Firstly, anyone reading this will be far too young to have experienced first hand a real “depression” but during a recent chat with a senior Director or a UK Bank (which shall remain nameless), they suggested to me that the Board was seriously planning for such an eventuality.
A depression is a sustained and long-term economic downturn and has not been seen since the 1930’s. A recession (which used to happen every 10 years or so) is technically 2 quarters (6-months) of negative GDP. GDP is the value of the total economy (think the total sales of the whole economy) meaning the real economy shrinks.
A depression is characterised by large increases in unemployment across the economy (no not just one or two sectors), falls in credit availability (think credit crunch scenario) which then results in little business investment, high rates of inflation and an ever-worsening situation! A “technical depression” is negative GDP of over 10%.
Now then, with the Corona-virus still in full swing and large swathes of the economy in lockdown for the foreseeable the only 2 countries expected to grow in 2020 (according to the IMF or International Monetary Fund) are India and China. The UK’s own Office of Budget Responsibility has warned that UK GDP could fall by up to 35% assuming the lockdown stays in place for the full 3 months.
Our view, we continue to plan carefully the portfolio’s we invest our clients in and will not hesitate to make any changes that are necessary. Whilst a “technical depression” may be possible, we believe that with modern monetary policy, strong world-wide central bank response and united multi-governmental policy, the world economy will bounce back – it will just take a little time!