COVID-19 recession on track for quick recovery

By Grace Ormsby

July 13 2020
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While the current recession is the sharpest since 1930, a new cycle of economic expansion has already begun, according to one economist, who has indicated it could also make this recession the shortest.

Dr Bob Baur, the chief global economist for Principal Global Investors, has highlighted how China is leading the way to a COVID-19 recovery, which bodes well for metrics across the rest of the world.

“China was the first country to emerge from the COVID-19 lockdown, and data from its government notes economic improvement in March from the collapse in January and February,” he commented.

While consumer spending in the country “is still somewhat restrained” thanks to a lingering fear of infection, Dr Baur said “demand seems to be improving overall”.

This is coupled with a rush to reopen businesses across the United States, where a V-shaped upwelling occurred in May after its record April contraction.

And while the “early reopening energy will have dissipated” by September, Dr Baur is still expectant of further growth – just at a more gradual pace.

While March and April’s economic plunge had ended a 128-month period of expansion after a February peak, Dr Baur has expressed optimism in the short-term future of economic activity.

In the context of global macroeconomic data, the economist said it suggests a new cycle of economic expansion has already begun.

“While many are calling for a prolonged period of stagnation, economic data suggests the opposite, with a recovery already under way in much of the world,” he offered.

While an end date on the current recession is yet to be known, “it is likely that despite it being the worst since 1930, it may well be the shortest”.

So, what does this mean for your investments?

According to Dr Baur, “The continued revival of world growth should keep the equity uptrend intact at least for a while.”

Despite this, a lot of uncertainty does remain around the strength of the rebound into next year, as well as the potential for a second wave of virus activity.

Looking even further ahead, the economist flagged that stock valuations as well as bond prices are very high – signs that long-term financial returns may be far less than exciting.

“The best potential for robust long-term equity profits is a rotation into value and cyclical stocks, a reverse of the investment climate of the last decade,” he explained.

“For now, though, the recovery seems on track, and we’d stay fully invested commensurate with one’s tolerance for risk.”

“Stay optimistic for now,” he concluded.

About the author

Grace Ormsby

Grace is a journalist on Momentum Media's nestegg. She enjoys being able to provide easy to digest information and practical tips for Australians with regard to their wealth, as well as having a platform on which to engage leading experts and commentators and leverage their insight.

About the author

Grace Ormsby

Grace is a journalist on Momentum Media's nestegg. She enjoys being able to provide easy to digest information and practical tips for Australians with regard to their wealth, as well as having a platform on which to engage leading experts and commentators and leverage their insight.

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