A pedestrian walks past closed-down shops on an empty Regent Street in London on April 2, 2020, as life in Britain continues during the nationwide lockdown to combat the coronavirus pandemic.
Stock markets are “totally unprepared” for how long economies will take to normalize after the coronavirus crisis, one strategist told CNBC Tuesday.
Global markets have been plunged into turmoil in recent months as investors reacted to the escalating coronavirus crisis. The Dow Jones Industrial Average and S&P 500 were both down by around 20% over the first quarter of this year, while European stocks posted their worst quarter since 2002. However, many indexes have rallied in recent days as data suggested the spread of COVID-19 in Europe and the U.S. could be starting to slow.
But Steen Jakobsen, chief economist at Saxobank, said the optimism could be premature, claiming investors were failing to price in the long-term fallout of the crisis.
“I still think the market is totally unprepared for what is coming in terms of when we open up,” he told CNBC’s “Squawk Box Europe” Tuesday. “The market is celebrating, and very rightly so, that we have a flattening out of the curve right now in terms of people being infected, but the real economic drama will be when we get to the other side of this, because opening up will take month upon month.”
He added that it was difficult to see how places where people were in enclosed, crowded environments — like sporting events, malls or airports — could be freely reopened.
“That means essentially the economy will be running at 60% (to) 90%,” he said. “I had a number of chats with colleagues in China this week — they say they are 90% (open) but foot traffic is less than 50%, airports less than 20%. So it’s going to take a very, very long time, and the economic impact is not accounted for in the stock market right now.”
Some analysts, however, have been more optimistic about the economic turnaround once the crisis has passed.
Arnab Das, global market strategist at Invesco, told CNBC last week he expected an initial V-shaped bounce back followed by a period of calm before a more sustained period of gradual recovery.
Meanwhile, Michael Yoshikami, founder and CEO of Destination Wealth Management, told CNBC’s “Squawk Box Europe” he didn’t believe the economic downturn would last as long as people feared.
Reversing lockdown measures
Jakobsen also told CNBC Tuesday the global economy would not be able to withstand widespread lockdown measures for very long.
Countries around the world have implemented lockdown or social distancing measures to limit the spread of the new coronavirus. Health experts told CNBC those measures were likely to be in place for months in the U.S. and beyond, while scientific advisors to the U.K. government have warned a lockdown may be needed in the country for “at least half of the year.”
Noting that the longer social-distancing measures were in place, the more would be shaved off of global gross domestic product, Jakobsen said policymakers would only be able to mitigate economic losses for another two to three weeks despite “very forceful” stimulus measures being rolled out by central banks and governments.
“We’ll come to a point very, very soon where we need to decide whether we’re going to keep society at a social-distancing model or we need to reopen,” he said. “We are talking about unemployment in the U.S. (getting as high as) 20%. The highest unemployment we’ve seen in the U.S. was 10.7% in 2008.”
On Monday, a study published by MIT Sloan School of Management claimed cities with strong social-distancing measures in place would see stronger economic recoveries.
“Lifting restrictions too early could make the economy worse by leading to a resurgence of the virus in an even more destructive pandemic,” said Emil Verner, an MIT Sloan assistant professor and co-author of the paper. “We have to defeat the disease before the economy can go back to normal.”
It came after the WHO warned last week that countries rushing to lift quarantine restrictions risked “even more severe and prolonged” economic downturns as a result of the pandemic.
Since the coronavirus was first reported to the WHO in late 2019, more than 1.3 million people have been infected globally, with the virus leading to over 76,000 deaths to date.