Economic Timebomb Is Ticking – Is There Any Way To Avoid Global Recession?

Decline In Economic Activity full-fledged global recession Ten-Year Treasury Yields

Six months on from the first signs that coronavirus had the potential to be a major global problem, a new type of outbreak is spreading from the East. Last week, South Korea officially went into recession, while Australia also recorded its largest budget deficit since the Second World War.

Q2 2020 hedge fund letters, conferences and more

Meanwhile, when you look to the west, the USA is still battling new surges in virus outbreaks, while watching the global recession take shape like an oncoming storm. Across the Atlantic in the UK, the government borrowed more money in April 2020 than it did in the whole of 2019. Suddenly those arguments Prime Minister Boris Johnson had been having with chancellor Sajid Javid over fiscal rules earlier in the year were all forgotten.

Critical months ahead in the US

The situation in Korea, Australia and the UK will all contribute to how the global economy withstands recent months. But it is on the US that the world’s eyes will be predominantly focused. These were always going to be crucial months from a political standpoint, with the US election set to be bound up in controversy.

But the decisions that President Trump makes between now and Labor Day will affect more than his own political future. They will lay the foundations for the post-Covid US economy, and it is one that will affect the lives of Americans and the wider world for years to come, regardless of whether Trump or Biden is sitting in the Oval Office come December.

Governors across the US are battling to manage new Covid-19 outbreaks, particularly across the Southern and Western states, while fighting on other fronts to stave off the specter of ever-deepening recession. Getting people back to work requires schools to be reopened, and the decision making is becoming so emotive that almost any call could be tantamount to political suicide.

At the same time, Congress is debating yet more rescue dollars to keep the US’s shaky economy from falling to its knees. Meanwhile, President Trump continues to be more interested in his favored strategy of taking cues from the stock market to find positive indicators.

Economics and politics

It is easy to be cynical, but wherever your political affiliations lie, few would have wanted to be in President Trump’s position, or that of Boris Johnson, in recent months. Leadership is something of a poisoned chalice under current circumstances. To have any hope of avoiding the coming financial storm, the right fiscal decisions need to be made for the right reasons.

The problem is that those decisions will not prove popular. Looked at from that perspective, the Presidential Election could not be coming at a worse time. A recent poll by the Wall Street Journal and NBC News showed that although President Trump’s approval rating is now 11 percentage points behind Biden, the majority of voters approve of the way he has handled the economy to date. These factors will inevitably cloud decision making over the coming months.

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