Summary

  • It has now been seven months since the initial wave of COVID-19 caused the world to go on lockdown. Significant progress has been made in terms of an economic recovery but there remains plenty more lost ground to be made up.
  • As it stands right now, it is arguable that the restart of business activity in much of the world has reached its limits under the current stages of restriction rollbacks, which stands to constrain the rate of future gains. Absent the continued unwinding of restrictions on all activity, there is limited scope for the overall economy to achieve pre-COVID-19 levels soon.
  • That said, the expectation is that continued progress will be made, though future growth is anticipated to be much more moderate than the torrid pace recorded over the summer — and the likelihood is that the road to recovery will be bumpier than the recent experience.
  • A positive trajectory, underpinned by the still ample monetary and fiscal stimulus, should continue to be constructive for financial markets and supports a continued tilt towards exposure to risk assets. These securities, however, are likely to find themselves much more susceptible to shocks that result from headlines over the coming months.
  • Headlines will undoubtedly be abundant with the impending US Election providing a fertile source of material for news media over the next month with the rhetoric likely to heat up as November 3 approaches. Importantly, though, knee-jerk reactions to happenings on this front, sharp as they may be, tend to be short-lived with macro fundamentals ultimately regaining control.
  • The risks of another round of lockdowns represent a clear downside, but there is an obvious source upside risk to expectations: ending or mitigating the ongoing pandemic. There is high conviction that a vaccine will be developed sooner rather than later, though the production and doling out of enough doses to all corners of the world will no doubt take time and likely make this a 2021 story.
  • For the nearer future, further inroads on therapeutics that can help limit the potential worst outcomes from COVID-19 would also help reduce concerns about the negative implications of opening back up in full. Even more, development of rapid and frequent testing capabilities would help to better monitor and control outbreaks, providing greater confidence in pushing forward with the easing of restrictions on business activity.
  • Until these are in place to push the growth pedal to the floor and move global growth into the express lane, the recovery will likely remain on its current trajectory and abide by posted speed limits — and markets will likely tread more carefully until there is more clarity on what comes next.
Want to read more? View the entire Fall 2020 Economic Outlook
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