Abnormal downturn. Abnormal recovery.

Posted by: Paul Donovan

07 May 2020

Daily update

  • This downturn is not a normal downturn. Normal downturns are caused by imbalances in the economy—and the path to recovery from an imbalance follows a fairly standard route. This is a policy induced downturn, and the speed and structure of the recovery could follow a different route from previous downturns.
  • China has added evidence of different consumer behaviour in the recovery phase. Internal tourism has been surprisingly strong. Travel is an important signal, as it shows both confidence in employment and confidence about health risks. With delayed consumption and forced savings in a lockdown, confidence is critical to the shape of the recovery.
  • US initial jobless claims and French payrolls are due. The US equivalent of furlough is temporary unemployment (hence high initial jobless claims). Even if jobs are kept open in temporary unemployment, consumer confidence may be affected by having to declare oneself to be unemployed.
  • The Bank of England left policy unchanged, but helpfully warned that there may be downside risks in the economy. A suspiciously coordinated group of commentators have suggested responding to the German constitutional court would threaten central bank independence. Most economists feel that having central bank policy decided by lawyers in courtrooms is a less than ideal outcome.

Explore more CIO Daily Updates