Due to the coronavrius outbreak, the IMF warned that global growth will dip below 2019 levels although its exact level is still difficult to predict [File: Aly Song/Reuters]
Paul Donovan, Zero Hedge: UBS: Does Anyone Know What Is Happening?
Does anyone know what is happening?
Economic data is likely to become increasingly unreliable as a result of the coronavirus lockdown. We know the global economy will be bad. We will not know, with much accuracy, just how bad.
Annualizing data is absurd in the current climate. What happens in the second quarter is not going to be repeated for the rest of the year. Time to stop annualizing numbers.
Most economic data is survey based. Industrial production, some unemployment numbers, inflation numbers, GDP and the various sentiment opinion polls need people to fill in surveys. If you are filling in survey forms in a lockdown you are likely to be an unusual person, and possibly not representative.
Social media spreads fear and affects sentiment. Sentiment affects answers to surveys. Data, like consumer price inflation, includes restaurant prices, but restaurants are closed. What happens when you survey something that is not there?
Online spending is likely to have increased in lockdowns. Online spending may stay higher after the lockdowns end. It may not be properly captured in official data.
Some data items are more reliable than others. Investors need to be careful about putting economic numbers into investment models, however. Garbage in means garbage out.
The global economy is going to have a very bad few months. Fear of the coronavirus has changed consumer behavior. Government policy aims to cut GDP growth in most major economies. But we may not really know what is actually going on in these economies. The quality of economic data is going to be affected by shutdowns. So where are the problems?
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WNU Editor: I know the following is happening. The world economy has shut down. For the first time in history a decision has been made among almost every government in the world to close down their economy. And you can take this to the bank, major economic decisions will not be made until a vaccine is safely developed and administered, and we will not see that happening until late next year. What concerns me even more is that a coronavirus vaccine has never been developed .... this is new territory (scientifically speaking), and there is no guarantee on when it will be developed. And as for when will medicines be available to deal with this pandemic, that is also unknown.
This lack of certainty on when a vaccine will be developed and administered is devastating the economy and global supply chains. In the meantime the balance sheets of all governments and most individuals have been completely upended with this pandemic, which will mean more taxes, inflation, and economic uncertainty. And here is an easy prediction. It is going to get worse, especially if critical supply chains like food and essential services are disrupted. And as for the economy when it does re-open. Do not expect a boom. How can an economy go forward when many people do not have money, or very little of it, to drive it forward?
