The world is shocked at the deep economic dive caused by COVID-19. The availability of treatments and vaccines will influence the pace of recovery. Although the naysayers might predict a decade of economic disaster, Hani Zeini is optimistic and foresees slow revivals and costly adjustments coupled with some episodes of setbacks. Some brands and small businesses will vanish while those who can adapt skillfully and prove themselves as disruptors emerge stronger, especially in the digital economy. There are reasons to hope for signals of confidence from businesses, consumers, and societies.
Arguably, the depression caused more damage than what is visible to us. More than economic pain, it has resulted in the loss of faith in democracies that have encouraged ideologies of hate and created demagogues while causing the breakdown of international finance and trade and ultimately demonstrating the third world war’s effects.
Through this article, you will have a better understanding of the kind of recovery that the experts are hopeful about, although there are differing views about it.
Hani Zeini sees a V-shaped recovery
Despite being a very unusual year, the financial market’s behavior in 2020 has been entirely predictable. The pandemic triggered record unemployment that led to a sharp drop in the market and thousands of deaths in the US that was and continues to be tragic indeed. However, it prompted policymakers to extend unprecedented support. The results are visible in the expansion of the Federal Reserve’s balance sheet by 38 percent of GDP (Gross Domestic Product) over the next 18 months that will touch $12tn, which is double than what it achieved during the financial crisis of 2008. Experts expect that the United State’s fiscal spending plans will result in the country’s fiscal deficits approaching 25% of GDP for the first time since the Second World War.
Covid19 is not the only cause of the recession
Although everyone seems to blame COVID-19 for the recession, the fact is that a single event does not trigger a recession. Recessions are the result of excesses that have shown up its head in the economy over time. It did not happen suddenly but was in the making. Over the past 10 years, when the economy was in expansion mode, there were plenty of excesses by the time we entered into 2020. Most individual stocks were in the bear market for years; the market was trading defensively. Naturally, when the downturn became a reality, there was a massive sell-off in March’s bear market.
V-shaped recoveries are frequent
If you look at history, you will surely be optimistic about V-shaped recovery after a recession because history repeats itself. The severity of the recession, coupled with the unprecedented policy response, indicates a V-shaped recovery this time too. S&P 500 shooting up by 35% from the lows of March is a sign of the equity markets’ recovery.
Going by many metrics that the experts are tracking to judge the recovery, the recovery achieved so far is identical to the scene that unfolded after the collapse of the Lehman Brothers. Once again, most investors remain skeptical as they had been in 2009.