Why this economist believes it’s not all gloom and doom for the global economic outlook

Amid the challenging economic landscape plagued by the COVID-19 pandemic, UBS Global Wealth Management Chief Economist, Paul Donovan, shares a more optimistic view, highlighting that 85% of salaries in both Europe and the US have remained stable in the last quarter. This stability in income levels provides room for hope in terms of buying power and consumer spending. As the world grapples with limited spending in the wake of lockdown restrictions and job losses, Donovan points out that the first half of the year saw a significant decline in consumer spending, ranging from 20 to 35% depending on income levels. However, the silver lining emerges in the form of pent-up demand as people start to release their saved income, primarily on consumer durable goods such as electronics and home furnishings. The uptick in production to meet this surge in demand is expected in the third quarter. Addressing fears of the virus and its economic impact, Donovan emphasizes that it is the fear and associated unemployment concerns that are causing the most significant damage. He notes that while Europe has managed to contain unemployment fears with generous government schemes, the US faces uncertainty with the sudden halt of assistance and delays in implementing replacement schemes. Looking ahead, Donovan forecasts a similar response to previous economic crises where initial reluctance to spend turns into a spending spree once people adjust to the new normal. He remains cautiously optimistic about the potential issues surrounding the US-China trade deal, especially with a looming risk in September if the deal breaks apart. The conversation then shifts to the structural changes accelerated by the pandemic, with Donovan acknowledging the challenges in capturing accurate economic data amidst the ongoing transformations. He highlights the accelerated adoption of remote work, changes in spending patterns, and the expedited movements towards the fourth industrial revolution and environmental sustainability. While acknowledging the complexities and uncertainties, Donovan anticipates that these structural changes, which might have taken a decade or more to materialize, will now likely occur within a shorter timeframe of two to five years. This includes shifts towards local production, increased automation, and a heightened focus on environmental conservation. Ultimately, the global economic outlook, though marred by the current crisis, holds pockets of resilience and potential growth as economies adapt to the new realities brought forth by the pandemic.