A resurgence in manufacturing will not be enough to kickstart the recovery and more fiscal support is needed, according to Catherine Mann, global chief economist at Citi and former OECD chief economist.
“Manufacturing is not nearly as much of a [‘V shape’ as it seems, because supply chains are disrupted – not just for geopolitical reasons and nationalistic reasons in the healthcare and PPE space – but more generally, if one factory is closed and your supply chain partner is open, you still have a problem,” Ms Mann said. “So manufacturing has been very definitively affected and the recovery is taking much longer than many people thought.”
Consumer discretionary spending faces the fear of a resurgence in virus cases, and Ms Mann warned that company revenue lost in the early part of the year “will never be recovered”. Business sentiment and investment will also remain muted, signalling a “very long delay” in achieving a pre-COVID level of GDP.
“This is not a picture of a recovery that is satisfactory in any way, shape, or form,” Ms Mann said. “This is even given the really substantial, and we would argue appropriate, fiscal response and monetary response, there’s more that needs to be done…we have to be thinking about fiscal choices and monetary policy choices that will bolster the supply side of the economy, the productivity growth in the economy, because that is going to be essential in going forward to repay these obligations these economies are taking on.”
Ms Mann also warned of a “striking disconnect” between markets and the real economy, which have seen massive upswings in the last several weeks even as the base case for recovery becomes more dire.
“You could say they’re looking forward to next year, when everything will be better again,” Ms Mann said. “But it’s actually not better next year – it’s only as good as it was last year. And that’s really not good enough for an awful lot of people, and it shouldn’t be good enough for the equity markets to be performing the way they have.”
