Confidence in the bounce back

Posted by: Paul Donovan

08 May 2020

Weekly Update

  • Forecasting today's economy is not easy. Most economic data is nonsense at the moment. No one is filling in survey forms. But perhaps a bigger problem is that this is not a normal downturn. A normal downturn is caused by imbalances in the economy (like a credit bubble). The recovery from a normal downturn follows a standard path. This downturn is a caused by policy. No one can be certain about how the recovery will happen.
  • Consumption is key to the recovery. Consumers have delayed some purchases. There has also been an "involuntary" increase in savings. Consumers cannot spend normally, so they have to save. The situation is similar to wartime rationing. Consumers will need to feel safe about their jobs and their health to spend that money.
  • One positive signal is that people seem prepared to travel as lockdowns end. The May Day holiday weekend in China saw domestic tourism. The accommodation-sharing site Airbnb is reporting an increase in bookings in the Netherlands and Denmark. People are unlikely to travel, even domestically, if they are worried about their jobs or their health. If this reflects more confident consumers, economists can be more confident about the speed and strength of the bounce back.

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