Longer disruption, more adaption

Posted by: Paul Donovan

30 Mar 2020
  • There is recognition that the coronavirus-linked economic disruption could last some time. US President Trump seemingly abandoned the idea that this will be over by Easter. However, people will adapt. The longer the crisis goes on, the less the economy will look like it does today.
  • Economic phase one, the demand drop, is a direct result of governments trying to cut GDP. Phase two is the bounce back when government policy tries to raise GDP. Because government policy caused phase one, there is support for fiscal expansion. The focus is starting to shift from the size of fiscal packages to the speed with which they can be implemented.
  • Credit ratings only really matter when they move below AAA, or below investment grade. One of the agencies (it does not matter which) moved the UK rating from something to something else on Friday. Markets do not care. However, South Africa was downgraded below investment grade, which did cause a market reaction.
  • Key members of the World Trade Organization have found a way to allow rules-based trade and ignore US attempts to block it. Nonetheless, global trade has been challenged as technology has promoted localization. Trade taxes and the virus may accelerate the decline of trade.

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