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Economic paralysis: Coronavirus slams brakes on China economy –



Everyone knew the coronavirus outbreak was hurting China’s economy. But the latest data show just how bad the pain has been and could continue to be for some time.

China’s industrial output contracted at the sharpest pace in 30 years in the first two months of the year as the fast-spreading virus and strict containment measures severely disrupted the world’s second-largest economy, data showed on Monday.


Urban investment and retail sales also fell sharply for the first time on record, reinforcing views that the epidemic may have cut China’s economic growth in half in the first quarter.

Industrial output fell by a much worse-than-expected 13.5 percent in January-February from the same period a year earlier, the weakest reading since January 1990 when Reuters news agency records started, and a sharp reversal from the 6.9 percent growth rate in December, data from the National Bureau of Statistics (NBS) showed.

The median forecast of analysts polled by Reuters was for a rise of 1.5 percent, though estimates varied widely.

Fixed-asset investment – the amount of money companies spend on things like new equipment, buildings or land – fell 24.5 percent year-on-year, compared with 2.8 percent predicted by analysts and 5.4 percent growth in the prior period.

Retail sales shrank 20.5 percent on-year, compared with a rise of 0.8 percent tipped by analysts and skidding from an 8 percent growth rate in December, as consumers fearful of the virus shunned crowded places like shopping malls, restaurants and movie theatres.

Chinese officials said last week that the peak of the epidemic had passed, but analysts warn it could take months before the economy returns to normal. The fast spread of the virus around the world is sparking fears of a global recession that will dampen demand for Chinese goods.

In a statement on Monday, the NBS said the impact from the coronavirus epidemic is controllable and only short-term, adding that authorities would strengthen policy to offset the impact and restore economic and social order.

Mainland China reported an overall drop in new coronavirus infections on Sunday, but major cities such as Beijing and Shanghai continued to wrestle with cases involving infected travellers arriving from abroad.

Prior to a significant worsening of the outbreak, analysts had predicted a rapid recovery for China’s economy, similar to that seen after the SARS epidemic in 2003-2004.

However, the outbreak escalated just as many businesses were closing for the long Lunar New Year holidays in late January, and widespread restrictions on transportation and personal travel, as well as mass quarantines, delayed their reopening for weeks.

The Caixin Purchase Manager’s Index, a private measure of factory activity, plunged to the lowest on record in February, with production and new orders collapsing and signs of hefty layoffs. Shortages of Chinese-made parts and components rapidly rippled through global supply chains as far away as Europe and the United States.

China’s exports fell 17.2 percent in the first two months from a year earlier, while slumping demand pushed producer prices back into deflation, recent data showed.

Factories may not be back to full output until April, some analysts estimate, and consumer confidence may take even longer to recover. Authorities are now on the watch for Chinese nationals who may bring the virus home from other parts of the world.

Citing the twin blow from both supply and demand shocks, analysts polled by Reuters expect China’s first-quarter economic growth could be cut nearly in half to 3.5 percent year-on-year from 6 percent in the previous quarter. Some suspect the economy even contracted on a quarter-on-quarter basis.

For the year, growth was expected to slow to 5.4 percent, which would be the slowest since 1990.

Reuters news agency

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Time for 'War Economy Planning' to Beat Coronavirus | Reporting Democracy – Balkan Insight



“With some kind of ‘war economy planning’, they could be made to churn out the required gear for reducing mortality rates caused by COVID-19,” he said in an email interview from his home in the Danish capital. “Much of the textile sector is essentially idle as there are no orders and some of it has already kicked into gear and is mass producing masks and medical overalls.

“However, in the absence of some national level planning apparatuses, the risk is that we will have patchwork industrial conversion of this kind, rather than a more systemic one. It is time to let go of that ‘anti-communist’ rejection of planning, as this is survival we are talking about.”

He added: “Without industrial planning the US would have stood no chance against Japan and Germany during World War II and wartime planning did not translate into authoritarianism after the war. On the contrary, it ushered in a strong labour union movement and more egalitarian income policies. The same is true of Britain.” 

