Oliver Mangan: Markets not celebrating Covid-19 rear-view mirror growth figures

Economist Oliver Mangan says retail spending figures point to a strong rebound over the summer but stock market are still falling back
Oliver Mangan: Markets not celebrating Covid-19 rear-view mirror growth figures

The ECB has acknowledged the risks to growth despite the better than expected performance of the economy in the third quarter, saying it will respond at its next policy meeting in December. Picture: Leah Farrell/Rollingnews.ie

The latest figures for economic growth out of the US were impressive and ahead of expectations and consistent with a V-shaped recovery, while across the eurozone, GDP also came in ahead of expectations.

Here in Ireland, third-quarter GDP figures will not be available for some time yet, but retail spending figures point to a strong rebound over the summer. 

However, it’s a bit like having a death at a wedding: Markets are not celebrating what they see as rear-view mirror figures.

Instead, we have seen increasing risk aversion last week, with stock markets falling back and safe-haven bond markets rallying as a second wave to the coronavirus takes a real hold. 

It's now expected eurozone GDP will contract over these last three months of the year, resulting a double-dip recession.

Very sharp rises in the number of new cases have seen restrictions being re-imposed on social and economic activity, with more European countries going into lockdown.

And the ECB has acknowledged the risks to growth despite the better than expected performance of the economy in the third quarter, saying it will respond at its next policy meeting in December.

It's now expected eurozone GDP will contract over these last three months of the year, resulting a double-dip recession.

And the recovery in the US, where Covid restrictions are not as severe, is likely to stall. A difficult winter lies ahead for western economies. 

However, all hope is not lost. The data show that economies can rebound quickly and strongly from the recession caused by the Covid-19 pandemic and the containment measures are not as severe as in the first wave. 

Countries are learning how to manage and treat the virus in better ways and to be more selective in terms of the restrictions. 

The economic policies put in place to aid an economic recovery were also clearly effective in the third quarter. 

More supports will be required. The large build-up of savings in households also points to considerable pent-up demand and available spending power. 

Crucially, we are also much closer to the arrival of a vaccine. However, while the development of vaccines appears quite well advanced, it may not become widely available until later next year and it remains to be seen how successful it is at overcoming the virus.

Not surprisingly, the ECB has indicated that the prospects for a rollout of vaccines is something that it will give careful consideration in its policy assessment. Indeed, everyone will be following the vaccine news closely.

Oliver Mangan is chief economist at AIB

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