Many countries were able to get their coronavirus outbreak under control in May, pushing global case growth down into the low single digits (about 2.5% per day in the first week of June, compared with more than 15% in late-March). That allowed for a gradual easing in lockdown restrictions and the re-opening of some shuttered factories and businesses. Recent soft data captures that turning point—whether it’s mobility metrics, card spending, or business sentiment—and employment indictors are also starting to improve. That said, incoming hard data is laying bare the unprecedented scale of economic contraction through April. May’s green shoots must be viewed against a very low starting point. Global PMIs, for instance, retraced about half the previous two months’ declines but still point to depressed levels of economic activity. The road to recovery will be slow, and it could be quite bumpy. While advances in testing and contact tracing will help (some countries doing better than others), risk of a second wave of infections and the re-imposition of strict containment measures is likely to linger until a vaccine is developed. And geopolitical risk is heating up amid escalating tensions over Hong Kong, civil unrest in the US and the return of Brexit uncertainty.

Markets have nonetheless seized on positive data and re-opening plans, and risk appetite has continued to improve. The US S&P 500 rose another 4.5% in May and is now within 2% of its 2019 close. Investor demand for the safety of US dollars has eased, with the greenback falling by 6% on a trade-weighted basis over the past two months. Oil prices have essentially doubled since late-April but remain close to 2016’s lows. Still, the increase (along with improving risk sentiment in general) has given a lift to currencies like the Canadian dollar, which rose above 74 US cents for the first time since early-March. Government bond yields have remained low thanks to aggressive central bank action. The BoC and Fed are continuing with open-ended asset purchase programs, the ECB just increased its QE target and we expect the BoE will do the same in mid-June.


  • As countries made progress in ‘flattening the curve’, many began to gradually reopen their economies. A number of early indicators showed economic activity turning a corner in May, but only after an unprecedented slowdown in March and April.
  • Canadian and US GDP is expected to be 11% lower in the current quarter compared with late-2019. A pickup in employment in May suggests a return to growth in Q3, but we expect both economies will remain well below full capacity by the end of the year.
  • The UK and euro area are expected to see deeper downturns than Canada and the US, though recent data also suggest a return to growth over the second half of the year.
  • Even as the recovery progresses, lingering economic slack will keep inflation below central banks’ targets. Monetary policy will need to remain highly stimulative with low rates and QE likely to be in place for an extended period.
  • Central banks’ asset purchases are helping to absorb a good chunk of new debt issuance to fund government stimulus programs and thus keeping borrowing costs low.


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Josh Nye is a senior economist at RBC. His focus is on macroeconomic outlook and monetary policy in Canada and the United States. His comments on economic data and policy developments provide valuable insights to clients and colleagues, and are often featured in the media.

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