Macro Monthly: The pitfalls of a fast restart

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Every month, ABN AMRO’s Chief Economist Sandra Phlippen shines a light on the global economy in her publication Macro Monthly. This month: The pitfalls of a fast restart.

Countries around the world are desperate to come out of lockdown, but it’s not easy finding the right balance between maximising the restart and minimising the risk of a new wave of infections. Some parts of the world, especially the US, are restarting faster than expected. The upswing in infection rates is triggering renewed restrictions and dampening economic activity.

Elsewhere in the world, most notably in China, governments are switching their economies back on much more slowly and keeping a tighter rein. Aside from some local hotspots, the situation seems to be relatively well contained and there has been no need to re-instate restrictions on economic activity.

Lessons learned in the East

It will be crucial for Europe to learn the lessons of the East, avoid the pitfalls of the West and find the delicate balance that will keep economic recovery on track. Our base scenario of a slow but steady recovery still seems the most probable. But the call for a V-shaped rebound is getting ever louder. Given the risks outlined above of restarting too hastily, the likelihood of a second wave of infections and renewed lockdown is growing, albeit in a milder form.

For the next few weeks, all eyes in Europe will be on the negotiations around the recovery fund. The discussion is focused more on how to share out the pie than about recovery potential. If we plot the budget allocation proposed by the European Commission against allocations based on the actual Covid-19 damage suffered, we may be in for some major reallocations.

Want to read more? The full story of the pitfalls of restarting too fast is available on ABN AMRO Insights.

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