Stock Markets Unprepared To Support a Prolonged Post-COVID-19 Economic Recovery Journey
The global economy might take a prolonged period to normalize after the COVID-19 crisis. Stock markets around the world prove to be unprepared to support its recovery journey, an analyst says.
Talking to CNBC’s Squawk Box Europe, the Chief Economist at Saxobank Steen Jakobsen made some statements. He said that while the curve for new Coronavirus infections is flattening, opening up the economy again will be a challenge.
“The market is celebrating, and very rightly so, that we have a flattening out of the curve right now in terms of people being infected, but the real economic drama will be when we get to the other side of this because opening up will take months upon months.”
The first three months of 2020 caused stock markets to collectively dive hard. This was due to the growth of Coronavirus infection rates around the world. Both the S&P 500 Index and the Dow Jones Industrial Average dropped by 20%, driving the U.S. economy into a recession, which economists have termed as the worst in modern U.S. history.
According to Bank of America Global Research, the abruptness of mass unemployment is quite severe. It could regress the U.S. economy by 7% in Q1, 30% in 2Q and 1% in 3Q. However, in the fourth 4Q, the decline will go as high as 10.4%. This would be five times worse than the post-war era.
Economists Express Opposing Views on the Post-Pandemic Economic Turnaround
Jakobsen is one of the analysts expressing a pessimistic view of the economic recovery journey. He stated that enclosed places with high human traffic like malls, sporting events and airports will not yet fully reopen. Evidently, this is because they are high infection rate areas. The economy would, therefore, be running at around 60 to 90 percent.
In the Asian Pacific, various stock indexes started to gain in the first week of April. This is after the rising hope of slower infection cases in countries like China and Japan. China’s economy, which started to reopen its businesses in March, is up and running at 90%. However, foot traffic and airports are less than 50% and 20%, respectively.
“So it’s going to take a very long time, and the economic impact is not accounted for in the stock market right now.”
Other analysts, however, are more optimistic and believe the economy will take a short while to turn around. One of these analysts is Arnab Das from Invesco, who stated that the economy will have a V-shaped bounce back.
“We should expect to see something maybe a bit more like a square root, where we have a V-shaped bounce back, and then things calm down and gradually recover again.”
Founder and CEO of Destination Wealth Management, Michael Yoshikami also stated that the economic recovery might occur sooner than expected. This is due to measures taken by U.S. policymakers in response to the Coronavirus pandemic.
Countries Lifting Their Quarantine Measures Early Could Damage Their Economies Further
Last week the World Health Organization issued a warning to countries that are rushing to lift quarantine measures to reduce further damage to their economies.
“The restrictions many countries have put in place to protect health are taking a heavy toll on the income of individuals and families, and the economies of communities and nations.”
The WHO added that financing health is critical to saving lives and for long term social and economic recovery.
“If countries rush to lift restrictions too quickly, the virus could resurge, and the economic impact could be even more severe and prolonged.”
This view is supported by a recently published study by MIT Sloan School of Management. It concluded that cities enforcing strict quarantine measures will have a more robust economic recovery.
“Lifting restrictions too early could make the economy worse by leading to a resurgence of the virus in an even more destructive pandemic. We have to defeat the disease before the economy can go back to normal.”
