The world economy could recover from coronavirus sooner than expected. Don’t stop believing

The strong performance of supermarkets and surging demand at online retailers are proof that consumer demand is far from down and out
In manufacturing powerhouses like China and Germany, the first green shoots of recovery will emerge

David Brown

Published: 8:00pm, 5 May 2020

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It was Franklin D. Roosevelt who said that “the only thing we have to fear is … fear itself – nameless, unreasoning, unjustified terror which paralyses needed efforts to convert retreat into advance”. The coronavirus has certainly gripped the world with fear, paralysing our economies and pushing us into deep retreat.

With over 240,000 lives lost to the pandemic so far, it is no wonder the world is on lockdown, not just physically but in mind and spirit as well. Economic confidence is at such a low ebb that we can only wonder what sort of damage is being done to output, jobs and global prosperity.

Remember though, this is no model for the future, as things will get better and the world will transcend the crisis. All we need to know is how and when we can turn retreat into recovery. We will spring back from this and hopefully emerge into a much better place.

Place a stone over a seed and, given the right conditions, any plant will eventually find a way to grow around it and thrive. It is the indomitable spirit of life and we have seen it at work often enough throughout the history of the world. Mankind has an uncanny knack of bouncing back after the worst pitfalls.

Even through past wars, pandemics and financial crashes, human ingenuity has prevailed and the world economy eventually emerges stronger and fitter. Often it takes a helping hand from governments and world leaders, but we all have the power within us to hasten recovery.

Health professionals, carers, medical researchers and key workers are already on the front line of the recovery and there is no shortage of potential global demand building up. It’s just waiting to be tapped and we all have our parts to play.

Global consumer sentiment may be taking a tumble thanks to the impact of lockdowns, furloughs, job losses and wage cuts, but there are still plenty of good reasons to take heart. The strong performance of domestic supermarkets during the lockdown, the upsurge in demand at global online retailers such as Amazon and the explosion in the use of digital services like Zoom all go to show that consumer demand is far from down and out.

Why China remains key to Asia’s trade and economic recovery, not the US

Bringing lockdowns to an end will be crucial for ending the disruption to supply chains, restarting global production and getting people back to work, but coaxing consumers and households into spending again is probably much more important in the long run. In the case of the US, where consumer spending accounts for two-thirds of gross domestic product, it’s the vital link to sustainable recovery going forward.

The early stages of recovery are more likely to be supply-driven than demand-led. And judging by the “out of stock” messages from online retailers, there’s a growing shortage of goods that will need replenishing as a first priority. It will be the manufacturing powerhouses of China and Germany where the first green shoots of recovery will be evident.

Last week’s business indicators from the United States and China showed worrying signs of divergence, with the US Institute of Supply Management’s manufacturing index falling very sharply to 41.5 per cent in April, its weakest level since the recession of 2008 and 2009.

Source: US Institute of Supply Management manufacturing index, China National Bureau of Statistics Purchasing Managers’ Index

In contrast, China’s official Purchasing Managers' Index stood at 50.8 for April, an improvement on the record low of 35.7 in February and a good sign that business activity and the economy may be moving towards positive growth again. It’s not just a good omen for China’s recovery but an encouraging development for the rest of the world, too.

What kind of world we will emerge into remains to be seen. Clearly, we are flying blind right now, but the injection of so much monetary and fiscal stimulus from the US, China, Europe and Japan in the past few months should eventually kick in.

While it is tempting to jump on the depression bandwagon, forecasters easily run the risk of being wrong-footed. Recovery could come very swiftly, especially if a coronavirus vaccine is suddenly developed or lockdowns are eased sooner than anticipated.

The world has been dealt a severe shock and life will be challenging for a while. But the coronavirus threat will recede, a cure will be found and our lives will move forward once again. Global growth may be in retreat, but not for long.

David Brown is chief executive of New View Economics

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