Economic activity in developed markets expected to recover in H2
Economic activity in developed markets is expected to recover in the second half of the year, but the shocks in some parts of the world could last longer, according to Northern Trust.
Although policymakers across major world economies moved with urgency to add support, these efforts struggled to keep pace with the pandemic and many economies are expected to suffer outright contraction in 2020.
Additionally, given that nations and cities around the world went in lockdown, vast amounts of economic activity had come to a standstill while COVID-19 continued to wreak havoc on global financial markets and the global economy.
In China, the domestic spread of COVID-19 was slowing but the global outbreak was weighing on China’s export-dependent economy and, on top of that, the country saw a surge in bad debts and corporate defaults (from a record high in 2019) which would be a further challenge for policymakers.
“Overall, China is likely to enter a technical recession, which may not be reflected in the reported headline numbers,” Northern Trust said in a note.
“Some are suggesting that China will offer significant aid to struggling emerging economies, but we suspect they will need their resources to deal with problems at home.”
As far as eurozone was concerned, the outbreak of COVID-19 across eurozone economies pushed the area into recession, with outbreaks in Italy and Spain being a major concern, while unemployment rates for the eurozone were expected to peak at levels never seen before.
Also, colossal challenges posed by the outbreak forced the European Central Bank to adopt a massive asset purchase program that covered an expanded range of assets and countries.
According to Northern Trust, these supports should help ease some strain, but region-wide fiscal relief was still missing. Even though agreement was reached late last week on the contours of stimulus, it would take time to reach areas of greatest need.
At the same time, the US’ economy which was 68% consumption saw good portion of the country’s economic activity halt with the greatest risk of lasting economic damage to come from worker layoffs and employer closures, defaults and bankruptcies.
“To respond, the US Federal Reserve has reduced overnight rates and launched programs to extend credit and repair liquidity in the financial markets. Three rounds of fiscal stimulus have passed, and more may follow,” the firm said.
“The near-term disruption will be substantial, but we expect a return to trend growth in late 2020.”
Similarly, the UK could see the unemployment rates to more than double by midyear due to strengthened restrictions on movement announced by the British Government which caused significant disruptions to economic activity.
“The only silver lining in all of this for the UK is that Brexit worries will take a backseat,” the manager said.
“Overwhelmed by the outbreak and reluctant to impose additional burdens on businesses, the UK government may re-think its stance of not seeking an extension to the transition period beyond December 2020.”
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