Although coronavirus cases remain relatively low in Central and Southeast Europe compared with those in Western Europe, health systems are starting to feel the strain, with hospitals appealing to the public for protective equipment and more and more medical staff infected by the virus.

Experts say one reason cases are still quite low is that countries in the region are several weeks behind Western Europe in terms of infections.

As of Monday evening, Poland had recorded over 2,000 cases, with 31 deaths. Fatalities in Czech Republic and Hungary stood at 23 and 15, respectively. Slovakia had no deaths.

In the Balkans, Romania has been worst affected, with 50 deaths as of Monday evening. Serbia had 16 deaths, Albania 11, Bosnia and Herzegovina nine, Bulgaria eight, North Macedonia seven and Croatia six.

It is time to let go of that ‘anti-communist’ rejection of planning, as this is survival we are talking about.

– Cornel Ban

Like most nations in Europe with the exception of Germany, countries formerly behind the Iron Curtain are far from prepared for the spike in intensive care cases that the pandemic is bound to bring, Ban said.

The main reason is that “pretty much everyone has bought into the self-destructive neoliberal ‘new public management’ approaches on how to organise medical care and intensive care in particular”, he said.

By “new public management”, Ban was referring to a trend that started in the West in the 1980s: to use private-sector models to run public services and government agencies.

“Consequently, they ended up with vulnerable ‘just in time’ medical supply chains,” he said. Meanwhile, health systems in former communist countries have their own unique vulnerabilities. 

“The collapse of the socialist-era pharma industry and the underfunding (at best) of public pharma research institutes, combined with a lack of minimal logistical planning capacities at the level of central governments, means the Central and Eastern European countries’ capacity to source even the simplest gear — such as masks, medical overalls or disinfectants — is crushed,” he said.

Ban noted that difficulties in sourcing even basic medical supplies became immediately apparent once producer countries started hoarding materials to meet domestic needs. Meanwhile, global transport routes were increasingly disrupted due to the virus. 

“In some countries that have very low medical care spending such as Romania, some regional hospitals, designated to deal with COVID-19 patients, fell apart almost as soon as they received the first patients because of lack of testing kits and gear for the medical personnel,” he recalled. 

Chronic low spending on healthcare in the three decades since the fall of communism has led, among other things, to the mass migration of nurses and doctors to Western Europe and beyond, leaving health systems in the region even more vulnerable to the pandemic, he said.

Countries in the region tend to have fewer fully equipped critical care beds and medical staff trained to treat the patients who need them. They also have a far lower capacity to test for coronavirus, with fewer laboratories able to analyse samples. 

Finally, hundreds of thousands of emigrant workers from countries such as Poland and Romania have returned home from Western nations — with many potentially bringing the virus with them, Ban said.

In the case of Romania, this is especially concerning since the main destination countries for emigrants have been Italy and Spain — the two countries in Europe worst hit by COVID-19. 

But Ban said he was most concerned about the availability of ventilators in coming weeks when countries in the region are likely to record tens of thousands of infections. 

“The (mostly) German, Swiss, Dutch and American companies that make ventilators have very low production volumes given the demand and do not seem keen to move production capacities to the east,” he said.

“To top it off, the car industry seems unlikely to convert its capacities to ventilator production in time for the weeks ahead, when we will see tens of thousands of cases in Central and Eastern Europe.”

He concluded: “The results, I fear, will be tragic.”

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How quickly can the economy bounce back from the coronavirus? – USA TODAY



Can the economy really come roaring back from the coronavirus recession as soon as this summer, as President Donald Trump has promised?

Some economists say the answer is yes. An economy that was in good shape before the steep and sudden free-fall triggered by the outbreak just as quickly can be jolted back to life, reclaiming nearly all its former luster.

In fact, that’s largely what the massive $2.2 trillion stimulus package signed into law by President Trump Friday is intended to do: Hold the nation’s $21 trillion economy together with a kind of duct tape for a few months by providing spending money to laid-off workers and teetering businesses.  

