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Headlines
- New cases of COVID-19 have plateaued, globally
- Russia approves its own COVID-19 vaccine, Sputnik V, after trials involving just 76 participants
- Monthly data show that by June the UK had recovered one-third of the output it had lost because of COVID-19
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Newly identified coronavirus infections look to have plateaued at around 270,000 a day. The majority of new cases in recent weeks have occurred in the US, Brazil and India. The first two of these countries have already suffered substantial outbreaks. Specifically, close to 500 lives have been lost for every million inhabitants. Empirically, the reproductive rate of the virus, has tended to fall to around 1 at this level of mortality, as our first chart shows. In a Fathom the Forecast published last month, we drew attention to the fact that the spread of the virus appears to slow, for reasons other than lockdown, as mortality rises, and discussed a number of reasons why this might occur.
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Second-quarter GDP data are now available for many major economies, including the UK. Data released earlier this week showed that the UK economy suffered a 20.4% contraction in Q2, close to the figure of 17.8% that we had pencilled in at the time of our previous quarterly forecast. The UK is alone among the G7 economies in having a monthly measure of economic activity, and in the present circumstances this provides a more useful guide to the path of recovery. Our third chart confirms that activity troughed in April, at some 26% below pre-COVID levels. There was a modest recovery in May, and a stronger recovery in June, with non-essential retailers able to reopen mid-month. By June, the UK economy was one-third of the way back to pre-COVID levels of activity. Further significant growth is likely to have occurred in July, with most of the hospitality industry able to reopen from the beginning of that month.
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As we learn more about the factors influencing transmission of the virus causing COVID-19, we remain hopeful that the global economy can continue its cautious reopening and return steadily to more normal levels of activity. In countries that have already suffered severe outbreaks, including most of Western Europe, in addition to the US and much of South America, fear itself may turn out to be a major obstacle. In its latest Monetary Policy Report, the Bank of England drew attention to the fact that the proportion of UK household expenditure restricted by social-distancing legislation had fallen from almost 40% in the early stages of lockdown, to just 1% from early July. In principle, UK economic activity could return almost to normal. It has not, of course, and is unlikely to do so for some time. In our upcoming Global Economic and Markets Outlook for 2020 Q4 we shall consider the risk that fear and uncertainty, both among firms and households, may prevent a full economic recovery in many countries, leaving them with structurally high levels of unemployment.
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In a Fathom the Forecast sent to clients earlier this week we outlined a number of ways in which the world might change after COVID-19. For investors, we argued that one of the biggest uncertainties related to our continued use, or otherwise, of both high street shops and city-centre offices. For the time being, the value of retail property looks to have fallen further than the value of office property. We question whether that is the right response. A gradual movement away from high street retail towards online shopping had been in train across the developed economies for many years. COVID-related lockdowns caused a step increase in the importance of online shopping. But this was forced. For some people, high street shopping can be an enjoyable activity, or so I am told. The share of online retail in total UK retail sales jumped from 20% in February to more than 30% in May. Some, but not all of this is likely to come back in a post-COVID world. And with non-essential shops having reopened in the UK on 15 June, there are signs that it has started to do so.
Interesting reading
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