COVID-19: Plotting a path to eventual recovery - J.P. Morgan Asset Management
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With quarantine measures to tackle the COVID-19 coronavirus outbreak causing a sharp plunge in global economic activity data, investors are asking when and how the current crisis will end, and how the recovery will take shape.

With this in mind, we describe three scenarios for the expected economic and asset market recovery (the central case, the downside case and the upside case). A guiding principle is that asset markets will react first and foremost to the peak in infection rates, with economic data the next to turn and employment data the last to follow.

Three major questions guide our analysis:

  1. How long will the restrictions stay in place, preventing any meaningful recovery from taking hold?
  2. To what extent will second-order effects kick in, such as failing businesses producing additional layoffs and spending cutbacks?
  3. How will individual behaviour change once social distancing measures have lifted?

Potential outcome cases

Our central, upside and downside scenarios translate to different levels of GDP but a similar trajectory.

Stylised quarterly profile for US activity data in each scenario (Q4 2019 = 100)

In each scenario, the US economy dips into recession. In our central case, we see a gradual--but accelerating--recovery starting in the third quarter. In our upside case, the recovery occurs more rapidly, while in our downside case the virus lingers through the summer and delays the economic rebound until early 2021

  • Central case – gradual but accelerating recovery

  • Downside case – 2020 in recession

  • Upside case – quick recovery

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