But many economists say the comeback is likely to be far more halting. Growth could pick up strongly this summer but still fall well short of its former pace, with the recession’s after-effects lingering well into next year as consumers remain skittish about venturing out to restaurants and other gathering spots. Some of the damage could even be lasting, leaving a smaller economy than would have been the case without the pandemic.

“It’s not an on-off switch,” says Jonathan Millar, deputy chief US economist at Barclays.

“I don’t think there’s any chance we get back to where we were anytime in the near future,” says Mark Zandi, chief economist of Moody’s Analytics.

Of course, the strength of the recovery hinges on the course the virus takes. It has shut down 30% to 40% of America’s economy, with nonessential businesses such as restaurants, stores and movie theaters shuttered by law or by choice and the travel and hotel industry at a near standstill. In the week ending March 21, a record 3.3 million Americans filed initial unemployment insurance claims, reflecting a staggering number of layoffs. Some economists are forecasting a similarly dire total for last week.

Under a likely scenario, top health officials believe, the outbreak could peak in May or June, allowing businesses across the country to gradually reopen by summer.

But a later peak or a virus that returns in the fall could worsen the economic damage.

It could be a swift rebound

In the best-case scenario, Senior Economist Jacob Oubina of RBC Capital Market says there’s no reason an economy placed in a coma for a couple of months to contain the spread of the virus can’t be walking around and looking like its old self once the threat has eased.

“The bounce-back can be very strong,” he says.

Until then, he believes, the stimulus can hold the economy in a sort of suspended animation. Owners of businesses with fewer than 500 employees who apply are virtually assured of receiving loans guaranteed by the Small Business Administration to pay wages and operating costs. The loan amount covering eight weeks of such expenses will be forgiven as long as the business holds on to its employees or hires back any who have been laid off, even if normal operations are temporarily shut down.

The idea: Maintain company ties with employees and avoid an enormously disruptive game of musical chairs in which workers are seeking jobs and businesses are hunting for new staffers just as the economy bubbles back to life. “I don’t have to be scrambling for people,” Oubina says.

Meanwhile, workers who lose their jobs, including contractors, are eligible for 39 weeks of state unemployment benefits that will be supplemented by $600 weekly from the federal government for four months. That means many restaurant, retail and hotel workers will be earning $1,000 a week, more than their regular paychecks in many cases, Oubina says. That, he says should allow them to make rent, utilities and other payments during the crisis and spend robustly after it’s over. Oh, and to further juice spending, most Americans, even those still working, will receive a one-time $1,200 check from the government.

And keep this in mind — the economy was on solid footing before the outbreak, Oubina says. During the financial crisis and Great Recession of 2007-09, millions of Americans had lost their homes and many were burdened by historically high debt. Banks pushed to near bankruptcy by their risky real estate loans were hesitant to lend despite government aid. 

“We have none of that right now,” Oubina says.

Oubina predicts the economy will contract by an annual rate of 10% in the second quarter but then surge by 12% in the third quarter and advance a still-healthy 3% the final three months of the year and in 2021.

A slower climb may be more likely

Other economists say the rebound won’t be nearly as neat and simple. Many Americans will likely be leery of flying and going to restaurants, movie theaters and hotels even if government and health officials give a qualified all-clear signal by summer. Thirty percent of Americans surveyed say it will take at least four months after the virus spread flattens for them to go out to dinner again, while 44% say it will take that long for them to go to the movies, according to a Harris Poll survey conducted over the weekend and set to be released Tuesday.

“I’m not jumping back into the fray that quickly,” says Dagny McDonald, 53, a TV news producer who lives in Charlotte, North Carolina. “Maybe we should be a little more careful…I’m definitely on pause.”

McDonald says she’ll feel more comfortable resuming normal activities after a vaccine is ready, perhaps by mid-2021.

