When writing an outlook, it’s always tempting to say there’s a great deal of uncertainty. After all, the future is always uncertain. But where we normally still have a grip on relationships between economic variables such as growth, inflation, interest rates or valuations, now we’ve got the coronavirus to contend with on top of all that.
Our initial response to the coronavirus was to make relatively light of it, in the hope that its impact would remain confined to Asia, as was the case with SARS in 2002. Yet we’re now facing a worldwide pandemic that has the global economy in a stranglehold. It’s encouraging that the numbers of hospital admissions and patient fatalities are rising much less rapidly in the second wave than during the first. But while the prospect of a vaccine is over the horizon, we don’t know when it will be made widely available.
How the coronavirus pandemic evolves will have a major impact on economic and market trends over the coming year, which in turn means a high level of uncertainty for investors.
An exceptional crisis
The coronavirus recession is deeper than any other post-war recession. Major western economies have suffered badly, with the US and Dutch economies contracting by 10% in the first half of 2020, the German economy by 11.5%, and the French, Italian and Spanish economies by around 20%. And we thought contractions of up to 7% during the 2008-09 financial crisis were severe! The economic impact was much smaller in Japan, South Korea and Taiwan because these countries were quicker to get the virus under control, but countries in south-east Asia and South America were hit hard.