Driving the economy forward

Posted by: Paul Donovan

26 May 2020

Daily update

  • Markets are focused in on the pace of economic reopening. Spain will allow foreign tourists from July. Spain runs a tourism trade surplus of around 4% of GDP. The UK is allowing shops to reopen within three weeks, and long scenic drives in the countryside (for the purposes of testing one's eyesight) are also apparently permitted.
  • What matters in the economic bounce back is that consumers overcome fear – of the virus, and of job security. If consumers have trust in government policies, then they should be willing to spend. Middle and higher income groups have accumulated savings in lockdown, and have the means to spend.
  • There has been more rhetoric between the US and China, but markets seem increasingly inclined to ignore this. Just as investors have learned to disregard a good part of the Trump Twitter Feed, so they are now inclined to ignore trade rhetoric that is not backed by policy action. China did not retaliate when the US placed 33 companies on a trade blacklist.
  • There are sentiment opinion polls from Europe and the US, which can be ignored. Singapore's first quarter GDP was not as bad as feared – although consensus forecasts are to be treated with caution.

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