Will the Recovery Last?
Although some recent high-frequency indicators have cast a shadow on what previously appeared to be a robust, rapid recovery from the pandemic-induced recession, there is still ample cause for optimism. But much will depend on how well policymakers in the major economies manage the foreseeable risks.
LONDON – Since last spring, it has been clear to me that a quick and sizeable recovery would follow from the pandemic-induced recession, owing to Western governments’ massive fiscal- and monetary-policy responses and the high probability that effective vaccines would be forthcoming. And as the scientific evidence in favor of the new emergency-approved vaccines continued to pile up (especially early this year), so, too, did the likelihood of a strong recovery.
As I have noted previously, all of the most reliable high-frequency cyclical indicators have been showing that a rebound is underway. It started in China and then became visible in the United States and the United Kingdom, followed by most of continental Europe. The latest monthly South Korean trade data (released at the start of this month) further reinforce this trend, indicating massive year-on-year growth of 40% – the strongest such gain in at least a decade. Though the annual figure is flattered by the weak base in April 2020, it nonetheless confirms that global trade is recovering strongly.
Notwithstanding the more disappointing high-frequency indicators reported this month in the US – where the April payroll data and purchasing managers’ survey both fell well short of expectations – many sell-side analysts are still revising upward their estimates of 2021 GDP. But what comes next?