Will we see a V-shaped recovery in the UK’s economy? The standard measure for the total value of goods produced and services provided in a country during one year is Gross Domestic Product (GDP).
And, according to the Office for National Statistics (ONS), monthly GDP grew by around 1.8% in May. But it was still “well below” the levels seen in February, before the lockdowns that shut much of the UK’s economy.
By May, the level of output hadn’t recovered much from the record falls seen in March and April. Indeed, the change in GDP between February and May was a negative 24.5%.
The prospects for a V-shaped recovery now?
But it’s early days. For example, non-essential stores weren’t allowed to reopen in England until 15 June. And, so far, we only have GDP figures up to May. Even now, on 15 July, many businesses have yet to get into their stride in a world featuring Covid-19.
My guess is that June’s GDP figure will be better, August’s better still, and so on. We may not see a symmetrical V-shaped recovery in the UK’s economy. But I like the idea of it coming out something like a flamboyant tick-shape with a longish tail!
And, of course, if one of the many programmes aimed at developing a safe vaccine comes up trumps, it’ll be a major game-changer.
But share prices usually act as a leading indicator of what could happen on the ground in the real economy. We’ve already seen quite an uplift in many share prices sensitive to the general economy. For example, at 2,561p, housebuilder Persimmon is almost 70% up from the low it plunged to in March. And, at 4,743p, clothing and accessories retailer Next is about 40% up from its early April low.
Forward-looking stock markets
However, like many stocks, there are signs the bounce-backs might have stalled for a while. Indeed, there’s still a fair way to go for many shares before they regain the levels seen before the Covid-19 crisis hit the markets.
But I reckon the up-moves that occurred from March onwards were predicting the lifting of lockdowns and the re-opening of the economy that we have today – it’s usual for the stock market to look three or more months ahead.
The action in the general stock market now may be indicating what’s likely to happen in the real economy in a few months’ time. And it may mean economic activity will have recovered somewhat, but not fully to the levels before coronavirus. If so, that feels right to me.
So we could be in for a period of consolidation in the general stock market. And we may see a bedding-in of the ‘new normal’ in the real economy. But I agree with those market commentators who believe the period of consolidation will resolve to the upside in the end.
To me then, a pause in the markets now represents a great opportunity to accumulate shares and share-backed investments to hold for the long term.
