Comeback Kids

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What's going on?

The global economy is looking all but defeated right now, but Morgan Stanley just doubled down on its bet that we’re set for an inspirational comeback. Cue the music

What does this mean?

Among the Alphabetti Spaghetti of economic recoveries out there, the V shape is one where the economy bounces back as quickly as it collapsed. And that’s what Morgan Stanley is betting on: the bank thinks there’ll be a “sharp but short” global recession, and that the global economy will be growing again by early 2021 (tweet this).

Morgan Stanley reckons companies and consumers aren’t under as much pressure to reduce their debts as in previous downturns, largely thanks to the unprecedented support from central banks and governments. Massive efforts to cut down debt, after all, usually spell bad news for spending and, in turn, economic growth. The bank also believes said support isn’t likely to wane anytime soon, which should help the global economy get back on its feet before too long.

Why should I care?

For markets: Come at me, bro.

Morgan Stanley thinks a second wave of coronavirus infections will sweep the globe by the fall, but that it’ll cause smaller-scale lockdowns and less disruption this time around. The bank also admitted that if a second wave does lead to strict, widespread lockdowns, a “double-dip recession” could be on the cards. Investors seem to be in the latter camp: they largely avoided stocks on Monday, perhaps having noticed the recent rise in US and Chinese coronavirus cases.

The bigger picture: After you, China.

Given that China was the first country in and out of the coronavirus crisis, investors have been looking to the People’s Republic for clues about how the rest of the global economy will perform. The country’s heavy industries, like construction, are reportedly back to 2019 levels, but overall demand is still weak – potentially because the rest of the world is still reeling.

Originally posted as part of the Finimize daily email.

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