In this week’s article we explore the macroeconomic consequences of previous pandemics. We outline how pandemics have typically influenced key economic variables such as GDP, wages and interest rates. We look at the factors that have influenced the magnitude of those economic effects, including the scale and severity of the pandemic itself and explore how economic policymakers have responded to previous pandemics. And finally outline the key lessons that are likely to apply to the Covid-19 pandemic.
The dislocations in financial markets caused by the coronavirus shock have now largely disappeared and,
while there may be further bouts of volatility as the global economy continues to recover (such as
yesterday’s sell-off in US tech stocks), our view remains that central bank backstops will prevent a repeat
of the March market panic. This view underpins our forecast that risky assets will gain further ground.
We view the potential for a systemic bank failure due to
the COVID-19 economic shock as low. Today’s banks are
more resilient than in the past given their robust capital
positions and lower risk profile, not to mention supportive
liquidity operations provided by central banks.
The swift and significant response of the Bank of England to the Coronavirus crisis has prevented a financial crisis, but we think the Bank will need to do much more than the markets currently expect to get the economy back on track.
The team at Magellan Asset Management, manager of the International Equity fund and co-manager of the Global Growth fund, have provided us with a note on intergenerational equity, a concept that says each generation should be fair to future generations, as a result of the COVID-19 pandemic.
Global Overview – The initial rapid pick-up in economic activity has offered encouragement after an almost unprecedented recession. But households and firms will remain in cautious mode, preventing a full V-shaped recovery.
This week St. James’s Place published their Value Assessment which is designed to determine that clients are receiving value for money and forms one of the annual requirements of the Financial Conduct Authority. It looks at seven areas of assessment but the most important is probably performance against benchmarks after charges over the last five years.
We continue to think that central bank backstops make a re-run of the March panic in financial markets unlikely, a key assumption underpinning our view that “risky” assets will recover further ground in the second half of 2020.
If social distancing were practised for many years, either because it was enforced by governments or fears of future waves of the virus prompted people to implement it anyway, then most of the recent changes to the way we spend, socialise and work will probably be in place for many years too. But if the virus and social distancing fade out, then most of the behavioural changes that require people to stay one or two metres apart will be reversed quickly. Right now it may feel like that old world has disappeared forever. But the historical evidence suggests that after previous significant events, such as pandemics, plagues and terrorist attacks, people reverted to their previous behaviours often within three to six months.
Jeremy Grantham, founder and Long-Term Investment Strategist at GMO, talks to Chris Ralph, Chief Global Strategist at St. James's Place, about emerging market value, widening inequality, and oil's fading prominence.
The Sustainable & Responsible Equity fund, managed by the Global Opportunities team at London-based investment firm Impax Asset Management, is focused on the long-term growth opportunity arising from the transition to a more sustainable economy.
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