13 May 2020

The end of the beginning?

The news that our economy took a near 6% hit in March, resulting in a contraction of 2% in Gross Domestic Product for the first quarter of the year, was sufficient to bring the recent run of rises in the Footsie to an end.

As it happens, this was a smaller fall in GDP than some had predicted, but with markets in the US and Far East moving into reverse, investors took the news badly and shares handed back earlier gains that had been attributed to an improving situation in terms of controlling the virus in a number of countries.

This has allowed the slow process of lightening the lock down load to begin – not just here, but in America and Europe as well. There won’t be much of a change for the majority of us back in Blighty, but the belief that there will be an end to this crisis had allowed investors to regain a little confidence. Indeed, the recovery in our own benchmark FTSE 100 Share Index from the March lows had been quite impressive. Shares had risen by around a fifth, while on the other side of the Atlantic the gains were even greater.

But this rally in share prices soon ran out of steam. The main concern elsewhere in the world seems to be fear of a second wave of the pandemic. This is looking a possibility in parts of China and South Korea which could have consequences for the fragile recovery taking place. Clearly there will be significant economic pain all around the world as a consequence of the measures taken to contain the pandemic, but focus is now centred on the nature of the post-Covid recovery. Current sentiment suggests there is support for a V shaped recovery, though only time will tell if that is achievable.

What is becoming increasingly clear is that this coronavirus outbreak will change things in a number of ways. There will be winners and losers as society adapts to a set of circumstances that were inconceivable just a few months ago. Online shopping has received a huge boost as people shelter in the safety of their own homes and the home delivery industry has blossomed as a result. But travel and tourism look to remain blighted for some time to come.

Pollution has also reduced significantly as fewer planes take to the skies and car journeys are cut back by a colossal margin. How long this will last is hard to forecast, but it seems likely that we will not return to pre-pandemic practices swiftly – if at all. There will be some pluses from this crisis, not just in environmental terms, but also as a result of the ingenuity being shown to find ways around our current problems and in terms of a resurgence of community spirit. The end to this affair is likely to be some way off, but there are signs we are now moving forward.

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