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A V-Shaped Recovery Could Still Happen

Given the sheer scale and unprecedented nature of the COVID-19 economic shock, it is not surprising that most commentators believe the outlook for recovery is bleak. But key weekly and monthly indicators suggest that a sharp return to growth remains more likely than not.

LONDON – Since March, I have been more open than other commentators to the possibility of a “V-shaped” recovery from the pandemic-induced downturn (though I have also consistently warned of structural challenges facing many economies in the decade ahead). Wherever I have expressed this optimism, I have met with pushback, given the apparent depth and scale of the current crisis. And yet, as we move into July, many classic short-term leading and coincident indicators still point to a V-shaped recovery, as does the Bank of England’s chief economist, Andy Haldane.

Despite the complications thrown up by COVID-19, the same weekly and monthly indicators that I have long relied on remain useful for separating signal from noise. During my early days as chief economist for Goldman Sachs, I helped to develop a “Global Leading Indicator” (GLI) index, which was designed to be equally accurate but faster than the OECD’s longstanding index, as well as more predictive of financial-market behavior.

Since leaving the financial industry seven years ago, I have continued to monitor the publicly available components of the GLI each month. These include US manufacturing purchasing managers’ indices (PMIs); new orders relative to inventories; US weekly unemployment claims; the Belgian business-confidence survey; and South Korean monthly export figures. And for additional hints about the state of the global economy, one can also follow well-known PMI surveys from other countries, as well as monthly surveys like the Ifo Business Climate Index in Germany. Crucially, many similar indicators are available for China, and are generally more reliable than that country’s critics would have one believe.

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