Light at the end of a ‘short but deadly’ economic tunnel

By Grace Ormsby

June 08 2020
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Despite the world continuing to traverse a pandemic and its associated economic downturn, there are plenty of reasons for investors to be optimistic, according to an investment manager.

In its Economic Insights June edition, Principal Global Investors’ chief global economist Dr Bob Baur has indicated that COVID-19’s effect on economies worldwide is causing the “worst economic collapse, likely ever”.

Despite the prognosis associated with such a “short but deadly” economic recession, he has outlined that signs of global recovery and short-term investment opportunities are pointing to a remarkably rapid recovery.

For Australia especially, he has attributed China’s early return as being of “particularly good news” due to its role as a trading partner and raw material purchaser.

“China was the first to suffer from the onset of COVID-19 in January and February and the earliest to restart its economy,” he began, highlighting its “remarkable rebound”.

“Industrial companies have mostly reopened and are approaching normal activity. Home and vehicle sales, industrial output, real estate investment and electricity consumption are all above last year’s levels. The pollution level is nearing normal,” he observed.

Noting expansion in the manufacturing sector as still occurring, Dr Baur said, “Overall, China’s incredible progress in just a few months should be the template for the rest of the world as it returns to normal.”

The optimism extends through to the economist’s analysis of the developed world:

“The Eurozone economy was battered by COVID-19 in March and April, but the economy was trying to find a trough in May,” he said.

Economic sentiment has also edged up slightly more recently as forward-looking results of current business surveys have also rebounded substantially.

According to Dr Baur, this suggests companies are expecting conditions to improve, as a “watershed” fiscal policy is handed down throughout the European Union.

Not to be outdone, the Abe administration in Japan has also indicated it will add more than 10 per cent of its GDP in stimulus, a total that Dr Baur has noted is well above the relief total provided during the GFC.

Over in the US, where reopening is underway, the economist also flagged how “consumer confidence is creeping higher and has held well above the depths of the financial crisis”.

With non-traditional data having trended higher now for a number of weeks state-side, Dr Baur said “there’s no question, restarting has begun”.

So, what does all of this mean for investors?

According to Dr Baur, recent rallies exhibited on stock markets the world over are attributable, in part, to having been supported “by massive government largesse and central bank backstops”.

“Investors believe governments have their back.”

“With the restart coming sooner than many expected, there’s likely more gas in the equity tank for the upturn to continue,” he considered.

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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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