Coronavirus: Global recession will last for 'years' as 'no end in sight' for COVID-19 - senior analyst

The world is likely to feel the impacts of the unprecedented post-lockdown recession for years to come, according to a senior investment analyst. 

As the US - the world's largest economy by nominal GDP - continues to grapple with its outbreak of the SARS-CoV-2 coronavirus, flailing international economies will struggle to recover, says Milford Asset Management senior analyst Frances Sweetman.

The US has surpassed 2.5 million confirmed cases of the virus, with a number of states, including Florida and Texas, backtracking on plans to kickstart economic activity following weeks of stringent restrictions.

"The cost of going back into any form of lockdown in the US is very large. What we're seeing is even if policymakers don't enforce lockdowns, people are taking back activity anyway - there's a fear factor, they're not going out and shopping and going to work," Sweetman told The AM Show on Tuesday. 

"What it means is that economies can't recover, and so we get in a much deeper and longer recession - which means more job losses."

The global economy will sit in the troughs of a U-shaped recession for "a few years" in the wake of worldwide lockdowns, the investment agency predicts, as an end to the pandemic remains uncertain.

"We're going to be flatter for longer, it's going to take a long time. But we are going to get some volatility... we don't really have any end in sight to when we can completely clear the virus... there's never been a vaccine for a coronavirus developed before," Sweetman explained.

"There isn't a business that I speak to that isn't concerned... when the wage support's gone, when people have less job security - that just takes time. When people lose their jobs, it takes them some time to regain their income and start spending again."

Frances Sweetman said the world is likely to face a U-shaped recession for a number of years to come, as there is "no end in sight" for the virus.
Frances Sweetman said the world is likely to face a U-shaped recession for a number of years to come, as there is "no end in sight" for the virus. Photo credit: The AM Show

However, New Zealand's economic recovery is off to a promising start, she says, noting that Kiwis have made a good return to economic activity following the move to alert level 1 on June 9. The country experienced 'COVID-free' bliss after weeks of no new diagnoses, leading to increased confidence among Kiwis to return to public life post-lockdown. Under the transition to alert level 1 - just one step away from pre-COVID normality - domestic travel has resumed and all businesses have been able to reopen.

"We've seen in New Zealand that we've resumed economic activity really well - I think that's partly because we've had the confidence that we can go out in public and socialise," Sweetman said.

"If we are in this incredible position where we don't have the virus and we feel like we can go out on domestic holidays - even with the borders shut, we will do relatively well. But the economy is not going to be back to where it was pre-COVID for a couple of years."

However, New Zealand's economic recovery is largely dependent on remaining in level 1. A return to lockdown, potentially in response to an outbreak of community transmission, would come at a "very high" cost - and with 22 active infections, there have been calls for more stringent measures to prevent New Zealand from plunging back down the alert levels. 

"The cost of lockdown is very, very high. The Reserve Bank has forecast that if we go back into level 2, it's 4 percent of GDP. If it's level 3, it's another 15 percent of GDP. the cost is really high, and that's all jobs," Sweetman said.

Although no cases linked to community transmission have been detected in New Zealand at the time of writing, there are 22 active infections among new arrivals. The Prime Minister has reiterated that the new cases have been caught during the mandatory managed isolation period - however, the risk of community transmission remains "very low", according to Director-General of Health Dr Ashley Bloomfield - not impossible.

Yet Sweetman says New Zealanders should appreciate our "enviable position" amid a global pandemic that's far from over.

Sweetman's statements follow independent economist Tony Alexander's prediction that New Zealand's post-COVID recession will be "technically" over by the beginning of July, despite warning that many companies will struggle to recover financially next year.

On June 18, New Zealand recorded its largest GDP plummet in 29 years. Stats NZ confirmed the country's GDP dropped 1.6 percent in the March quarter, surpassing quarterly falls during the global financial crisis in the late 2000s.

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