almost 4 years ago • 2 mins
Give me a V! Give me a U! Give me an L! What does it spell? According to economists working out what’s next for the global economy: a recovery, hopefully 🎉
One possible recovery is the “V-shaped” kind, where things rise as quickly as they fell. For that to happen, economists reckon the European and American coronavirus outbreaks would need to clear up by next month, allowing people and businesses to start spending – and driving growth – again. They also reckon that’s pretty unlikely 😔 It seems more realistic the virus will stick around at least until June, leading to a slower “U-shaped” recovery – or maybe a Nike-style swoosh, where the economy initially rebounds but then drifts up more slowly.
Then there are the shapes no one wants. An “L-shaped” recovery isn’t much of one at all: it assumes the virus keeps spending frozen, employees furloughed, and businesses uncertain late into the year. A “W shape”, meanwhile, assumes the recovery will get temporarily disrupted by the virus’s return.
Whatever shape an eventual recovery takes, it likely hinges on reducing the virus’s spread. And since that doesn’t seem to be happening in the US and Europe yet, it doesn’t look like they’ll be in the mood to spend beyond helping their own economies 🤷♀️ That might explain why investors shrugged off survey data this week showing a pickup in China’s economic activity. After all, if international customers aren’t coming to market yet, it’s unlikely to translate into positive “hard data” like economic growth.
Investors aren’t shrugging off “investment grade” corporate bonds – which credit rating agencies (think Experian but for companies) generally consider safe for most investors 🏢 With major central banks now buying up government bonds – pushing their yields down – return-seeking bond investors are instead buying riskier corporate bonds. That pushes their prices up, benefiting investors who bought in first.
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