How does the ASX 200 perform during a recession?

The "R" is starting to float around after President Donald Trump imposed steep tariffs on all exports to the US, with rates ranging from 10% to 49%, to counter large trade imbalances with the US.

The announcement triggered a sharp selloff across global equity markets, with the S&P 500 and Nasdaq plunging 4.84% and 5.97%, respectively, on Thursday and marking their worst sessions since the Covid-19 crash in 2020. Retaliatory threats from China, the EU and Canada quickly followed, exacerbating market volatility and uncertainty.

Market participants hiked the likelihood of recession by year-end, including:

• AMP Chief Economist Shane Oliver estimates a 40% chance of a US recession, noting global growth could slow to 2% (from 3%), depending on retaliation and policy responses, such as stimulus from China.

• HSBC analysts echo this, with their equity-based recession probability indicator suggesting a 40% likelihood by year-end, though they note some risks are already "priced in."

• Even betting markets like Polymarket have experienced a spike in recession odds, rising to 49% (as at 3-Apr) compared to 23% in early March.

But what does this mean for the Australian sharemarket? Below, we explore how the S&P/ASX 200 has weathered past downturns since 1992 and assess the current tariff fallout.

Australia’s Recession History

Australia has dodged most recessions thanks to robust commodity exports and fiscal stimulus. The 2020 pandemic marked the only technical recession in nearly three decades. To broaden the data set, we’ve included a few more high-volatility and US recessionary events.

• 1997 Asian Financial Crisis: This did not trigger a US recession but drove extreme market volatility and slowed Asian export demand.

• 2001 Dot-Com Bubble: The bursting of the tech bubble led to a brief US recession from March 2001 to November 2001.

• 2001 September 11 Attacks: The attacks occurred during the Dot-Com recession and deepened the economic downturn.

• 2008-09 Global Financial Crisis: The crisis began in June 2008 (preceding the Lehman Brothers' collapse on September 15, 2008). The US entered a recession from December 2007 to June 2009, lasting 18 months.

• 2010-11 European Sovereign Debt Crisis: This started in late 2010 and escalated due to Greece's debt concerns in November. Global economic growth was relatively weak in the aftermath of the GFC but there were no recessions during this period.

• 2015 China Market Turmoil: China's slowdown and market crashed weighed on global markets, with the ASX 200 tumbling 4.1% on 24 August, 2015. Though, this did not trigger any recessions.

• 2020 Pandemic: Australia entered its first technical recession in nearly 29 years, with GDP shrinking 0.3% in the March quarter, followed by a 7% decline in the June quarter due to nationwide lockdowns.

ASX 200 Performance in Downturns

The table below tracks the S&P/ASX 200’s performance at one month, three months, six months, one year, and two years after these events. (Note: Exact start dates for some events are approximate.)

Source: Market Index

The ASX 200 has been relatively immune to most global downturns thanks to its composition of banks and miners. The early-to-mid 2000s were major commodity booms, which led to the resource sector propping the market up.

While the data shows relatively positive returns for periods such as the Asian Financial Crisis and Dot-Com Bubble – there were still periods of brief volatility. For example, the ASX 200 dipped as much as 21% in October 1997 but recouped more than half that decline in a week. Likewise, the market tumbled 15% between June and September 2001 but recovered most of that decline by year end.

Of course, major crises like the GFC and pandemic took a major toll on markets. But on both occasions, the market bottomed within a year.

Tariff context

Australia faces a baseline 10% tariff, a modest hit given US exports account for just 1% of GDP or 5% of total exports.

"However, the bigger threat comes from the threat to global growth, particularly in China and Asia, which will likely result in less demand for our exports," says Shane Oliver, Chief Economist at AMP.

RBC Capital Markets’ Karen Jorritsma adds, "the emerging structural shifts to global rules of engagement, trade and rising protectionism for a medium sized economy like ours isn’t too positive."

"The brave are trying to have a go at a few names that look like value but there is still a widespread lack of conviction on direction ... Wish I could say its over, but not yet."

The bottom line

While recession fears mount, the ASX 200’s track record suggests resilience, though not immunity, to global shocks. However, significant uncertainties — such as escalating retaliatory tariffs and a potential resurgence of inflation — could exert further downward pressure on markets.

Historical data suggests that if economic damage remains limited, the market might face only a modest decline and continue its usual course. But if we're on the cusp of a full-blown recession, then the market may have a ways to go.

Markets are in a challenging position where the only certainty we have right now is volatility.