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    V-shaped recovery for global equities not impossible: Jim O'Neill

    Synopsis

    It is essential for the emerging world that western markets stabilise quickly, says ex-Chief Economist, Goldman Sachs.

    Jim O NeillAgencies
    A lot of online-based businesses are thriving in this environment in addition to very interesting stories.
    Looks like some logic and rationality is coming back into financial markets. Now that there is a ray of hope on the medical front that the number of cases are getting either peaked out or the number of recoveries are increasing, markets are in a mood to celebrate.
    It does look as though the markets have settled into a pattern; trading the inflection curve in the most developed countries, it is very gratifying that in the past few days, both Italy and Spain who have been the epicenter of the crisis in the developed world, it looks as though they have gone past the peak. Obviously that is important in itself but it is also important because it sends a message everywhere else that it is behind us possibly including in places like India.

    But certainly, in the United States and the UK, you cannot get on top of this battle pursuing some version of what Spain and Italy have done, which gives an additional example to many countries in north Asia that were earlier in the fight against this and seem to have gotten this thing under control. So it makes quite a lot of sense for the markets to recover in the way they have the past 24 hours because it suggests that there is some end at least to this stage of the battle against Covid-19.

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    The fact that the British Prime Minister Boris Johnson has not recovered at all. What do you think it means in the way the political things would move and also how should one now view this in terms of the news on the virus?
    Obviously it is very sad the prime minister is seemingly not well for himself, for his family and for the country to have the prime minister in this position. But it is also true that it demonstrates to everybody here in the UK, if there was any doubt before, just how dangerous this disease is and it should reinforce the message of the importance of social distancing. And in many ways, I hope that is the message that radiates our own countries and the rest of the world, particularly the developed world over the next couple of days because nobody is excluded from being vulnerable to this horrible virus.

    Parallels are being drawn by the IMF where it is saying that the current crisis is as deep as what we saw in 2008 when the GFC crisis happened. Do you think it is the right comparison because what happened in 2008 was a financial meltdown and thankfully this time around, there is a lockdown and there is no meltdown? Yes, the global growth will get impacted, the way we do business will change but this is a medical crisis, which will have economic implications. This is not a financial crisis which will bring banks and institutions down.
    It is very difficult to make any direct comparisons to 2008 or the ones before. It is close to forty years that I have been deeply involved in international economics and finance; so I have been through many crises and there is none that this has parallels to primarily for the reason you say. This is an external crisis not driven from within the economic system, it is not because of an excess in economics; it is a health crisis.

    Second thing to emphasize is stating the obvious that much of the economic damage has been in a strange way deliberately done by our governments enforcing this blunt social distancing; so that also gives some hope that when we can move to a less dramatic stage of social distancing, then perhaps we can get some part of our economies recovering very quickly. It is interesting that in the past week, many western forecasters have abandoned the idea of a V-shaped recovery, but that is not impossible in my opinion especially because we have had an enormous monetary and fiscal stimulus in so many different countries and we are probably going to get more over the past 24 hours.

    It looks to me as though an additional trillion dollars is going to come out of the United States; so it is not entirely impossible that we could get a strong recovery in the second half of this year and beyond. But it is obviously very early days to talk about that with any kind of confidence but it is not impossible.

    I just want to focus on India for a moment because while we have of course had these big bang measures announced by several other countries, India is lagging behind. Yes, it is an emerging market; maybe it does not have that kind of ammunition but do you still feel perhaps that the government will come out with a concrete plan? What is the risk to the economy if they do not?
    Now obviously, given the size of India and its importance that is possibly not applicable but I think they are two separate issues really. If we can stabilise western financial markets and western economies, that obviously in itself is essentially important to the emerging world linked to what we just talked about briefly before the scale of the economic decline in high frequency indicators for March in Europe and the United States are truly dramatic and indeed worse, more severe than 2008. If we can stop that decline and have some hope of some kind of recovery in a few months time, that in itself is extremely important for the economies and financial systems and financial markets of the rest of the world.

    The second thing of course is the infection spread within many countries such as India that seems to be at least time lagged from the rest of us. Given the nature of Indian society, I suspect you obviously cannot apply social distancing in the same blunt way that has been applied across Europe and in the United States because you have so many people and in particular in your urban areas that live and exist in such closely knit circumstances every day.

