Prospects for world economic growth have been overwhelmed by the massive and unprecedented disruption caused by the coronavirus pandemic.  However, business activity has now started to pick up as lockdown measures have been relaxed in many countries.  The extent of this recovery has varied widely, depending on the severity of outbreaks of the virus and the capacity of governments to subsidise employment and wages. 

Public sector borrowing is rising dramatically almost everywhere as a result of irresistible political pressure to ‘do what it takes’ to maintain living standards.  At this stage, there is no evidence of any inflationary pressures arising from the resulting looseness of monetary and fiscal policies, but any sustained economic revival may well be accompanied by sharp rises in consumer prices.

Governments have directly intervened in an unprecedented way into a wide range of commercial activities. Financial and regulatory support for ‘national champions’ is likely to undermine competition at a time when international trading relationships are already under threat.

China was initially hit hard by the pandemic, yet its economy is now expected to grow by 3% over the full year.  At the same time, the political situation in Hong Kong remains unstable and is starting to impact China’s relationships with the rest of the world. It seems likely that trade disputes between the US and China will continue to fester, but US policy may shift if there is a change of President later in the year.  

The outlook for the Indian economy was deteriorating before the spread of the virus gained momentum.  Serious flooding and travel restrictions have also left large numbers unable to work. Meanwhile, the government's progress on structural reform has been disappointing, and the country’s financial system is looking increasingly fragile. Much will clearly depend on the extent to which the pandemic can be contained.

Forecasts for Latin America have also been impacted by the health crisis. There had been some signs of progress in Brazil, as loose central bank policy and sweeping deregulation appeared to be stimulating household consumption.  However, President Bolonsaro’s persistent denial of the severity of the disease and his resultant decision to stop publishing alarming infection data make it difficult to assess the current state of the economy.

In the long term, emerging markets continue to offer potential for higher growth rates than their developed peers. They may also be favoured by demographics. While many developing markets lack social security systems and widespread access to quality healthcare, their populations tend to be younger and may be better placed to withstand the pandemic.

At the time of writing, there is still considerable uncertainty about the scale of lasting disruption from COVID-19 and the effectiveness of the different health responses being implemented. Local economic cycles in individual countries have always varied widely, and the portfolio has focused on sound businesses with strong market positions, particularly those that will benefit from increased wealth in the middle classes.