Investment Clock insights

Coronavirus views 17 April 2020 - economic viewpoint


Melanie Baker

17 April 2020

Even while the UK has just extended its lockdown, policymakers in a number of countries elsewhere in Europe are starting to ease social distancing measures or are planning to do so in coming weeks. What that means for their economies isn’t completely straightforward, but – taken at face value – allowing more economic activity to take place boosts GDP and employment. However, while policymakers continue to do their best to limit the damage to businesses and households so that the economy can fire up again, the strength of the recovery will – to a large degree – also depend on how confident people are that the virus (and a second wave of lockdowns) is no longer a threat, as well as depending on what is happening in other countries. 
In the meantime, a wealth of recent data is making clear how big the challenge is for economic policymakers and how deep this downturn is. Jobless claims numbers in the US remained awful this week, with another week of initial jobless claims above 5 million. Many data series for March and April have now hit record lows or declined by record amounts. This week, that included the biggest one month fall in US industrial production since 1946 and a record plunge in the broad definition US retail sales measure. In China, data this week showed Q1 GDP fell some 9.8% QoQ, awful by any country’s standards, let alone China’s. 
Economists do not expect consumer or business behaviour to instantly jump back to what it was once social distancing substantially eases, especially without an effective treatment and or vaccine for COVID-19. China data shows retail sales, for example, lagging the recovery there. The IMF this week forecast that the global economy will shrink by 3% in 2020, i.e. worse than 2009. However, central bank support for the economy, markets and governments has continued to step up over the last week or two, including an important expansion of Federal Reserve facilities. Fiscal packages continue to be announced, France being one of the latest economies with new expanded budget plans. Such policymaker support is essential for prospects of economic activity returning to pre-crisis levels over a few quarters, rather than several years as was the case during the financial crisis.

Even while the UK has just extended its lockdown, policymakers in a number of countries elsewhere in Europe are starting to ease social distancing measures or are planning to do so in coming weeks. What that means for their economies isn’t completely straightforward, but – taken at face value – allowing more economic activity to take place boosts GDP and employment. However, while policymakers continue to do their best to limit the damage to businesses and households so that the economy can fire up again, the strength of the recovery will – to a large degree – also depend on how confident people are that the virus (and a second wave of lockdowns) is no longer a threat, as well as depending on what is happening in other countries. 

In the meantime, a wealth of recent data is making clear how big the challenge is for economic policymakers and how deep this downturn is. Jobless claims numbers in the US remained awful this week, with another week of initial jobless claims above 5 million. Many data series for March and April have now hit record lows or declined by record amounts. This week, that included the biggest one month fall in US industrial production since 1946 and a record plunge in the broad definition US retail sales measure. In China, data this week showed Q1 GDP fell some 9.8% QoQ, awful by any country’s standards, let alone China’s. 

Economists do not expect consumer or business behaviour to instantly jump back to what it was once social distancing substantially eases, especially without an effective treatment and or vaccine for COVID-19. China data shows retail sales, for example, lagging the recovery there. The IMF this week forecast that the global economy will shrink by 3% in 2020, i.e. worse than 2009. However, central bank support for the economy, markets and governments has continued to step up over the last week or two, including an important expansion of Federal Reserve facilities. Fiscal packages continue to be announced, France being one of the latest economies with new expanded budget plans. Such policymaker support is essential for prospects of economic activity returning to pre-crisis levels over a few quarters, rather than several years as was the case during the financial crisis.

For professional clients only, not suitable for retail investors. Please note that this is a fast moving environment and markets and impacts on portfolios are changing. Opinions contained in this blog post are represent views of the author at time of writing. Past performance is not a reliable indicator of future results. The value of investments and the income from them is not guaranteed and may go down as well as up and investors may not get back the amount originally invested. The views expressed are the author’s own and do not constitute investment advice. Portfolio holdings are subject to change, for information only and are not investment recommendations.