp downturn globally, while the contraction could be more pronounced in the June quarter given lockdown measures were in full force in most regions by April.


March quarter GDP plummeted to an annualised 4.8% contraction, below expectations of a 3.7% fall, as the initial impact of COVID-19 filtered through the economy. Within the GDP report, consumer spending showed a sharp decline, falling 7.6% versus an expected 1.5% contraction.


Even before the pandemic hit, the eurozone story was one of mediocre economic growth, with a modest expansion in the services sector been offset by a contraction in manufacturing. The coronavirus pandemic undercuts even this lacklustre narrative by hitting services extremely hard.


The Chinese economy contracted by 9.8% in the March quarter compared to the December 2019 quarter, taking the annual growth rate to -6.8%, down from positive growth of 6.0% in the December 2019 quarter. According to the IMF, growth is forecast to recover, but only to 1.2% for the whole of 2020.

Asia Region

According to the IMF, Japan’s GDP is forecast to contract 5.2% in 2020 on the previous year. The economy was already on a precarious footing, with GDP shrinking by an annualised 7.1% in the December quarter, hit by the rise in the consumption tax and a devastating typhoon – the strongest in decades to hit mainland Japan.


The Australian economy is expected to contract by at least 5% in the June quarter after a smaller contraction in the March quarter, thereby meeting the technical definition of a recession. However, no data is needed to confirm what has already been observed: shutdowns, isolation, and social distancing measures in the fight against the spread of COVID-19 have virtually closed large sections of the economy, causing a surge in unemployment not seen since the Great Depression.


The information in this Market Update is current as at 12/5/2020 and is prepared by Lonsec Research Pty Ltd ABN 11 151 658 561 AFSL 421445 on behalf of National Australia Bank and its subsidiaries. Any advice in this Market Update has been prepared without taking account of your objectives, financial situation or needs. Before making any decisions based on the content of this document, the reader must consider whether it is personally appropriate in light of his or her financial circumstances or should seek independent financial advice on its appropriateness. Past performance is not a reliable indicator of future performance. Before acquiring a financial product, you should obtain and read the corresponding Product Disclosure Statement (PDS) and consider the contents of the PDS before making a decision about whether to acquire the product.