April 03 2020


Predicting where global GDP would be at the end of the quarter is a bit like bingo, let alone foreseeing what it would be at the end of the year. Expectations widely vary, between -7% and -0.10% for the US for example. Any additional week of worldwide lockdown forces the economists to add more gloom to their forecast. As per Fitch, two- to three-month crisis with a five-week ‘peak stringency’ national lockdown period which reduces GDP by 20% a day would translate to a 7% to 8% decline in quarterly GDP (down to -32% annualised).

Dominoes fall so rapidly that the Governments fiscal packages that looked just appropriate yesterday will be dwarfed by tomorrow’s expectations. With this in mind, the 10% rebound in equity from trough looks very hopeful, and we should be prepared for another leg down.

What could avert that? First, there is the fight on the frontline. Healthcare personnel pay the ultimate price, trying to save those who can be, with infrastructure that looks inappropriately prepared. They are our modern unsung heroes, and we should support them with all our strength as if our lives depended on it…because they actually do.

Then, there is how our societies handle truth, and the welfare system. R. Kipling said that the first victim of war is truth, as politics decide to disseminate fit-for-purpose information. As some refer to China for the covid19 crisis management, it should be seen in the perspective on how information is carefully pruned there as well. In Western societies, truth and welfare are proudly held virtues, but they also might be the causes of their competitive disadvantage vis-à-vis China.

What happens next? Another 4 weeks of global lockdown is probably just bearable, before we enter a repeat of the Great Depression. If it’s not through the direct economic hit, it will be through the remedies our institutions will have to provide, a few trillions more before it would be impossible to walk back the debt spiral and sink the USD system forever. Think about the right sacrifices to make.

360 Advisory – Markets