With the global economy now facing what is effectively a ‘sudden stop’, it is almost inevitable that official data for the first half of this year will record the sharpest drop in economic activity since the 1930s. Whether the recession and the ensuing recovery turn out to be V-shaped, U-shaped or L-shaped will depend to a great deal on the response of governments around the world. Substantial fiscal support is necessary to ensure that the economic and financial market infrastructure remains in place to deliver a strong rebound in activity when the number of COVID-19 infections begins to fall, whether that happens naturally, or through the discovery of a vaccine or cure. Looking at the equity prices of so-called ‘consumer discretionary’ firms in different countries, it would appear that investors are pricing in a more modest cyclical downturn in the US than elsewhere. Unless the US government passes a sizeable package of support, and soon, there is a risk that they will be proved wrong.
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