Economic Commentary – July 2020

July 22nd, 2020, by Chris Davis

The Only Way is Up!

It has been a tumultuous 6 months for economies and markets. There is a high probability that the second half of the year will be similar. Coronavirus continues to affect everyone’s life, the global economy and financial markets. Far East and Europe appear to have the virus in retreat, however case numbers are growing rapidly in the US, Latin America and India. Anthony Fauci, the director of the America National Institute of Allergy and Infectious Diseases, warned the US Senate this month that the country was “going in the wrong direction” on the pandemic. “We’re now having 40-plus thousand new cases a day. I would not be surprised if we go up to 100,000 a day if this does not turn around … I am very concerned because it could get very bad”.

Is the worst over?

For now, though the lockdowns are more localised rather than nationwide as governments try to move forward with a return to ‘normality’. The new ‘normal’ is unlikely to be the same as the old one anytime soon. It is possible but unlikely that we will see the broad global lockdown that we experienced in the Spring return. There is a consensus that the worst of the economic damage has occurred, now we just need to count the cost.

In the second quarter of 2020, many economies will likely post the biggest percentage economic declines in their history. Oxford Economics believe it will the deepest contraction of the global economy since the end of WWII. In June the International Monetary Fund (IMF) released their greatly revised economic outlook showing a deterioration from its March data. For the first time, all regions across the world are projected to experience negative growth in 2020. The IMF predict the US will contract by 8% over 2020, the Euro area and UK by 10.2% each and Asia by -0.8%. Recovery to pre Covid-19 levels is not expected globally until 2022 at the earliest. No one knows if the worst of the crisis is over or not and much will depend upon the understanding of Covid-19 as we head into the autumn and winter months. There are welcome reports from the pharmaceutical community of developments that might prevent the worst effects of the virus and even lead to immunity. However, whether the economic data is accurate or not will depend upon how quickly we recover from the scarring nature of the economic decline. There is increased uncertainty surrounding the potential path of unemployment data, particularly in the US and the UK. California’s Governor has reimposed lockdown measures, alongside Texas and Arizona on wide parts of its economy. Furthermore, social and political stability, protectionism and de-globalization have the potential to knock economies further off course. These trends have all intensified during this recent period…

Chris Davis,
Chief Investment Officer

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