Graph of the week

Graph of the week

26-06-2020 | Visione

Ceci n’est pas une récupération (A V-shaped recovery for real?)

  • Peter van der Welle
    van der Welle
    Multi-Asset Strategist

On occasion, the surrealism attributed to Magritte’s most famous work of art “Ceci n’est pas une pipe” (The Treachery of Images) pops up in economists' graphs. The same happened just this week, for example, in a graph depicting a V-shaped recovery that is, in fact, not a V-shaped recovery.

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Italy, whose Lombardy region was hit hard by Covid-19, was the first EU member state to restrict its citizens’ movements on 8 March. It then closed down all non-essential businesses on 21 March. Social mobility came to an abrupt standstill in large areas of Europe as a result of the announcement of the lockdown.

Car sales recovery

Google’s mobility data reveals that on 3 April 2020, activity around public transport hubs in Italy had plummeted by 87%. The country also witnessed a dramatic decline in new car registrations in this period – by 85% in February and a staggering 97% in March compared with last year – as the black line in the graph shows.

New car sales in China (the turquoise line) are two months ahead of other regions in the graph. China went into lockdown two months before Italy and also appears to be two months further into its recovery as well. Car sales there have normalized and are even showing a slight growth on an annualized basis.

This is important information because usually car sales are considered by economists to be a reasonable indicator of retail sales and point to an increase in consumer confidence. A new car is, after all, a large purchase and research shows that for many potential buyers, the visit to a car dealer forms quite a barrier, figuratively speaking.

Why, then, are we able to observe a V-shaped recovery in new car sales, despite record unemployment in many areas? Part of the answer lies in Google’s mobility data for the month of June. While parks, beaches and harbors saw a 40% increase in visitors after Italy's lockdown was lifted, public transport usage was still below the long-term trend, at 31%.

Conflicting signals

Mobility is on the rise again, but people are rapidly turning to cars rather than buses, trains and metros as their preferred form of transport. In the Netherlands, for instance, trade association Bovag reported the second-highest used car sales figures ever in May. A whopping 91% of buyers gave wanting to avoid public transport as the reason for purchasing a used car.

So, while a V-shaped recovery in car sales is usually a good indicator of a wider recovery in retail sales and consumer confidence, this time it's sending mixed – or even conflicting – signals. In short, we've started traveling to the office and recreational destinations again, but we're still anxious about contracting Covid-19.

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