The US economy suffered its most severe contraction in more than a decade in the first quarter of the year, as the country introduced lockdowns to slow the spread of coronavirus.
The world’s largest economy sank at an annual rate of 4.8%, according to official figures released on Wednesday.
It marked the first contraction since 2014, ending a record expansion.
But the figures do not reflect the full crisis, since many of the restrictions were not put in place until March.
Since then, more than 26 million people in the US have filed for unemployment, and the US has seen historic declines in business activity and consumer confidence. Forecasters expect growth to contract 30% or more in the three months to June.
“This is off the rails, unprecedented,” said Mark Zandi, chief economist at Moody’s Analytics. “The economy has just been flattened.”
The contraction in the US economy is part of a global slowdown as a result of the coronavirus pandemic.
In China, where restrictions were in place for much of the quarter, the economy shrank by 6.8% – its first quarterly contraction since record-keeping began in 1992.
And on Wednesday, Germany said its economy could shrink by a record 6.3% this year.
“We will experience the worst recession in the history of the federal republic” founded in 1949, Economy Minister Peter Altmaier said.
Before the coronavirus knocked the global economy off course, the US economy was expected to grow about 2% this year.
But by mid April, more than 95% of the country was was in some form of lockdown. Although some states have started to remove the orders, they remain in place in many others, including major economic engines such as New York and California.
Many companies have warned of significant hits related to the pandemic as they share quarterly results with investors.
On Tuesday, General Electric said its revenues had fallen 8% in the first quarter, while Boeing – already in crisis after fatal crashes of its 737 Max plane – reported a 48% revenue fall, and said it planned to reduce output and cut jobs.
“The Covid-19 pandemic is affecting every aspect of our business, including airline customer demand, production continuity and supply chain stability,” chief executive Dave Calhoun said.
The Commerce Department said consumer spending – which accounts for about two thirds of the US economy – dropped 7.6% in the first three months of the year.
Spending on food services and accommodation plummeted more than 70%, while clothing and footwear purchases were down more than 40%.
Health spending also plunged – despite the virus – as concerns about infection prompted doctors to postpone routine treatments and other medical care.
The economic pain in the US is expected to be even more severe in the April-June period, but economists say even the estimate for the first quarter is likely to be revised lower, as the government receives more data.
“It’s very difficult to gauge the depth of the decline,” Mr Zandi said. “We won’t really know the extent of the economic damage for years.”
The US has responded to the economic crisis with more than $3tn in new spending.
The central bank has also mounted a significant intervention. Policymakers there are expected to speak about those efforts on Wednesday.
Palestinian Economy Hit Hard by Virus Needs Aid, World Bank Says – BNNBloomberg.ca
(Bloomberg) — The Palestinians will need outside help to overcome a poor economic outlook and widening budget deficit made far worse by the Covid-19 pandemic, according to a new World Bank report.
Already facing a growth slowdown and sizable deficit, the West Bank and Gaza Strip could see output shrink between 7.6% and 11%, depending on how fast the economy recovers from the virus, the World Bank said in its report published on Monday. President Mahmoud Abbas’s Palestinian Authority may watch its fiscal gap roughly double to more than $1.5 billion this year, and will need significant aid to restore growth and solve budgetary issues, the bank added.
“Several years of declining donor support and the limited economic instruments available have turned the ability of the government to protect livelihoods into a monumental task,” Kanthan Shankar, World Bank country director for the West Bank and Gaza, said in a release. “External support will be critical to help grow the economy during this unprecedented period.”
After economic expansion cooled from 8.9% in 2016 to just 0.9% last year, the pandemic forced World Bank officials to cut their 2020 expectations from a previous 2.5% increase. Restraints on movement helped to contain the spread of the disease but also hurt activity and government revenue.
In total, there have been more than 430 confirmed cases of the novel coronavirus across the West Bank and Gaza, with three deaths.
Israel, which occupies the West Bank and blockades Gaza along with Egypt, is loaning the Palestinian Authority as much as 800 million shekels ($227.8 million) over the coming four months to help make up for the loss of tax revenue. The rare deal is meant to ensure funding for hospitals and other key services.
World Bank officials focused on recommendations to upgrade the Palestinian telecommunications sector in cooperation with Israel, in order to further develop the digital economy. Israel maintains a tight grip on broad aspects of the Palestinian information and communications technology sector.