    The third thing of course, we do not know whether because of warmer climate, this infection rate will hit so many parts of the southern hemisphere now as it has done in the northern hemisphere. Two months ago, it was widely believed to insulate many parts of the southern hemisphere and that sort of has been forgotten in the past week but we do not actually know that yet. And so, we are going to have to see that.

    One other thing that is important to mention and I have been involved in this, I was on a call related to it just yesterday afternoon British time, what happens with the G-20 policymakers in terms of coordinated policies particularly in terms of being able to find out and introduce important therapeutics and diagnostics including tracing and testing in an equitable basis to the world as a whole including India remains not only vital but possibly even more important than the path to try and accelerate the use of a vaccine in the next few weeks because if we could get our G-20 leaders to agree to a joint plan, that could give enormous credibility to have a phased out move away from social distancing.

    Let us take a look at the best and worst case scenarios given that everything is still so uncertain. As of now, companies were preparing for a quarter or two quarters of disruption; now things are starting to look even more serious and we have had several downgrades. Whether it is on the equity markets and the index targets, this is going to be one of the worst global recessions we have seen in our lifetime. In your opinion, give us a sense of the extent that we could see this recession last in terms of timeline and also how deep you feel the impact could be particularly for emerging markets like India?
    I honestly have no idea and I do not think any of your guests should try to express true confidence and encourage all your viewers to be sceptical because we do not know. At the most basic, even infectious disease specialists, some of which I was on this call with yesterday, do not really know that much about this horrible disease yet. So we do not really know how it will end.

    Second, what is really going to get beyond this is a vaccine and right now the vaccine specialists I would like to believe there are at least 62 interesting projects going on; maybe about eight appear to be very promising. It is generally assumed it is going to take 12 months maybe longer but it is not impossible based on some things that I hear that we could have a vaccine in nine months time. So ultimately I would think that we cannot talk about getting completely beyond this until we have a vaccine that is being produced in sufficient quantities to protect everybody all over the world. So some aspects of future economic growth and future earnings for companies are subject to that

    Now let me contradict myself slightly. As I touched on earlier, particularly given the policy stimulus and more stimulus, I suspect that we will probably get to experience some kind of significant recovery from where we are today. In the developed world, in the second half of this year, it will feel possible as though we are going to come out of this in a V-shape way but I am going to contradict myself again because linked to what I have just said about a vaccine and one of this is second and third stage of infection, we have all those uncertainties too and it is very difficult to see things like airline travel and international tourism reappearing in the same sort of normal manner that we were all enjoying and participating in as recently as three months ago.

    Other forms of economic life, however, and new forms of economic life may appear in the meanwhile. Obviously a lot of online-based businesses are thriving in this environment in addition to very interesting stories. It does not surprise me that in the UK over the weekend, the whole world of local neighbourhood shops, retail stores is seeing a whole resurgence of life that we have not seen in the UK for 30 years or longer; something that obviously India outside of its major cities thrives on. This could be a bigger form of economic development going forward than in the past.

    One final thing to say that you may want to ask more about is this comes against a background of two big issues that were slowly becoming more and more in the focus of whole global economic and social debates about the fight against climate change and the other one being what I would call inclusive capitalism, and in the middle of a business profit with purpose. I suspect governments having intervened in so many economies will now have some experience of possibly using their own role as governments to help more strongly in the fight against climate change going forward and they may want to therefore have bigger influence over what companies do, for example, and many things like that.



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    (What's moving Sensex and Nifty Track latest market news, stock tips and expert advice, on ETMarkets. Also, ETMarkets.com is now on Telegram. For fastest news alerts on financial markets, investment strategies and stocks alerts, subscribe to our Telegram feeds .)

    Download The Economic Times News App to get Daily Market Updates & Live Business News.

    Subscribe to The Economic Times Prime and read the Economic Times ePaper Online.and Sensex Today.

    Top Trending Stocks: SBI Share Price, Axis Bank Share Price, HDFC Bank Share Price, Infosys Share Price, Wipro Share Price, NTPC Share Price

    ...more
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