Global economy could lose $5.5trn – more than the GDP of Japan

Cumulative GDP losses to the global economy to the end of 2021 could reach $5.5trn, more than the entire GDP of Japan.

Markets enjoyed a happier Easter than the real economy. US equities staged their biggest weekly rally in 45 years with a 12% gain last week. Global stocks delivered their best weekly gains since 2008. The FTSE 100 rose by nearly 8%. Stockmarkets have recouped half of their losses since the slump began in February.

Financial markets appear “positively sanguine that a revival is near,” writes Randall Forsyth in Barron’s. The rebound implies a short recession followed by a quick recovery. Yet we are living through a “collapse of historic proportions”. Nearly 17 million Americans have lost their jobs in the past three weeks. 

At the more “horrifying” end of the spectrum, JP Morgan analysts predict a 40% annualised hit to US GDP in the second quarter. Globally, the bank thinks cumulative GDP losses to the end of 2021 could reach $5.5trn, more than the entire GDP of Japan.

After the lockdown

Optimism is evidenced by the fact that cyclical stocks have started outperforming defensives, a hallmark of bull markets, says Jon Sindreu in The Wall Street Journal. Growing confidence that an end to lockdowns is in sight has answered one question for financial markets. Yet there remains enormous uncertainty about a second crucial question: how difficult will the recovery be? Global convalescence after the financial crisis was grindingly slow, but “this is not a re-run” of 2008, says Tom Stevenson of Fidelity International in The Daily Telegraph. 

With central banks throwing the kitchen sink at markets there are hopes that the “rebound may yet surprise us”. For all the comparisons with war or natural disasters, factories and businesses have been mothballed, not destroyed, and are ready to get back to work as soon as shutdowns end. 

Recoveries come eventually, but there are usually false dawns along the way, says Michael Mackenzie in the Financial Times. The worst pandemic in a century has already brought rising unemployment, falling business investment and tighter financial conditions that could weigh on growth for years to come, says Andrea Cicione of TS Lombard. There is also a real risk of a second wave of infections later in the year.

The unprecedented circumstances mean that forecasts are “no more than guestimates” at present, says Garry White in The Daily Telegraph. Making informed investment decisions is nearly impossible until more data is in, starting with quarterly earnings reports over the coming weeks. Sadly, evidence from Wuhan suggests that people remain cautious about spending and travel even after lockdowns are eased, so the “crisis at many of the world’s businesses has only just begun… The chances of a new low remain high”.

Recommended

Early repayment charges: should you abandon your fixed-rate mortgage for a new deal now?
Mortgages

Early repayment charges: should you abandon your fixed-rate mortgage for a new deal now?

Increasing numbers of homeowners are paying an early repayment charge to leave their fixed-rate mortgage deal early, and lock in a new deal now. Shoul…
30 Sep 2022
Energy meter reading day: why you need submit your gas and electricity readings now
Personal finance

Energy meter reading day: why you need submit your gas and electricity readings now

Energy meter reading day - you need to submit your gas and electricity readings as soon as possible ahead of the October energy price increase
30 Sep 2022
Should you fix your mortgage? Here are the best rates available now
Mortgages

Should you fix your mortgage? Here are the best rates available now

Rising interest rates look set to spring a nasty surprise on millions of homeowners next year. You need to take steps today to protect yourself from a…
30 Sep 2022
Why the Bank of England intervened in the bond market
Government bonds

Why the Bank of England intervened in the bond market

A sudden crisis for pension funds exposed to rapidly rising bond yields meant the Bank of England had to act. Cris Sholto Heaton looks at the lessons …
30 Sep 2022

Most Popular

Why everyone is over-reacting to the mini-Budget
Budget

Why everyone is over-reacting to the mini-Budget

Most analyses of the chancellor’s mini-Budget speech have failed to grasp its purpose and significance, says Max King
29 Sep 2022
How the end of cheap money could spark a house price crash
House prices

How the end of cheap money could spark a house price crash

Rock bottom interest rates drove property prices to unaffordable levels. But with rates set to climb and cheap money off the table, we could see house…
28 Sep 2022
Why UK firms should start buying French companies
UK stockmarkets

Why UK firms should start buying French companies

The French are on a buying spree, snapping up British companies. We should turn the tables, says Matthew Lynn, and start buying French companies. Here…
28 Sep 2022