15 April 2020

Green shoots?

While we are all doubtless getting a little tired of coping with lockdown, the way in which the coronavirus pandemic develops is still driving market sentiment.


Fortunately, it’s not all bad news, though the somewhat downbeat estimates of what this will cost in economic terms makes grim reading. Still, the extreme measures adopted around the world is seeing the infection rate peak in a number of places, allowing some modest lifting of restrictions in some countries, though not here or in France. However, markets have taken heart from the modestly improving situation, with Wall Street bouncing back by 25% up to Easter from last month’s low.

Quite where we go from here is far from certain. The recent report from the International Monetary Fund confirms that we entering a massive global recession as a result of lockdown –the worst since the Great Depression of the 1930s, perhaps even more serious for some nations. The issue is how swiftly we recover and whether the damage wrought can easily be repaired. To put it into perspective, the US has gone from record employment to a jobless figure of 10% in a matter of weeks. Estimates from the Office of Budget Responsibility are even more sobering.

On the plus side, governments are better equipped to stimulate their economies than 80 plus years ago. Already central banks are pumping money into the system and, unlike after the financial crisis of 2008 when similar measures were put in place, this time the cash should find its way direct to affected consumers and companies, rather than into financial assets. We should not forget, though, that alarming levels of debt are being built up which will doubtless influence policy makers for years – perhaps even decades – to come.

The nature of any recovery is hard to assess. Some businesses will undoubtedly go to the wall, but others are benefitting from the enforced change in the way in which we conduct ourselves. Amongst the pluses are the rapid drop in pollution levels all around the world, the demonstration that a true community spirit exists in this country and the confirmation that technology can be put to good use in mitigating the extreme effects of social isolation. And it is worth reminding ourselves that we are far from being alone in this situation.

One unfortunate side effect of the swift downturn in business activity is that many companies are deferring or even cancelling their dividends. The loss of income in the short term could be quite dramatic, with all the consequences that will arise for pension funds, insurance companies and those dependent on savings for their spending money. Clearly the next few months will be tricky and markets are likely to remain volatile, but eventually we will emerge into the sunlight. While we are not out of the woods yet, we should take heart from any green shoots that appear.


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