Earnings take a hit: Profits of airline, travel and oil companies will be hardest hit by COVID-19

In China, which is about six weeks ahead of the U.S. in the coronavirus timeline, factories, electricity demand and other parts of the economy are returning to normal but consumer spending, especially for big-ticket items, is still constrained.

The stock market’s huge sell-off, which has clobbered workers’ 401(k) plans and wealth, is also likely to make Americans warier of spending, Zandi says.

The travel and leisure industry, which Moody’s says makes up about 10% of gross domestic product, could take even longer than other sectors to recover. Fifty-seven percent of respondents in the Harris survey say it will take four months or longer for them to take a plane flight; 54% say it will take that long for them to stay at a hotel.

“People are going to be very reluctant to step on a plane,” Millar says.

Will loans arrive fast enough?

And while small businesses are can draw from the $350 billion in SBA loans, it’s not clear how quickly the government can integrate complex systems with the nation’s banks and release the money, says Ami Kassar, CEO of MultiFunding, a small business loan advisor. Treasury Secretary Steven Mnuchin says the loans will be available starting Friday. But Kassar thinks it will take at least a month to have a glitch-free system in place.

Meanwhile, he says, most small businesses have a few weeks to a few months of cash on hand, depending on the size of the enterprise.

OC Facial Care Center of Orange County, California, had to temporarily close down by state order and has laid off all six employees, says co-owner Daniel Robbins. He’ll dip into his personal savings to pay about $8,000 in rent and loan payments due April 1.

Yet, “In order to survive, we essentially have to have” the SBA loan before May 1, Robbins says.

Zandi reckons hundreds of thousands of the nation’s 30 million small businesses will shut down because they don’t know how to apply for a loan or won’t get it in time.

Baby boomers shut it down

Also, about 41% of small firms are owned by baby boomers who are close to retirement, according to Guidant Financial. Many will simply close sooner than they planned rather than go through the hassle of seeking a loan, says Jessica Fialkovich, president of a western branch of Transworld Business Advisors, a broker for small business mergers.

Anthony Whitham, 65, is learning toward shuttering Festive Cup Coffee, the Denver coffee and gift shop he co-owns with his wife, as early as Tuesday, when their lease is up.

“There’s too much uncertainty,” he says, noting the couple is financially set for retirement and their roughly 45-seat shop has been losing customers to Starbucks, which has kept its drive-thru open during the outbreak. “I’d have to get that business back from them.”

Larger companies are also at risk despite the stimulus measure’s $500 billion bailout to airlines and other industries. The share of large firms with negative cash flow — more money going out than coming in – is likely to increase by 23% after the coronavirus crisis, Goldman Sachs estimates. Although financially healthy corporations can take advantage of the additional credit recently announced by the Federal Reserve, it’s not clear if companies on shakier financial ground can do so as well, Goldman says.

At the end of this year, Zandi estimates the economy will still be 1.8% smaller than it was at the end of 2019 and won’t return to its GDP high-water mark until the second quarter of next year. Millar figures the economy will be 3.6% below its peak in 2021.

Remote work catches on, hurting construction

Some of the after-effects could lead to lasting changes that further crimp the economy over the longer term. Many companies could continue the work-at-home set-ups they’ve adopted during the outbreak, hammering office building construction, says Joseph Brusuelas, chief economist of consulting firm RSM.

Coronavirus walkouts: Work strikes at Amazon, Instacart and Whole Foods show essential workers’ safety concerns

Some firms are also likely to replace corporate meetings and events with video apps such as Teams and Zoom, as they did during the outbreak, Zandi says.

John Bibbo, president of Event Source and Panache Events — which provide furniture, linens and other accessories for weddings, graduations, corporate events and other gatherings — has had to lay off all but 12 of his 160 or so employees at six offices around the country. He’s counting on an SBA loan to keep him afloat beyond the two months in cash remaining in company coffers.

But he worries about the possibility of a new reality of fewer business events. “It’s just going to be different,” he says. “It’s a big setback.”  

