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Euro zone economy contracts at record pace – World Socialist Web Site

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Euro zone economy contracts at record pace

By
Nick Beams

2 May 2020

Data released on Thursday by Eurostat showed that the euro zone economy contracted by 3.8 percent in the first quarter compared to the last three months of 2019, an annualized fall of 14.4 percent.

This is the largest shrinkage on record and far exceeds the annualized drop in the US economy of 4.8 percent over the same period. The biggest falls were in France, where separate data showed the gross domestic product (GDP) fell by 5.8 percent in the March quarter compared to the previous one, and Spain, where the GDP shrank by 5.2 percent over the same period.

France’s Office for National Statistics said the fall in the French economy was driven by an “unprecedented” contraction in household consumption spending of 6.1 percent and an 11.8 percent drop in investment.

The GDP for Germany, the euro zone’s largest economy, is expected to contract by 6.3 percent for the year, with data showing that retail sales fell at the fastest rate in more than a decade despite a lift in online sales and increased food purchases.

The country’s employment agency reports that more than 10 million workers have been registered to have part of their wages paid by the government, and a quarter of the workforce has either been sent home or is working reduced hours.

The euro zone GDP figures for the second quarter will be much worse because lockdowns across the region, resulting from the coronavirus pandemic, only began to take effect from the first weeks in March.

Jessica Hinds, European economist at Capital Economics, told the Financial Times the contraction in the first quarter “will pale in comparison with the complete collapse that will surely be recorded in Q2.”

Meeting on Thursday as the new GDP figures were being released, the governing council of the European Central Bank (ECB) took the same road as the Fed in the US, committing itself to pump more money into the markets, though there was some criticism from finance circles that it was falling short of the action taken by its American counterpart.

ECB President Christine Lagarde said the euro zone economy could contract by as much as 12 percent this year and the shape of any recovery was highly uncertain.

“The euro area is facing an economic contraction of a magnitude and speed that are unprecedented in peacetime,” she said.

The ECB left its interest rate unchanged, but indicated it would provide four-year loans to banks at an interest rate of minus 1 percent—effectively paying them to borrow money.

There was some criticism from financial circles that the ECB did not expand its €750 billion Pandemic Emergency Purchase Program (PEPP), through which it buys government debt and corporate bonds, to more than €1trillion.

Signalling that the financial markets want more, Andrew Cunningham, an economist with Capital Economics in London, said the ECB’s failure to upscale the PEPP “will leave investors with nagging doubts about its commitment to underwrite government borrowing during the coronavirus crisis.”

The ECB has so far used €100 billion from the program since it was introduced in mid-March, indicating that at the present rate it will run out by October. But the ECB statement said the governing council was “fully prepared to increase the size of the PEPP and adjust its composition by as much as necessary and for as long as needed.”

In her remarks to the press, Lagarde underscored this commitment. “Let us understand the whole firepower which the ECB has available, which is north of €1 trillion,” she said. The ECB would use the “full flexibility to deploy this firepower” where it considered there was a “particular risk” of a tightening of financial conditions.

Lagarde indicated the program could be extended beyond the end of the year and be used to purchase the corporate bonds of so-called “fallen angels,” that is, companies whose debt was previously rated as investment grade but had dropped to below that level.

She said the purchases would be carried out in a “flexible manner” over time, and across asset classes and among jurisdictions.

Lagarde’s remarks were aimed at finally quelling the storm of controversy set off at the previous ECB meeting when she said it was not the task of the central bank to close the spread on the yields of government bonds. This was seen as a lack of commitment to support Italian government debt, on which interest rates tend to rise higher than those of Germany and the northern economies because of concerns over the stability of the Italian financial system and the level of government debt.

Answering a question as to whether it was now ECB policy to control spreads on government debt, Lagarde said “we will use any and all flexibility” to make sure that monetary policy was “properly transmitted to all jurisdictions, from east to west, from north to south, to all sectors of the economy.”

The situation in Italy sounds a warning about what is to come and its impact on the working class across Europe. At the end of last year, Italian public debt stood at more than 130 percent of GDP and is expected to grow still further as a result of the pandemic.

On Tuesday, Fitch Ratings downgraded Italy’s credit rating to just one notch above junk status. It warned that “downward pressure on the rating could resume if the government does not implement a credible economic growth and fiscal strategy that enhances confidence that general government debt/GDP will be placed on a downward path over time.”

Given the massive contraction of the Italian economy and the euro zone as a whole, the only way this ratio can be reduced is by slashing government spending on vital social services. That is, the working class, not only in Italy but across Europe, will be made to pay for the money provided to corporations and the financial system.

