The global economy is in recession. The wave of corona infections around the globe has plunged the economy into crisis at record speed. This is a very steep and undoubtedly also very deep economic slump, but not a typical downturn. This is what makes it so difficult, not least for the financial markets, to interpret the situation and find an appropriate response.
The movements on the financial markets in recent days have been extreme. An almost unprecedented drop in stock market prices last week was followed by equally record-breaking gains in recent days. Yields are also far from showing the typical pattern seen in economic cycles. There is a lack of orientation, because at the moment no one is able to make even a halfway reliable forecast for the coming weeks.
However, one thing is relatively clear: economic policy, which is currently trying to fight the crisis with all available means, is relatively powerless in the current phase. It cannot prevent the crash of economic activity caused by the massive containment measures. It can only try to cushion second-round effects that could arise, for example, from a rapid increase in corporate insolvencies. By contrast, it is still too early for genuine fiscal stimulus measures of the kind familiar from earlier economic crises.