2020 Global Market Outook-Q2 update: Russell Investments strategists see 2020 global recession
Team expects solid upswing in the second half if the COVID-19 virus threat clears
SEATTLE, March 25, 2020 — Russell Investments’ team of market strategists expect the COVID-19 pandemic will push the global economy into recession in the first half of 2020, but they expect a robust rebound if the health crisis is brought under control in the second quarter. This reverses the team’s 2020 outlook report, issued in December 2019, which had extended the risk of recession into late 2021. Their expectation of a mini-cycle recovery had on track through mid-February as green shoots were apparent in manufacturing indicators and the ‘phase1’ trade deal had been agreed between the U.S. and China, but then the virus erupted worldwide.
“The duration of the COVID-19 pandemic is unpredictable, but policy stimulus, pent-up demand and a lack of major imbalances argue for a solid upswing when the virus threat clears,” said Andrew Pease, global head of investment strategy at Russell Investments.
Pease also covers following points in the report:
- The main uncertainties are the duration of the virus threat and whether it will re-escalate when the extreme containment measures in many countries are relaxed. “It’s likely that markets will find a bottom when the daily number of new virus cases in Europe and the U.S. begins to decline,” Pease said.
- The economic impact of the virus may turn out larger than expected. “The shock to consumer and business confidence could generate a self-sustaining economic downturn,” he said.
- A re-run of the 2008 financial crisis seems unlikely. “Tier 1 capital ratios for large U.S. banks are significantly improved from 2007, which should cushion against the risk of a severe drawdown,” he said. “Bank mortgage lending has also been prudent, and consumer balance sheets are reasonably healthy.”
“Even though our near-term outlook is for recession, the cycle outlook is supported by the substantial amount of stimulus being implemented,” Pease said. “The message from our composite sentiment indicator is that investors have panicked and herded into a pessimistic outlook, which supports taking a contrarian view.”
Regarding equities, Pease expects those markets hardest hit by the COVID-19 crisis should benefit the most from the eventual rebound. Europe’s high weighting to cyclical stock should also help it outperform in the recovery, and emerging markets equities likely will gain the additional benefit of reduced trade-war tensions.
For more details, the 2020 Global Market Outlook – Q2 update is available here.
About Russell Investments
Russell Investments is a leading global investment firm providing tailored solutions and services to institutions and individuals through financial intermediaries. Russell Investments is dedicated to improving people’s financial security, leveraging an 83-year client-centric heritage rooted in investment innovation. The firm is the fourth-largest adviser in the world with $307.4 billion in assets under management (as of 12/31/2019) and $2.4 trillion in assets under advisement (as of 6/30/2019) for clients in 32 countries. Headquartered in Seattle, Washington, Russell Investments operates through 21 additional offices in major financial centers such as New York, London, Tokyo and Shanghai.
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