The clues to watch out for to gauge how the global economic recovery is going

From the US to nations like South Korea and Australia, there will be plenty of places to watch for a sense of where we are, writes Hamish McRae

Wall Street has seen much of the early economic recovery (AFP)

A Wall Street recovery or a Main Street one? So far – and this goes not just for America but for British and European high streets too – it has just been a Wall Street one.

It has become even clearer in the past few days that what will matter is not how far countries’ economies go down this summer thanks to coronavirus, but rather how quickly they recover. Governments can for a while pump money into the system, either at a grand macro-economic level by boosting the money supply, or at a family one by supporting furloughed jobs and sending cheques to families. But they can’t do it for very long.

A sustained recovery needs those jobs to come back. So far the evidence is that money is helping boost asset prices rather than the real economy. There was a wobble last week and there will be more of those. But while US equity markets – and to a lesser extent UK and European ones – have rebounded, if the economies don’t come back, equity markets will have a dismal few months, maybe years, ahead.

The question now is what evidence should we look for that will tell us that the real economies will come back reasonably swiftly come the autumn?

In the UK the head of the Office for Budget Responsibility (OBR), Robert Chote, has just said that the V-shaped recovery the OBR outlined last month was illustrative. It was not a prediction of what might actually happen. The US courts are swamped by bankruptcy actions – not a great sign. The chief executive of BMW sees a very slow European and US recovery – another glum outlook.

So what should we look for?

Start with something specific. We need to know whether and when deaths have fallen down to or below normal seasonal levels. However, one of the many problems at the moment is knowing how to compare like with like. But the number of people dying is a good solid statistic in almost all countries.

We know there was surge in deaths just about everywhere. We know that surge has passed, also just about everywhere. So the number of deaths at some stage will be back to, or below, historical levels. But when?

In the UK there will be new numbers from the Office for National Statistics (ONS) on Tuesday for weekly deaths up to the end of the first week this month – they come out two weeks in arrears. The last set showed that the numbers for England and Wales were falling but were still above the five-year average. It is quite possible that they will have dipped below the average for the first time. People are still dying of Covid-19, but fewer people are dying of other causes.

To be clear, these figures do not give any forward warning of a second wave. They are just a snapshot of the situation two weeks after it has happened. But these are solid numbers, not model-based projections. If this is happening in the UK it is likely that something similar will be happening across the developed world, even in countries that have not been particularly good at suppressing the virus. Once the world sees deaths running at or below normal levels, then a return to normal life becomes a reasonable prospect.

The next thing to look for will be what is happening to the economies of early movers: countries that either experienced the wave of infections early, or have been good at controlling them. Obvious examples are Taiwan, South Korea and Hong Kong. New Zealand is obviously interesting but is atypical because of size and its physical isolation. Australia is more of a guide, and has been relatively successful in getting things moving again.

The parts of Europe that are opening up first will also give a feeling for what comes back and what doesn’t. Germany will be massively important, though its over-dependence on the auto industry, and more generally on exports, may give an uneven result.

Finally, within America, New York City is surely the place to watch. It is on hold at the moment as it has yet to meet all requirements of the state government before easing curbs. Its mayor Bill de Blasio said earlier this month that restrictions would not be eased until June and true reopening would be “a few months away at minimum”.

Many wealthier New Yorkers have left the city for their weekend and summer homes, a luxury that poorer residents have been unable to do. That is bad for the regional economy as well as the city itself, and it is bad for social cohesion. Lower-paid workers need all the help they can get, and if higher-paid ones head off many people’s incomes are savaged. But New York is inherently resilient, so let’s see how it responds as confidence returns.

Put it this way. Main Street needs Wall Street, but Wall Street needs Main Street even more.