Tensions between Israelis and Palestinians are rising as Prime Minister Benjamin Netanyahu promises to move forward this summer with annexing West Bank territory viewed by Palestinians as the heart of their future state. Palestinian leaders have promised to end all forms of cooperation with Israel in protest.
Now That He Can Annex West Bank Land, Will Netanyahu Do It?
©2020 Bloomberg L.P.
People more important than the economy, pope says about Covid crisis – The Guardian
By Philip Pullella
VATICAN CITY (Reuters) – Pope Francis said on Sunday that people are more important than the economy, as countries decide how quickly to reopen their countries from coronavirus lockdowns.
Francis made his comments, departing from a prepared script, at the first noon address from his window overlooking St. Peter’s Square in three months as Italy’s lockdown drew to an end.
“Healing people, not saving (money) to help the economy (is important), healing people, who are more important than the economy,” Francis said.
“We people are temples of the Holy Spirit, the economy is not,” he said.
Francis did not mention any countries. Many governments are deciding whether to reopen their economies to save jobs and living standards, or whether to maintain lockdowns until they are sure the virus is fully under control.
The pope’s words were met with applause by hundreds of people in the square, many of whom wore masks and kept several meters from each other. The square was reopened to the public last Monday. Normally tens of thousands attend on a Sunday.
The last time the pope delivered his message and blessing from the window was March 1, before Italy, where more than 33,000 people have died from the virus, imposed a lockdown. The last restrictions will be lifted on Wednesday.
Francis led the crowd in silent prayer for medical workers who lost their lives by helping others.
He said he hoped the world would come out of the crisis more united, rather than divided.
“People do not come out of a crisis like this the same as before. We will come out either better or worse than before. Let’s have the courage to emerge better than before in order to build the post-crisis period of the pandemic positively,” he said.
(Reporting by Philip Pullella; Editing by Susan Fenton)
ANC Looks for New Levers to Boost South Africa's Economy – BNNBloomberg.ca
The head of economic transformation in South Africa’s ruling party proposed a range of measures to bolster the economy, ranging from encouraging the use of pension funds and the central bank to finance infrastructure spending to the creation of a state bank and pharmaceutical company.
Enoch Godongwana’s recommendations to the African National Congress come as the government tries to revive an economy devastated by the coronavirus pandemic.
“The Covid-19 shock is posing unprecedented challenges, the economic crisis entailed by the pandemic is unique,” Godongwana said in the May 22 document seen by Bloomberg. “Globally, central banks have reverted to their original role as bankers to their governments.”
While business and investors have been calling for strong government action to support Africa’s most-industrialized economy, the document may heighten concerns about state intervention and so-called prescribed investment — mandatory funding by private companies of certain sectors.
In the document, Godongwana proposed changing regulation 28 of the Pension Funds Act to boost the funding of infrastructure projects spearheaded by state development finance institutions using private capital. South Africa’s main state-owned DFIs are the Industrial Development Corp. and the Development Bank of Southern Africa, of which Godongwana is chairman.
He also suggested that the Reserve Bank help finance DFIs through the creation of a 500 billion-rand ($29 billion) fund. Money should also come from the Public Investment Corp., a 2.13 trillion-rand fund manager that oversees civil servants’ pensions, Godongwana said.
“While it faces increasing continental competition, the South African financial-services sector can rightly be said to endow our emerging-market nation with ‘the financial plumbing of a rich place’ with deep, liquid markets,” he said.
While the document is a break with the thinking of some ANC leaders that the state should be responsible for much of the investment in the economy, it does advocate increased government “guidance.”
“A narrow and flawed understanding of what the developmental state is has led to the erroneous conclusion that it is only about public investments and public ownership, with a related over-emphasis on the limited funds of the state,” he said. “A developmental state does not necessarily mean higher levels of state ownership, but high levels of guidance.”
In an interview with Johannesburg’s Business Times, which reported on the document earlier, Godongwana said the proposals didn’t amount to advocating for prescribed assets. They merely meant that regulations should be changed so that pension funds can invest in DFI’s if they wish to.
Godongwana didn’t answer a call to his mobile phone. Neither did Pule Mabe, the spokesman for the ANC.
The document also proposed the formation of a state bank, a pet project of Finance Minister Tito Mboweni, and a national pharmaceuticals company.
It also advocated, in contrast to the drive of some government departments, a swift move away from coal-fired energy to renewable power. The state-owned Central Energy Fund should be used to partner private investors in new projects, Godongwana said.
©2020 Bloomberg L.P.
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