Global Macro Outlook—an uneven recovery begins

A crisis unlike any other brings about a recovery unlike any other

Economists are used to studying the past in the hope that historic events could inform the future. It’s a framework that’s worked for the most part, helping us better understand the chain of events that are likely to unfold in the lead up to a recession and how a recovery process might look. Insight gleaned from this framework forms the basis of countless economic models and plays an important role in shaping monetary and fiscal policy—until now.

The COVID-19 outbreak has changed the way we look at the global economy, and crucially, the way we understand recessions. Historically, recessions are viewed as a staple of the economic cycle. They’re typically manufacturing-led, starting with a dip in aggregate demand, which eventually translates into contractions in industrial production, with a subsequent impact on employment, wages, and ultimately, consumer demand. The COVID-19 outbreak changed all that.

As lockdowns were introduced, a significant chunk of consumer demand vanished overnight, plunging us straight into the most severe part of a recession that led to unprecedented levels of unemployment. Meanwhile, demand for different types of goods and services surged. Items that weren’t previously deemed essential suddenly became crucial, and routine processes such as logistics and procurement suddenly became vital, as firms rushed to reallocate their resources in record time. Simply put, everyone had to tear up their economics playbook and create a new one as they went along, relying on alternative data sets in an environment defined by unprecedented uncertainty.

Although the unprecedented level of fiscal and monetary support that has been introduced in the last few months speaks to the enormous challenges confronting the global economy, the news isn’t all bad. The recent rush of better-than-expected economic data has injected a sense of cautious optimism into the markets. However, the path to recovery is likely to be anything but smooth.

What’s clear to us is that the pandemic’s impact will be uneven across the globe, thereby implying that the global recovery will also be uneven—a complex process that could be derailed quickly by another surge in COVID-19 infections. Crucially, in the background, geopolitical tensions begin to rise yet again, as we approach the U.S. presidential election in November, and as the deadline for the United Kingdom’s Brexit negotiations with the European Commission closes in. 

That said, it’s true that the global economic outlook is somewhat brighter at this point than it was three months ago. Against this backdrop, we present the latest edition of our Global Macro Outlook, outlining the key macroeconomic trends that we believe will shape the global economy in the months ahead.

A widespread health crisis such as a global pandemic could cause substantial market volatility, exchange trading suspensions and closures, and affect portfolio performance. For example, the novel coronavirus disease (COVID-19) has resulted in significant disruptions to global business activity. The impact of a health crisis and other epidemics and pandemics that may arise in the future, could affect the global economy in ways that cannot necessarily be foreseen at the present time. A health crisis may exacerbate other preexisting political, social, and economic risks. Any such impact could adversely affect the portfolio’s performance, resulting in losses to your investment

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Frances Donald

Frances Donald, 

Managing Director, Global Chief Economist & Global Head of Macroeconomic Strategy

Manulife Investment Management

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