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Coronavirus economy: Recession or depression? –



More economists are warning of a recession in the United States, Europe and globally as coronavirus containment measures bring entire sectors of the world’s economy to a halt. Many have also compared the swiftness and severity of the coronavirus slowdown with the Great Depression that began in 1929. 

Are we looking at a recession? Or a depression? And what exactly is the difference? 

What is a recession?

A recession has traditionally been defined as two consecutive quarters or six straight months of negative economic growth. In the US, though, the National Bureau of Economic Research (NBER) defines a recession as “a significant decline in economic activity spread across the economy, lasting more than a few months, normally visible in real GDP, real income, employment, industrial production, and wholesale-retail sales.”

What does the NBER mean by ‘real’? And while we’re at it – what is GDP?

Real means “adjusted for inflation”. GDP stands for gross domestic product – a measure of the value all the goods and services produced by an economy within a certain timeframe. 

Got it. So why do we care what the NBER says? 

Because the NBER dates the business cycle – the peaks and troughs of economic activity – it actually has the measurements to determine when a recession is, well, a recession. 

The NBER is not a government entity, by the way. It’s a private, non-profit, non-partisan research organisation. It also publishes really interesting working papers, like this one examining what the Spanish flu pandemic of the early 1900s can tell us about the economic fallout from coronavirus.

Understood. So how long can recessions last? 

It depends. By NBER’s definition, a recession does not necessarily have to last a minimum of 6 months. And some downturns continue for well over a year. The Great Recession in the US started in December 2007 and lasted until June 2009. That’s 18 months in total. Nigeria fell into its first recession in a generation at the start of 2016 and did not emerge from it until the second quarter of 2017.

What made the Great Recession ‘great’?

The “Great” Recession earned that moniker because it was the worst crisis the US economy had experienced since the Great Depression of 1929. The name also turned out to be appropriate because it was the longest-lasting of the 17 recessions that the US has experienced to date. 

What is a depression, then?

There is no set definition for a “depression”, but when a country is faced with a prolonged economic downturn that is measured in years, rather than quarters – then you can be pretty certain it is experiencing a depression. The Great Depression, for example, began in 1929 and lasted until 1939. 

Could the coronavirus pandemic trigger a recession?

Most economists have come around to that view. Last week, the International Monetary Fund said it sees negative global growth this year, and warned that we’re facing “a recession at least as bad as during the global financial crisis or worse”.

Many Wall Street economists also see a recession in the cards. Goldman Sachs thinks US economic output could nosedive 24 percent from April through June compared with a year earlier, and that the unemployment rate could peak at nine percent in the months ahead. Capital Economics sees second-quarter US economic growth plunging 40 percent from a year earlier and unemployment spiking to 12 percent.

OK, this is sounding scary. Could we be heading for a (gulp) depression?

No one can say for sure what the future holds. Some economists think that economic activity could actually pick up in the second half of this year, depending on government stimulus packages, when the coronavirus crisis peaks and other factors. 

So why do we keep hearing the words ‘coronavirus’ and ‘depression’ together?

When you do hear or read the word “depression” alongside “coronavirus”, it is usually analysts drawing comparisons with the suddenness and severity of the economic slowdown that happened in 1929.

But what do veterans from the 2008 financial crisis think?

Economist Nouriel Roubini, who warned about the 2008 financial crisis as early as 2006, thinks a rebound later this year is unlikely. In a column for Project Syndicate, Roubini – aka “Dr Doom” – argued that public health responses in advanced economies have fallen short of what is needed to contain the pandemic, and that fiscal packages are “neither large nor rapid enough to create the conditions for a timely recovery”. For these reasons, he says, the risk of a new Great Depression, worse than the original – a Greater Depression – is rising by the day”.

On the other hand, former Federal Reserve Chairman Ben Bernanke, who stewarded the US economy through the 2008 financial crisis, told business news network CNBC that the current shock the US economy is experiencing from coronavirus is “much closer to a major snowstorm or a natural disaster than it is to a classic 1930s-style depression”.

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