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August 3, 2020
Just as quickly as they rebounded, many global economies are showing signs of leveling off. Here in the U.S., a resurgence of COVID-19 cases in several southern and western states is the primary driver behind the renewed slow down. Overseas, Japanese consumers are feeling the pressure of increased unemployment brought about by the virus, little wage growth, and higher sales taxes that took effect late last year. China, the first country impacted by the virus and the first to reopen, has regained almost all its lost production capacity. However, complete consumer re-engagement hasn’t occurred, which could pressure manufacturing employment.
Fiscal policy working in tandem with monetary policy has buoyed the global recovery. Congress is currently negotiating another fiscal relief package that would potentially continue many of the measures previously enacted, provide aid to state and local governments, and offer employers liability protection. The European Union forged its first-ever unified fiscal policy when members agreed to a 750-billion-euro recovery fund that will lead to a pan-European bond issuance. Arguably, the ultimate economic success of the European Union may depend on a unified policy such as this one.
With the somewhat inevitable resurgence of the virus due to increased testing and the relaxation of mobility restrictions, investors should monitor the sustainability of the economic recovery and be more cautious in their bullishness over the summer. The bar is probably much higher for a resumption of economic closures. Complete consumer re-engagement is unlikely until a vaccine is produced.
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