Financial experts currently like to spell. V, W, L or U are the preferred letters. They stand for certain scenarios of how the economy can recover. What's behind it?
Braunschweig (dpa / tmn) - Economic experts are currently not very optimistic. Many believe there will be no economic growth in the face of the coronavirus pandemic. Instead, the signs point to recession almost everywhere.
The World Bank, for example, expects global economic output to decline by 5.2 percent this year. That would be the worst recession since World War II. The Institute of the German Economy (IW) expects the global economic output to decline by more than four percent in the current year.
Bad news for Germany
This is not good news for the export-oriented German economy, because global trade also decreases with economic performance. According to the IW forecast, the gross domestic product (GDP) in Germany in 2020 will be around nine percent lower than in the previous year. The Bundesbank is only expecting a 7.1 percent decline in economic output for Germany this year.
Nevertheless: This is still more than in the global economic and financial crisis in 2009. At that time, German GDP had fallen by 5.7 percent.
Economic forecasts with letter models
The question arises: how quickly will things go up again? When looking for answers, experts are currently using certain letters: V, W, U or L. "The letters serve to simplify the illustration of possible economic developments," explains wealth manager Richard Feininger of Böhke & Compagnie Consultants KG from Braunschweig.
The L describes the situation that economic growth will stagnate and remain at a low level for a long time. The U assumes that the economy will recover only slowly after the crash, while a V-shaped development assumes that the economy will recover quickly. In the case of the W, the experts assume that the recovery will be stopped and a new crash will occur before things start to pick up again.
Measures seem to be taking effect
"It currently looks like it will be the V," says Jürgen Kurz of the German Association for the Protection of Securities (DSW). In his opinion, however, the W is not yet completely out of the world.
"Basically, the economic situation is similar to that of a seriously ill corona patient whose state of health is currently improving," says Frank Wieser from PMP Vermögensmanagement in Düsseldorf. "It is questionable whether he will ever fully recover."
Nevertheless, the measures that central banks and states have taken worldwide seem to be having an effect. The World Bank, for example, expects the global economy to grow by 4.2 percent in the coming year. For 2021, the Bundesbank's economists anticipate 3.2 percent growth for Germany. However, the prerequisite is that an effective medical solution to combat the coronavirus will soon be available.
Stock market is optimistic
The mood on the stock exchanges is currently anything but sad. "Since the beginning of the year, the American leading index S&P 500 has been in the red for just over eight percent, while the US technology index NASDAQ Composite is up almost four percent," observed Adrian Roestel, head of portfolio management at Huber, Reuss & Kollegen in Munich.
And the German share index Dax is slowly approaching its highs again. "This shows that the stock markets have decoupled from the real economy," says Roestel.
This also differentiates the Corona crisis from previous crises, in which the recovery phases on the stock exchanges were significantly longer. "What at first glance looks like a contradiction does not have to be," says Wieser. "Many investors have given up economically for the next one to two years and are looking to 2022."
In short, this development is viewed with skepticism: "This bull market is not popular," he says. Bull market is the technical term for rising stock prices. "Because the numbers don't actually give these courses yet," Kurz explains.
In addition, the pandemic is not over yet. And so the danger that a second wave will lead to new restrictions has not yet been averted. This poses a dilemma for investors: In the short term, the economic scenario is difficult, in the long term there is a risk of missing the upswing.
Long-term strategy mostly successful
But investors should not be led by fear now. "Above all, investors should act with a steady hand and not be driven by the current headlines," says Roestel. "Investors often overestimate short-term risks and underestimate the long-term opportunities of the equity markets."
There have always been major crises on the stock exchanges. Nevertheless, the share, which is a share certificate in a company and therefore a real asset, remains an attractive investment.
"The most important thing is the long-term strategy," explains Kurz. Even if there are short-term fluctuations, a positive return is generally possible over a long period with a broadly diversified portfolio. This is also shown by calculations by the German Equity Institute (DAI). Accordingly, the annual returns for an investment period of 20 years in the past were around 9 percent for the Dax alone.
Investors did not have to fear losses over such periods. In the worst case, the annual return was 4.7 percent, in the best 16.1 percent. That means: Those who stayed with it could, for example, survive the bursting of the real estate bubble or the price slump on the so-called Neuer Markt at the beginning of the 2000s.
