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Sharp but Short recession means V-shaped recovery?

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Nope, let’s not talk about the second most advanced economy in ASEAN today. Yea, still Malaysia and not any other country yet. Could Malaysia’s economy grow if the whole world is under lockdown? Definitely not. Could Malaysia’s economy be having a double digits growth next year if the whole world is still having a small single digit growth? Possibly but very hard. What happens then if the whole world will recover in 2021 to the days before COVID-19? Oh… this will be very positive for a trading nation like Malaysia.

Today, we talk about the world economy and what a multinational investment bank is saying. Specifically, Stanley Morgan. The article is in markets.businessinsider.com

Morgan Stanley says the recession happening currently will be “sharp but short” and will end by 2021 as economies surge to pre-pandemic output levels.

It tells its clients that the global economy is entering into a new expansionary phase which is “more normal than appreciated.”

It says the world economy will hit bottom with a 8.6% contraction in Q2 2020 but will swing back to 3% growth in 2021.

Assuming a second wave hits the market, “selective lockdowns” will prevail and the world will not reenter strict lockdowns like today.

Its views are in a long and comprehensive article. Please do read it to understand in-depth why they say so yeah. Read it here: The article is in markets.businessinsider.com

This is what Investopedia says about V-shaped economic recovery: “In a V-shaped recovery, after the economy suffers a sharp economic decline, it then quickly and strongly recovers. Such recoveries are generally spurred by a significant shift in economic activity caused by rapid readjustment of consumer demand and business investment spending. Because of the rapid adjustment of the economy and the quick recovery in major aggregate metrics of macroeconomic performance, a V-shaped recovery can be thought of as a kind of best-case scenario once an economy has hit a recession.”

Two very important things inside the whole sentence. #1 is consumer demand. #2 is business investment spending. Going back to the fundamental of any economy would be demand and supply. Property for example. Developers will build as soon as they see many buyers want to buy. Supply thus follows demand. Buyers may also start buying if they reach a certain stage in their life and they need a property of their own. Here, the demand appears and it will drive the supply.

Both of these would depend on confidence level. Confidence level depends on how sentiment changes. Of course, if the whole nation is under high unemployment rates, then none of these which we are speaking may happen. For demand to appear, the people need salaries and for salaries to happen, they need to work and for them to work, they need jobs. For jobs to appear, the employers must have demand… Oops… then what happens first?

Haha. This is why the Economic Recovery Plan (ERP) and the famous Penjana does not seek to just mend one side. It seeks to help both the demand and the supply sides too. Once the wheel turns, then all is well. Pushing the wheel to start turning is the thing which all governments are doing currently. Let’s wish them the best.

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Next suggested article:  When everyone is back to work, economy moves again

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