It doesn’t look good, at all. In fact, it looks downright dire according to the latest global economic report from the International Monetary Fund. It has revised down its forecast for world growth this year from a decline of 3% to a drop of 4.9%.
If that isn’t already bad enough, it gets worse.
Originally, it was thought that the COVID-19 pandemic would only affect supply chains. So, it was hoped that when supplies resume, then things could improve quickly. Hence, the expectation of a V-shaped economic recovery – a sharp downturn followed by an equally rapid improvement.
It was reasoned that the abrupt closure of many businesses by governments around the world would only temporarily interrupt the production of goods and services by those companies.
But the impact has not been restricted to only those industries that have been directly affected. The knock-on effect has been felt almost everywhere.
That’s’ because the global economy is complex jigsaw. The seemingly unconnected pieces are interrelated in ways that we cannot even begin to imagine….
…. A shock to one industry can severely impact totally unrelated businesses, too.
Consequently, what started as a global supply shock has turned into a worldwide demand shock, which could be much harder to fix, especially when overarching health issues still haven’t been resolved.
What’s more, consumers are worried that anyone of them could be in the firing line when companies wield the axe. Just look at the millions of jobs that have been lost around the world as a result of the pandemic. It is hard to see how any of those positions will be restored soon.
Look also at the paucity of visitors at Singapore shopping malls, restaurants, and other eateries despite the relaxation of the circuit breaker. It is hardly business as usual with consumers holding back from buying anything but essentials.
Of course a recovery will happen. But healing the scars of COVID-19 will take a long time. The IMF reckons that economic growth should improve next year. But that is provide a vaccine will be available.
We can only cross our fingers and hope that will happen. But until then, investors need to hold their nerve. As an income investor I like to follow the money trail….
…. And it is telling me that people are buying things they cannot do without, or things that they can easily afford….
…. I have almost lost count on how many idly set meals I have eaten. At S$3 a pop, it is something I can easily afford and something I also can’t do without!
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Disclosure: David Kuo does not own any of the shares mentioned.