James Pomeroy, Global Economist, and Edward Parker, Analyst, HSBC
Fighting the fear
Though the COVID-19 lockdowns are beginning to ease in many countries, a full economic recovery is unlikely until consumers feel safe and are willing to visit places with a higher volume of people. In some places, this fear factor, rather than the rate of actual infection, may be the greatest stumbling block to speedy growth.
The US provides a good example of this problem. The recent surge of COVID-19 cases across many southern states led to a fall in the number of diners in restaurants, even before further restrictions on movement were introduced. Despite a steady recovery in states where the infection rate is declining, the vast majority of consumers in the US and other major economies are still wary of going to crowded public places.
Workers will also need to feel comfortable about job prospects to be willing to spend more, and although US labour market data continue to improve, the rise in permanent unemployment and the spread of job losses to other sectors are risks for the second half of the year. Workers on lower wages have been particularly affected by job losses.
In Europe we expect unemployment to keep creeping higher as government support is steadily relaxed. While some parts of the economy are easier to revive such as manufacturing production and goods sales, recreational activities remain muted and there are limited signs (outside of New Zealand, where social distancing has been removed) of a recovery back to normal levels. Instead, most of the data points to a level of activity 10 to 15 per cent below the start of the year in these parts of the economy, with travel weaker still.
Manufacturing output may have recovered more quickly but could struggle from here. With high levels of inventories and reduced domestic and external demand, the outlook for both trade and industrial data remains subdued. On top of this, although the number of COVID-19 cases in some parts of the world continues to decline and restrictions are being eased, we cannot ignore the fact that the total number of global cases keeps rising.
All in all, while the past couple months of improving data are encouraging, the global economy is not yet out of the woods. After the initial bounce in pent up demand the pace of improvement is set to slow later in 2020 and 2021, leaving many scars and challenges for policy makers.
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