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Economic recovery after the coronavirus hinges on one factor: former Bank of England governor

Brian Sozzi
Editor-at-Large

Wall Street may want to pipe down on whether the U.S. economic recovery following the peak in the coronavirus pandemic will be shaped like a V, U, or W.

Because as it stands, coronavirus-related restrictions put on by the federal and state governments are showing no timeline on when they will be lifted. When will citizens be allowed to travel freely abroad to conduct business? When will the local pub or J.C. Penney reopen? Who knows, surely not any elected official that is enacting the social distancing restrictions.

The only sure thing at the moment is radical uncertainty on when growth will be allowed to resume in any form. So as an investor, how could you confidently pick stocks even if they seem markedly cheaper relative to the February all-time highs? How could you truly buy into the notion the week’s long rally in the S&P 500 is nothing more than a sucker’s rally before one more sharp leg lower?

You can’t, until we get an exit plan from the new world the coronavirus has created.

“I think it [the economic recovery] will look very different. It will depend critically on the policies governments put in place,” explained former Bank of England governor Lord Mervyn King on Yahoo Finance’s The First Trade. King — the author of the new book “Radical Uncertainty: Decision-Making Beyond the Numbers” that studies past crises —led the Bank of England through the Great Recession so he knows a good bit on the current subject.

Former governor of the Bank of England, Mervyn King, addresses the audience of the 'Lord Mayor's Dinner to the Bankers and Merchants of the City of London' at the Mansion House on June 19, 2013 in London, England. (Photo by Oli Scarff - Pool/Getty Images)

To King, getting an exit strategy on extraordinary policy measures is critical to understanding what type of recovery we get and when it begins.

‘If that exit strategy holds out hope that businesses will be able to restart and that people who have immunity could go back to work, then we could see a very sharp rebound and get back to normal sometime in the autumn or second half of the year,” said King.

But King’s other scenario is looking likelier judging by President Trump leaving coronavirus guidelines in place at least until April 30 (it has been a moving target) and countless retailers extending store re-openings into April.

“If on the other hand governments do not have any exit strategy and simply carry on pretending they know for how long we will need these measures, and it turns out we need them for longer, then it may be the case too many businesses will have disappeared,” added King. “It will be difficult to persuade banks to support businesses which they find in real difficulty but we will need to come back in the second half of the year when the epidemic is over. If we don’t have that clarity we could easily find too many businesses are out of existence and any recovery will be very slow and we will suffer many of the same problems we suffered after the financial crisis of not having a speedier recovery back to where we would have been before the crisis occurred.”

Brian Sozzi is an editor-at-large and co-anchor of The First Trade at Yahoo Finance. Follow Sozzi on Twitter @BrianSozzi and on LinkedIn.

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