April 22^nd 2020

Key points:

• Vanguard continues to anticipate the sharpest global recession in recent history.
• Despite China’s GDP contracting 6.8% in the first quarter in 2020, Vanguard cautions against reading too much into this figure for its global or its domestic implications.
• The coronavirus outbreak threatens to drag Australia to two consecutive quarters of economic contraction for the first time in nearly 30 years.
• Vanguard’s 10-year annualized outlook for equity returns, at March 2020, has improved since the start of the year as the COVID-19-inspired sell-off reduced valuations.

Starting with some well-needed positive news, several countries recently among the world’s hardest-hit by the COVID-19 pandemic are beginning to talk about how and when they might start to reopen their economies.

But renewed containment efforts in countries including Japan and Singapore, which had enjoyed early success in containing the coronavirus through vigorous testing and tracking, remind us that the battle isn’t easily won, and may not be over until a vaccine is developed or broad populations achieve immunity.

Economic growth

Vanguard continues to anticipate the sharpest global recession in recent history, with growth in the United States and Europe contracting in the second quarter at the steepest pace since at least the 1930s. But we continue to anticipate that the global recession will be short, with global growth turning positive in the second half of 2020. That said, we expect the recovery will be “U-shaped” in that it will be at least the end of 2021 before economic activity returns to its pre-COVID-19 level. We expect recovery to proceed in two stages, as we’re beginning to see in China: a bounce-back in growth as supply constraints recede, but a longer wait for demand to strengthen.

China

Business has resumed in China, with estimates of activity as high as 90% of pre-coronavirus levels, just over two months after the first lockdowns in several cities.

Despite China’s GDP contracting 6.8% in the first quarter in 2020, Vanguard cautions against reading too much into this figure for its global or its domestic implications.