If you’re banking on a V-shaped recovery, you’ll get it.. and you’ll be disappointed.
A lot of people seem to be banking on a V-shaped recovery.
They’re going to be disappointed.
We will get a V-shaped recovery. That’s what it’s going to look like. But it’s not going to save us from the pain that’s potentially coming.
People are still treating Covid like it’s some sort of natural disaster. Like a bushfire. Or even a summer of bushfires.
That is, they’re treating it like a sudden shock, that will quickly give way to a return-to-normal.
That’s what you get in a bushfire. In fact, sometimes the rebound is even bigger than the downturn because you have rebuild and repair activity.
But that’s not what Covid is.
Covid is punishing the global economy, month after month. We don’t even know how far through this whole thing we actually are.
I mean cripes, if we get a second wave, it could actually get worse.
And even right now, assuming no second wave, things look grim.
Take this table of forecasts from Rabobank. The investment banks are producing some fairly different outlooks right now since there’s so much uncertainty. So don’t get too caught up on the actual numbers.
Look through to the shape of the downturn and recovery, and you’ll get pretty good sense of what most economic analysts are expecting.
And in a nutshell, it’s a sharp fall in 2020, followed by a quick recovery in 2021.
But look at what’s going on there. Down 6% in the US, back up 1%. Down 9% in the Eurozone, back up 6%. Down 11% in the UK, back up 7%.
Down 7% in Australia, back up 4.5%.
Do you see what’s happening there? Yes, we’re getting a sharp rebound, but we’re only see some of the lost acticity coming back.
The rebound might be sharp, but it’s smaller than the down turn.
If you chart that out over global GDP, you get a profile that looks like this:
A sharp downturn and sharp rebound, but only bouncing back to about 90% capacity.
Which is another way of saying a 10% contraction.
Which is huge.
And so yes, we’re going to get a V-shaped recovery.
But we’re not coming all the way back.
And so it’s not in the middle of the V where the most economic damage gets down.
It’s the slow grind in the years that follow, where the economy staggers along at 90% capacity.
That means a fall of 10% in GDP. A fall of 10%-odd in employment.
Anyway, you’ll hear more about this V-shaped recovery.
Just promise me you’ll keep it in perspective.