This is a matter not of prediction, but of the historical record. In the immediate aftermath of the financial crisis of 2008, governments in the major economies committed themselves to stimulus packages to “save” the economy. But by June 2010, once the immediate financial crisis had passed, there was a decisive shift and a turn to austerity programs. This led to the slashing of public spending, not least in health care systems, creating the disastrous conditions exposed by the pandemic.

Today, with the bailout measures going far beyond those of 2008–2009, finance capital will demand, as the Fitch statement indicates, that these measures be implemented even more ferociously and broadly.

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As economy falters, restaurateurs look back at oil boom that gave rise to fine dining – CBC.ca

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It was 2012 and times were good in Newfoundland and Labrador.

Oil was flowing offshore, and expensive bottles of wine were flowing in restaurants around St. John’s.

Jeremy Bonia remembers the days when a barrel of oil sold for $120, and a bottle of wine could easily fetch more.

“I mean, we were doing well,” he said with a smirk while standing in front of his restaurant, Raymonds, on Water Street in St. John’s.

The booming economy paved the way for new possibilities on the city’s food scene — high end dining for people with money to spend, and corporations looking to impress potential clients.

There was as much business being done at the dinner table as the boardroom table, and people like Bonia used the influx of riches to build their dream restaurants.

Those places are empty now, as a pandemic and plummeting oil prices have wreaked havoc on the already fragile economy in Newfoundland and Labrador.

Bonia and co-owner Jeremy Charles were forced this spring to lay off about 100 staff members between Raymonds and their other restaurant, The Merchant Tavern, with no idea if or when they could bring everyone back.

Everything is changing

High-end restaurants depend on tourism to make money in the summer months, and are kept afloat throughout the offseason by major industry players, like oil and gas companies.

But when it comes to the symbiotic relationship between oil and restaurants, most of the damage was done before the world knew about COVID-19.

The riches of 2012 were followed by a crash at the end of 2014. The yearly average price for a barrel of oil plummeted from $98.97 to $53.03, and the big players on the Grand Banks started slashing.

“We started to see companies scale back either office sizes, or team sizes, and expense accounts as well,” Bonia said.

“Just the amount of meetings and physical people on the ground started to scale back quite a bit.”

Without a strong economy to prop up the restaurant industry throughout the offseason, Raymonds closed its doors for the winter this year. The decision was made before COVID-19 was on anybody’s radar.

In the historic Quidi Vidi Village, chef Todd Perrin knows all about the rise and fall of oil prices at Mallard Cottage.

Oil had been the catalyst to exploring the world of fine dining with traditional cuisine — places where concoctions of wild game and locally-sourced vegetables could fetch a pretty penny.

Todd Perrin, pictured in this file photo, cuts a cooked lobster at his restaurant, Mallard Cottage, in St. John’s. (Gary Locke/CBC)

“It made it possible to operate a restaurant and be able to pay the bills,” Perrin said. “At the beginning of my career, it was a tough market. When oil really hit, and St. John’s was full of people attached to the oil industry with expense accounts, it made a big, big difference.”

By the time the expense accounts shrunk, places like Raymonds and Mallard Cottage already had reputations bolstered by profiles in publications like The New York Times to help carry them through the leaner years. 

Those international awards and glowing reviews meant tourists were flocking to get in during the summer seasons.

Now, with no tourists due to COVID-19 restrictions, Bonia said he knows they’ll have a hard time continuing the way they had for a decade.

While other restaurants are relying on locals eating out to keep them afloat, he said that’s not likely with a place like Raymonds — especially with more than 30,000 jobs lost in the province since March.

“Fine dining is a niche thing. It’s not something we expect people to come out and do once a week, once a month even,” he said. 

“Raymonds will definitely feel it more than other restaurants.”

How oil will affect the next generation of chefs

But it’s not just local restaurants that are feeling the effects of the downturn in oil.

Roger Andrews, an advanced cooking instructor at the College of the North Atlantic, said he can look at his students on the first day of class, and pick out the ones who aspire to be the next celebrity chef.

He makes it his goal to give them the advice they need to hone their skills, but to also open up their minds to more realistic pathways.

With a downturn in the economy, students can expect fewer restaurants taking people in for internships, but that doesn’t necessarily mean a lack of options.

“Where they’re actually going to go is the big thing,” Andrews said.

“Perhaps we’re not teaching them for the restaurant setting as much as we would for the old age home.”

