Tag: global economy

By Anneken Tappe for CNN

The Covid-19 pandemic and subsequent lockdown measures have thrown the world economy in turmoil. Even as countries are reopening, the World Bank predicts this year, the globe will have its deepest global recession in 80 years.

The pandemic, which has infected some seven million people worldwide, led countries to order citizens to stay at home and business to grind to a halt.

Worldwide gross domestic product — the broadest measure of economic growth — will contract 5.2% in 2020, according to a report by the World Bank. That’s despite the unprecedented fiscal and monetary policy support governments around the world have been rolling out. Trillions of dollars have been deployed to help companies stay in business, keep cash in consumers wallets and let financial markets function properly.

Still, advanced economies, such as the United States or Europe, are projected to shrink by 7%. America’s economy is expected to contract by 6.1% before rebounding in 2021.
This quarter will almost certainly be the worst for the Western world, but most of Asia felt the brunt of the outbreak in the first months of the year.

China, the world’s second largest economy, is projected to grow 1% this year, down from 6.1% in 2019, before bouncing back.
The pandemic recession will probably leave deep scars: Investments will stay lower in the near term, and global trade and supply chains will erode to some extent. On top of that, millions of people have been laid off, causing the biggest blow to America’s labor market since the Great Depression. The US Federal Reserve has stressed its concern about laid-off workers getting detached from the labor force as a result of the crisis.

The recession would be even worse if it took longer than expected to bring the pandemic under control, or if financial stress forced a number of companies into bankruptcy.

On Monday, a monthly survey from the American National Association of Business Economics found that a second wave of infections was the biggest risk to the US economy.

Emerging economies are in particular danger, because their health care systems are less resilient and they are more exposed to woes in the global economy through supply chains, tourism and reliance on commodity and financial markets, the World Bank report said.

At the same time, low oil prices, which collapsed in April, could help jump starting the economy in the initial stages of reopening, the World Bank acknowledged.

By Fergal O’Brien for Bloomberg

The global economy is taking a hammering the likes of which has not been seen for years. With factories, stores and restaurants shut, aircraft grounded and travel restricted, the monthly Purchasing Managers Indexes from IHS Markit laid out the scale of the challenge. The US PMI, due later on Tuesday, is forecast to show sharp contractions.

The euro-area measure for manufacturing and services dropped to the lowest since the series began in 1998, as did the gauges for the UK and Australia. Japan’s composite index fell to the weakest since 2011, while measures for Germany and France also plunged.

“The near-term economic outlook is terrible,” said Stephen King, senior economic adviser at HSBC Holdings. “There should be no surprise about these numbers given what is going on and that they confirm what we knew from China earlier.”

The PMI may not even capture the full extent of the downturn, because of the way the hit to supply chains is distorting the results. IMF Managing Director Kristalina Georgieva warned on Monday that the global economy is facing a slump “at least as bad as during the global financial crisis or worse”.

In the UK, separate figures added to the bleak picture. The Confederation of British Industry said manufacturers’ orders books fell sharply, and companies anticipate a drop in output in the coming months.

Investor concern has sparked a panicked selloff in equity markets. The Stoxx Europe 600 Index has fallen more than 30% in the past month, effectively wiping out almost seven years of gains. The S&P 500 is at the lowest since 2016.

The airline industry is among the worst hit, and companies including Germany’s Deutsche Lufthansa have been forced to ground thousands of planes. Countless jobs are at risk because of closures, while manufacturing has also been disrupted by national lockdowns.

Warnings about the depth of the slump having been coming almost daily.

At the weekend, Morgan Stanley said that US gross domestic product could fall at an annual rate of 30% in the second quarter, driving up unemployment to average 12.8%. Federal Reserve policy maker James Bullard offered an even worse prediction that the jobless rate could rise to 30%.

Bloomberg Economics says the global economy will shrink almost 2% year-on-year in the first half, with the euro-area suffering the worst back to back quarterly contractions in its history. While a pickup is expected later this year, “a lot needs to go right” for that to happen, according to Tom Orlik, BE chief economist.

Just hours before the euro-area PMI, Goldman Sachs Group said the region’s economy could shrink more than 11% quarter-on-quarter in the three months through June.

Central banks are continuing their firefight, with almost 40 interest-rate cuts last week alone.

The Fed unexpectedly announced more huge measures on Monday, saying it will buy unlimited amounts of Treasury bonds and mortgage-backed securities to keep borrowing costs at rock-bottom levels. Both the Bank of England and the European Central Bank have also announced huge expansions of their asset-purchase programmes.

By Phillip Inman for The Guardian

The coronavirus could cost the global economy more than $1tn in lost output if it turns into a pandemic, according to a leading economic forecaster.

Oxford Economics warned that the spread of the virus to regions outside Asia would knock 1.3% off global growth this year, the equivalent of $1.1tn in lost income.

The consultancy said its model of the global economy showed the virus was already having a “chilling effect” as factory closures in China spilled over to neighbouring countries and major companies struggled to source components and finished goods from the far east.

Apple told investors earlier this week that it would fail to meet its quarterly revenue target because of the “temporarily constrained” supply of iPhones and a dramatic drop in Chinese spending during the virus crisis.

Carmaker Jaguar Land Rover, adding its voice to a chorus of companies complaining about supply problems, said it could run out of car parts at its British factories by the end of next week if the coronavirus continued to prevent parts arriving from China.

Oxford Economics said it expected China’s GDP growth to fall from 6% last year to 5.4% in 2020 following the spread of the virus so far. But if it spreads more widely in Asia, world GDP would fall by $400bn in 2020, or 0.5%.

If the virus spreads beyond Asia and becomes a global pandemic, world GDP would drop $1.1tn, or 1.3% compared to the current projection. A $1.1tn decline would be the same as losing the entire annual output of Indonesia, the world’s 16th largest economy.

“Our scenarios see world GDP hit as a result of declines in discretionary consumption and travel and tourism, with some knock-on financial market effects and weaker investment,” it said.

Rival consultancy Capital Economics said the situation in China was still developing and it remained unclear how long before the quarantine rules across much of China’s central belt would lead to mass job layoffs and wage cuts becoming more widespread.

It said 85% of larger stock market-listed firms had enough funds to meet their liabilities and wage bills formore than six months without any further revenue.

But thousands of small and medium-sized businesses, which are responsible for half of urban jobs, “may not heed government orders not to shed jobs”.

A survey of 1,000 SMEs conducted by two Chinese universities found that unless conditions improved, one-third of the firms would run out of cash within a month, the consultancy said.

Another survey of 700 companies found that 40% of private firms would run out of cash within three months.

The firm’s Asia analyst, Julian Evans Pritchard, said: “Our best guess is that there is still a window of another week or so during which, if economic activity rebounds, the bulk of employees including at vulnerable SMEs would probably keep their jobs.

“And with large-scale layoffs avoided, consumer spending would bounce back quickly due to pent-up demand, which in turn would help the self-employed and family-run businesses to recoup much of their recent loss of income.

“But with each day that the disruption drags on, the risk of a protracted slump in output rises. If activity is not clearly rebounding by the end of next week, we will revisit our annual growth forecasts.

Oxford Economics said it still expected the impact of the virus to be limited to China and have a significant, but short-term impact, bringing world GDP growth just 0.2% lower than January at 2.3%.

But a pandemic would cause a deeper and more profound shock over the next six months, possibly equal to a $1.1tn loss, followed by a recovery that would make up some of the ground lost earlier in the year.

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