Starting with the Bad
In the coming weeks, Q2 2020 GDP data for the world’s major economies will be released, and these data are going to be tough reading. The Q2 period (April – June) saw the most extreme lockdown measures imposed in Europe and the United States. We can expect the data for this period to reflect much lower economic activity. Expect some eye watering numbers.
Looking past the Q2 economic data, the European Central Bank regularly publishes forecasts for the European economy – and it still doesn’t make for very pleasant reading. The latest report suggests an 8.3% drop in Eurozone GDP for the full-year 2020, followed by a 5.7% jump in 2021 and a 2.4% increase in 2022.
US predictions do not look much better either: according to the Congressional Budget Office, real GDP for 2020 will fall 5.8% in 2020, followed by a 4% jump in 2021, then an “annual average” of 2.2% growth in 2023 and 2024.
As these data reveal just how bad the economic impact has been of COVID-19 and lockdown measures, investors should at the very least be prepared for elevated volatility in equity markets in the coming weeks.
… and the good news is?
Against this backdrop, it is good news that Europe has finally reached an agreement over its stimulus plans. The European Commission will release an unprecedented €750 billion into markets, spread out over countries and sectors according to how severely they have been affected by the coronavirus pandemic. ECB president Christine Lagarde offered further reassurance when she signalled that the bloc’s monetary policy was unlikely to change any time soon.
Inflation, meanwhile, is predicted to be miniscule in Europe – 40 basis points (0.4%) in Q3 2020, and just 1% next year. And in the US, inflation is predicted to remain almost non-existent, and interest rates are predicted to stay at historically low levels. Low inflation, for now, is good news for the global economy.
We also have some good news on the healthcare front. While the world is still in the grip of the coronavirus pandemic, the Oxford University / AstraZeneca partnership and other vaccine-makers have announced progress in the development of viable COVID-19 vaccines. We are still a long way off conquering the virus, but progress is being made and this should be celebrated.
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