This recession is unprecedented in terms of the speed of its onset, government-mandated shutdowns and the combination of both a supply-side and demand-side shock! The recovery is also likely to be unprecedented with discussions focused on the “letter of recovery”, will it be a “V”, a “U” or an “L”?
“History doesn’t repeat itself, but it often rhymes”.Quote attributed to Mark Twain,
Each economy is different and reacts differently to the same economic headwinds. There is no economic model that can forecast how things will evolve, let alone explain exactly what is happening at the moment. Each country’s recovery will be different and will be impacted by its own structural features well as the impact of the unprecedented level of monetary and fiscal support, both in terms of size and speed. Given the synchronised downturn in the global economy, it is likely that most economies will exhibit the same rhythm of recovery.
For signs on the likely shape of the recovery, all eyes are on China, which was the first to suffer from the virus and is also the first to start to recover. Can China give us an indication of the rhythm of the recovery? Current economic indicators from China, indicate that the economy is recovering, This recovery is not however uniform and is occurring at different speeds in different sectors of the economy.
Early indications from the supply side (industrial production) suggest a possible ‘V’ shaped recovery, indicating a rapid rebound and recovery. However, the recovery of the demand side (retail sales) is suggesting a slower recovery with a possible “U” shaped rebound.
This dual-speed is being influenced by consumers reluctance to spend. Consumers fear of contracting the coronavirus in crowded spaces as well and also have fears for job security. These have combined to subdue consumer confidence and keep people at home. These fears will not be helped by reports of new coronavirus infections in Beijing, linked to a seafood and vegetable wholesale market, which has prompted concerns of a second wave of the virus in the city.