How long will the global recession last
"We are experiencing a bear market rally, the duration of which is completely uncertain"
Measures to contain the corona pandemic are gradually being relaxed. But the economy is still sliding into recession. How will the economy develop in the future? Martin Gilbert of Aberdeen Standard Investments does not venture a forecast, but is certain that profound changes will happen.
Corona regulations are currently being gradually relaxed in Europe while the economy is sliding into a recession. With this in mind, there is a lot of debate about whether there will be a V-, U-, or L-shaped recovery. "However, the corona crisis is such a singular event that no one can say with certainty how quickly the economies will recover, how long it will take for the global economy to return to its pre-crisis level and what scars the pandemic will leave", Martin Gilbert, Chairman of Aberdeen Standard Investments, is convinced.
Bleak outlook for corporate earnings
According to Gilbert, only one thing is certain: the economic framework will change fundamentally. With their aid packages, governments and central banks have an important role to play in stimulating the economy. Many companies are likely to file for bankruptcy or be taken over by competitors. And those who survive will not be able to avoid change. In view of the uncertain general weather situation, it is impossible to make an exact forecast for the coming months and years. "However, this is what some investors seem to believe," says Gilbert. At least that is what the recent recovery in the equity markets suggests.
Global GDP is forecast to decline by up to 10% this year. For comparison: in 2008, the last recession, it was 0.5%. And the outlook for corporate profits could hardly be more gloomy: For Europe, experts believe a profit slump of 30 to 70% is likely. "Against this background, the rally that has been observed on the stock markets over the past few weeks suggests that investors are pricing in a V- rather than a U-shaped economic recovery. This does not really fit in with the inconsistent signals from companies," says Gilbert .
Bear market rally of uncertain duration
The unlimited injections of liquidity from the central banks and the additional easing of monetary policy put a stop to further turbulence after the slump in March. The latest data would also add to the hope of a gradual containment of the virus. But that is only part of the truth, warns Gilbert. Because, unlike during the global financial crisis, we are currently not dealing with a liquidity crisis, but a solvency crisis that affects companies from a large number of industries.
"In any case, I am of the opinion that we are currently experiencing a bear market rally, the duration of which is completely uncertain," said Gilbert, commenting on the current situation on the stock exchanges. He also warns that we should be careful not to jump to conclusions. Rather, the time has come when active managers have to prove their worth. For example, by asking company decision-makers how they want to adapt to these extremely difficult conditions and steer their company through the crisis. And by taking a close look at balance sheets and business models.
Despite all reason to be optimistic
At the same time, however, it is also important not to be overly pessimistic despite the challenges ahead. Because there are good reasons to be grateful. "An example of this in the investment space is the multitude of fantastic publicly traded companies in Europe that are leaders in their respective fields. Many of them will master the current crisis and the opportunities presented by changes in the economy, markets and markets result from new technologies, benefit ", Gilbert assesses the future.
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