The three stages of the global economic recovery

Frances Donald
Global Chief Economist and
Global Head of Macroeconomic Strategy

Key Takeaways

The global economic recovery isn’t likely to form a single alphabet—rather, it’ll be a fusion of several letters, unfolding over three stages, with the first phase of the recovery most likely to be characterized by a risk-on mentality.

We expect the recovery to lose steam during the second stage as headwinds to growth begin to gather pace; November’s U.S. presidential election and volatile relations between Washington and Beijing are likely to dominate market sentiment.

In the longer term, we expect a gradual move toward regionalization as countries try to wean their economic dependence on both the United States and China.

Defying easy categorization: understanding the shape of the global economic recovery

It’s time to discard the notion that the shape of a single alphabet—be it the letter “V,” “U,” or “L”—can represent the profile of the coming recovery. Instead, it might be more instructive to think about what lies ahead as a three-stage recovery, each with its own set of key themes, bringing about different kinds of opportunities and risks.

Phase 1: the rapid rebound (mid-April to August/September)

Government spending and extremely loose monetary easing underpins economic recovery

The set of global high frequency data that we’ve been following tells us that the first phase of the recovery began in mid-April. This would explain why we’ve been seeing some rather extraordinarily positive economic data—at least on a week-on-week, month-on-month basis—since May.

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