In early 2020, the outlook for global economic growth took a huge hit from the Covid-19 pandemic. Since then, projections for the future have been hopping up and down wildly. This has even led to the creation of a new financial slang term: kangaroo market. The subsequent uncertainty has raised many questions around the financial future of the economy and how we may see the impacts of the coronavirus in the long-term.
The good news is, it isn’t all doom and gloom for the future.
Research from McKinsey shows that, despite a slight dip in October, more than half of business leaders around the world feel confident that global economic conditions will begin to improve over the next six months. Similarly, an article by the Financial Times has suggested that most economies globally will have recovered by 2022. Two ways this will be achieved are centred around innovation and government intervention.
The saying goes ‘necessity is the mother of invention’ and that has, historically, proven to be true. Economic downturns have been the impetus for change time and time again. There are those that can look at where we are right now as an opportunity to come back stronger and better prepared in the future and they will be the ones leading innovation. Already, we are seeing invention and creation in the ways that individuals and businesses have learned to adapt. This means that whilst it may feel strained now, forward movement is already on its way.
The second area that will guide an eventual economic upturn will be how the government decides to proceed with recouping the spending that has happened during this time. Ways that the government may look to do this could be: further austerity measures, additional investment to buoy the economy, and changes to the tax regime.
From what we can see at the moment, the most likely of these options will be further tax changes. Exactly what this will look like is hard to predict, but if this is the route they choose, we can expect these to begin taking place over the next year.
What you can do
Understanding that the economy will recover is one thing, but many are left wondering what they can do personally to protect the growth of their own finances.
As with investing during any other time, it’s important to take the long view to understand what may come. Markets react in the short-term and, as we have seen just this year, can swing rapidly in either direction. Because of this, the nature of short-term thinking is unpredictable and chaotic. Instead, remember that investing is a long term endeavour and that any dips are likely to even back out.
Another way you can manage the stress of a turbulent market is to diversify your portfolio. Diversifying your portfolio means ensuring that you have invested in multiple sectors, rather than just one. This can provide stability to your portfolio. When you invest in multiple industries, your investments are better able to bounce back because not all areas of the market are hit equally during economic downturn.
As you can see, the economy may not be in a strained position for long. But while we wait for the upswing to happen, it’s important to hold fast to your investments and to begin diversifying your portfolio.