Economic considerations will drive the lockdown release schedule

It is not feasible from a social, political or economic perspective to allow strict lockdowns to continue for significantly longer periods in our view. Strict lockdowns impose such severe economic damage to both private sector and government balance sheets that structural damage to future GDP becomes an inevitability, even before considering the interruption to education and training programmes.

The recent PMI data for Europe and the US should be instructive for policymakers as record-low sentiment across the region highlights the damage being done to the global economy during April. Furthermore, projections from the UK’s Office of Budget Responsibility indicate that UK GDP may decline by 35% during Q220.

We would not disagree with this assessment but would also highlight the same projections suggest that GDP will return to its previous trajectory by Q121. We find this somewhat optimistic in a world without a COVID-19 vaccine and, as a result, with social distancing still in place.

Nevertheless, in coming weeks investors are likely to welcome the flow of company news releases announcing the restart of operations as supply chains come back to life. Due to the time-lags involved there will also be insufficient infection rate data in the very short-term to signal whether less restrictive social distancing measures will result in the feared second surge in hospital admissions.

We suspect that in the relatively controlled environment of workplace settings such as construction sites, offices and factories, strict monitoring of facilities with improved hygiene and health tracking may be effective in reducing workplace transmissions while keeping productivity largely intact. In profitability terms these sectors will therefore be the first to recover, provided there is sufficient demand.

Edison Group – also photo