Global firm's outlook points to sharp rebound followed by gradual pickup, but warns of 'stimulus fatigue'
Around three months since the onset of the crisis that upended expectations of continued global growth, plans to reopen economies are starting to pick up worldwide, stoking speculations over the trajectory the world economy will take. Some predict a u-shaped recovery; others see an L or a V.
But in its latest commentary, HSBC Global Asset Management has a different curve in mind.
“Our most likely scenario is a ‘swoosh’ type recovery for the global economy,” analysts at the firm wrote.
Acknowledging the still-elevated state of uncertainty around COVID-19, the business cycle, and other key areas, they predicted a high likelihood of a sharp rebound once lockdowns are lifted, and a subsequent gradual pick-up to pre-crisis activity levels.
“The fastest bear market of all time has given way to the fastest recovery,” they said, noting reduced tail risks following declines in new cases of confirmed novel coronavirus infections and policymakers’ “whatever it takes” approach. “The global economy needs ongoing support, with little risk of inflation in the near term.”
The biggest downside risk to the “swoosh” scenario, they said, would be a policy mistake. In particular, they warned of possible “stimulus fatigue” over the second half of 2020.
“Central banks and foreign ministries have continued to provide substantial support for their economies,” the commentary said. The cost of that, however, has been a rapid expansion in the balance sheets of most central banks in developed markets in support of government pledges to ease fiscal policy.
“Amid sharply rising debt levels, there is an increased risk of ‘stimulus fatigue’ which could constrain the economic recovery from COVID-19,” it said.
Other key risks identified in the commentary were:
- Delays to exit strategies, possibly due to a second wave of infection or setbacks in vaccine development;
- An escalation of the health crisis into a financial crisis; and
- Possibly permanent regime shifts to the functioning of the economy and markets, such as de-globalization and the role of technology