Roger Andrews is a chef and instructor of the advanced cooking program at College of the North Atlantic in St. John’s. (Gary Locke/CBC)

Another perk of the offshore oil boom was an uptake in the college’s marine cooking program.

People that grew tired of working in the volatile world of restaurant kitchens were returning to upgrade their education and head offshore. Oil companies handed lucrative salaries to cooks, who were ditching meagre pay onshore to head out on the rigs and supply vessels in the North Atlantic.

“They have families, want something more stable, or they go chasing money,” Andrews said. 

“You’ve got big oil offering up someone $100,000 a year — people are going to take that.”

Newfoundland and Labrador’s offshore has lost at least one oil platform for up to two years, and public figures from the premier to the president of Memorial University have called on the federal government to support the industry to prevent further losses.

Andrews expects the restaurant industry will thin out, too, with the combination of pains being inflicted on the province from all sides — Muskrat Falls in the north, offshore oil in the east, and a lack of tourists entering the province from the west.

“It’s a dog-eat-dog world, where you have to be very unique, and interesting and different,” he said.

“I can foresee with a bit of a change in the economy, the number of those restaurants will have to drop down a little bit, unfortunately.”

Raymonds is a fine dining restaurant in downtown St. John’s. With executive chef Jeremy Charles and sommelier Jeremy Bonia at the helm, the restaurant has earned high praise on the global stage. (Eddy Kennedy/CBC)

Jeremy Bonia hopes that won’t include Raymonds. To save his neck, he’s willing to alter the formula that made the restaurant a hit with critics around the world.

“We look forward to the day we can go back to what we were doing before,” he said.

“I’m sure we’ll open Raymonds, it just may be a different capacity, maybe as a different concept for a little bit.”

Bonia and Charles have had offers thrown at them before to leave behind their home province and start new ventures on the mainland, but they’ve resisted those — and Bonia said, they will resist more.

 “We’re not here for the weather and we’re not here for the money. We’re here because we love living here,” he said.

This coverage is part of Changing Course, a series of stories from CBC Newfoundland and Labrador that’s taking a closer look at how the COVID-19 pandemic is affecting local industries and businesses, and how they’re adapting during these uncertain times to stay afloat.

Read more from CBC Newfoundland and Labrador

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Calm before the storm for Japan suicides as coronavirus ravages economy – The Province

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A volunteer responds an incoming call at the Tokyo Befrienders call center, a Tokyo’s suicide hotline center, during the spread of the coronavirus disease (COVID-19), in Tokyo, Japan May 26, 2020.

ISSEI KATO / REUTERS

“There are so many people who want to connect and talk to somebody, but the fact is we can’t answer all of them”

TOKYO — The phones at the Tokyo suicide hotline start ringing as soon as it opens for its once-weekly overnight session. They don’t stop until the lone volunteer fielding calls from hundreds of people yearning to talk signs out early the next morning.

Both operating days and volunteer numbers at the volunteer-run Tokyo Befrienders call center have been cut to avoid coronavirus infection, but the desperate need remains.

“There are so many people who want to connect and talk to somebody, but the fact is we can’t answer all of them,” center director Machiko Nakayama told Reuters.

Health workers fear the pandemic’s economic shock will return Japan to 14 dark years from 1998 when more than 30,000 people took their lives annually. With the grim distinction of the highest suicide rate among G7 nations, Japan adopted legal and corporate changes that helped lower the toll to just over 20,000 last year.

Worried the current crisis will reverse that downward trend, frontline workers are urging the government to boost both fiscal aid and practical support.

“We need to take steps now, before the deaths begin,” said Hisao Sato, head of an NGO that provides counseling and economic advice in Akita, a northern prefecture long known for Japan’s worst suicide rate.

National suicides fell 20% year-on-year in April, the first month of the country’s soft lockdown, but experts said that was likely due to an internationally recognized phenomenon in which suicides decrease during crises, only to rise afterwards.

“It’s the quiet before the storm, but the clouds are upon us,” Sato said.

Prevention workers see echoes of 1998 when a sales tax hike and the Asian economic crisis first drove annual suicides above 30,000, then to a peak of almost 34,500 in 2003.

Economic circumstance is the second biggest reason for suicides, behind health, according to 2019 police data, which also shows that men are nearly three times more likely to kill themselves than women, and most are in the 40-60 age group.

The current crisis, which is forecast to shrink Japan’s economy 22.2 percent this quarter, is especially dangerous for cash-strapped small and medium-sized businesses for whom government subsidies might not arrive in time.

“It’s tough. A lot of people are really worried,” said Shinnosuke Hirose, chief executive of a small human resources firm that has lost nearly 90% of its business. “It’s like waiting at the execution grounds to see if they survive or not.”

A Health Ministry official in charge of suicide policy told Reuters his department planned to ask for more money from a $1.1 trillion central government stimulus package to help fund measures such as extra hotlines. The official, who declined to be named as he was not authorized to speak on the record, added there were limits to central government action and local efforts were crucial.

JOBLESS LINK

Some believe the steps taken in recent years to bring down the suicide rate will hold firm through the current crisis, but others are not so sure.

Kyoto University’s Resilience Research Unit has predicted 2,400 more suicides for each 1% rise in unemployment. If the virus subsides in a year, unemployment could peak at around 6% by March, lifting annual suicides to around 34,000, it estimated. If pandemic conditions persist for two years, a rise to 8% unemployment by March 2022 would see suicides spike over 39,000.

“Of course social support is important … but they won’t be able to ramp this up suddenly,” said unit director Satoshi Fujii. “Preventing bankruptcies will start helping immediately.”

At the Tokyo Befrienders call center, the phones continue to ring. The formerly nightly service now opens on Tuesdays only, with one volunteer a shift instead of four, although it plans to reinstate another day in June.

“Everyone has tried hard to get through lockdown, but now they’ll reflect and think ‘why was I doing it? What hope do I have?’” Nakayama said. “At that time I think a lot could choose death.” (Reporting by Elaine Lies; editing by Jane Wardell)

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Trump’s Economy Will Look Better Than You Think On Election Day – Forbes

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Here’s some bad news for Democrats intent on unseating the Trump administration. While the current economic situation looks dire, a huge bounce back is forecast for this summer and will likely continue into the fall.

At least 12 economists see the economy growing at an annualized rate of at least 20% in the third quarter. Some even see it growing as fast 30% over the same period, according to a recent survey of multiple economists by The Wall Street Journal.

And it is just that sort of economic snap-back that could put President Trump back in the White House for another four years.

Things Look Bad Now

Currently, it might seem hard to see anything good in line for the Trump administration. Millions of people have been fired in a matter of a few weeks. The economy is expected to shrink by 17% in the three months through June, according to Trading Economics. And the death toll from the Covid-19 pandemic is rising. In short, it’s bad, and everyone knows that fact.

But it is the health of the economy that generally dictates how people vote. If there are plenty of jobs, inflation is low, and people feel better off than they did a four years ago, they’ll likely vote for more of the same. That’s what happened with Presidents Reagan and Clinton. Some readers will remember Clinton’s early 1990s campaign quip, “It’s the economy stupid.” That was true then and still is now.

The economic data from the last few weeks are so bad that Democratic Party operatives may be banking on the dire economy to ensure a landslide victory in the fall election. But that hope may soon evaporate as we enter the summer.

Economic Bounce Back This Summer

What probably matters more for many voters is what will happen in the few months before the November election, not the current situation. And that could surprise the world.

Ameriprise Financial AMP  and Nomura Securities International both see an annualized growth rate of 30% in the three months through September, according to the WSJ survey. Another 10 similar institutions, such as CSFB, Scotiabank BNS  and Natwest Markets, forecast the economy will expand by between 20% and 30%.

Other institutions see lower rates of growth and perhaps even continued contraction. The average growth estimate for the third quarter is around 9%, according to the WSJ survey.

However, as long as the lockdowns continue to get loosened, then growth estimates should continue to rise.

Normally an annualized growth rate of 3% would be considered a good reading and would likely come side-by-side with the sustained creation of millions of new jobs each year.

But growth rates of 20-30% are spectacular. Even 9%, the average second-quarter forecast, would be shockingly high in normal times. What’s more, if these forecasts are even vaguely accurate, the growth should create a load more jobs. Exactly how many is hard to judge because there hasn’t really been a precedent for an economic lockdown.

Growth Boom to Continue Through Year End

There is some more good news. According to the same WSJ report, the growth boom is set to continue in the fourth quarter. The highest estimate is for a bounce of 21.5%, with the average at a respectable 6.9%. Again, that continued growth should create another slew of new jobs, many of which will appear before the election.

So what? The likely rebound in economic growth could also help tilt the election toward incumbent President Trump.

A second Trump term could also be a further bullish factor for the stock market because of the administration’s decidedly pro-business approach to the economy and his effort to reduce regulations. In other words, investors should be watching this closely.

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