Euro zone economy contracts at record pace
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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[21 April 2020]
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Picture of US economy is worrisome as virus inflicts damage – Investment Executive
The number of Americans seeking unemployment aid rose last week for a second straight week to 778,000, evidence that many employers are still slashing jobs more than eight months after the virus hit. Before the pandemic, weekly jobless claims typically amounted to only about 225,000. Layoffs are still historically high, with many businesses unable to fully reopen and some, especially restaurants and bars, facing tightened restrictions.
Consumers increased their spending last month by just 0.5%, the weakest rise since the pandemic erupted. The tepid figure suggested that on the eve of the crucial holiday shopping season, Americans remain anxious with the virus spreading and Congress failing to enact any further aid for struggling individuals, businesses, cities and states. At the same time, the government said Wednesday that income, which provides the fuel for consumer spending, fell 0.7% in October.
The spike in virus cases is heightening pressure on companies and individuals, with fear growing that the economy could suffer a “double-dip” recession as states and cities reimpose curbs on businesses. The economy, as measured by the gross domestic product, is expected to eke out a modest gain this quarter before weakening — and perhaps shrinking — early next year. Mark Zandi, chief economist at Moody’s Analytics, predicts annual GDP growth of around 2% in the October-December quarter, with the possibility of GDP turning negative in the first quarter of 2021.
Economists at JPMorgan Chase have slashed their forecast for the first quarter to a negative 1% annual GDP rate.
“This winter will be grim,” they wrote in a research note.
Zandi warned that until Congress agrees on a new stimulus plan to replace a now-expired multi-trillion-dollar aid package enacted in the spring, the threat to the economy will grow.
“The economy is going to be very uncomfortable between now and when we get the next fiscal rescue package,” Zandi said. “If lawmakers can’t get it together, it will be very difficult for the economy to avoid going back into a recession.”
Some corners of the economy still show strength, or at least resilience. Manufacturing is one. The government said Wednesday that orders for durable goods rose 1.3% in October, a sign that purchases of goods remain solid even while the economy’s much larger service sector — everything from restaurants, hotels and airlines to gyms, hair salons and entertainment venues — is still struggling. But economists caution that factories, too, remain at risk from the surge in coronavirus cases, which could throttle demand in coming months.
And sales of new homes remained steady in October, the latest sign that ultra-low mortgage rates and a paucity of properties for sale have spurred demand and made the housing market a rare economic bright spot.
But at the heart of the economy are the job market and consumer spending, which remain especially vulnerable to the spike in virus cases. Most economists say the distribution of an effective vaccine would likely reinvigorate growth next year. Yet they warn that any sustained recovery will also hinge on whether Congress can agree soon on a sizable aid package to carry the economy through what could be a bleak winter.
“With infections continuing to rise at an elevated pace and curbs on business operations widening, layoffs are likely to pick up over coming weeks,” said Rubeela Farooqi, chief U.S. economist at High Frequency Economics.
The government said he total number of people who are continuing to receive traditional state unemployment benefits dropped to 6.1 million from 6.4 million the previous week. That figure has been declining for months. It shows that more Americans are finding jobs and no longer receiving unemployment aid. But it also indicates that many jobless people have used up their state unemployment aid — which typically expires after six months.
More Americans are collecting benefits under programs that were set up to cushion the economic pain from the pandemic. For the week of Nov. 7, the number of people collecting benefits under the Pandemic Unemployment Assistance program — which offers coverage to gig workers and others who don’t qualify for traditional aid — rose by 466,000 to 9.1 million.
And the number of people receiving aid under the Pandemic Emergency Unemployment Compensation program — which offers 13 weeks of federal benefits to those who have exhausted state jobless aid — rose by 132,000 to 4.5 million.
The data firm Womply says that 21% of small businesses were shuttered at the start of this month, reflecting a steady increase from June’s 16% rate. Consumer spending at local businesses is down 27% this month from a year ago, marking a deterioration from a 20% year-over-year drop in October, Womply found.
The heart of the problem is an untamed virus: the number of confirmed infections in the United States has shot up to more than 170,000 a day, from fewer than 35,000 in early September. The arrival of cold weather in much of the country could further worsen the health crisis.
Meanwhile, another economic threat looms: the impending expiration of the two supplemental federal unemployment programs the day after Christmas could end benefits completely for 9.1 million jobless people. Congress has failed for months to agree on any new stimulus aid for jobless individuals and struggling businesses after the expiration of a multi-trillion dollar rescue package it enacted in March.
The expiration of benefits will make it harder for the unemployed to make rent payments, afford food or keep up with utility bills. Most economists agree that because unemployed people tend to quickly spend their benefits, such aid is effective in boosting the economy.
When the viral outbreak struck in early spring, employers slashed 22 million jobs in March and April, sending the unemployment rate rocketing to 14.7%, the highest rate since the Great Depression. Since then, the economy has regained more than 12 million jobs. Yet the nation still has about 10 million fewer jobs than it did before the pandemic erupted.
All of which has left many Americans anxious and uncertain. The Conference Board, a business research group, reported Tuesday that consumer confidence weakened in November, pulled down by lowered expectations for the next six months.
And the University of Michigan’s Surveys of Consumers reported Wednesday that sentiment declined slightly this month, and remained far below where it was before the pandemic struck. With the resurgence of the virus depressing the outlook of consumers, the sentiment index fell to its lowest point since August.
“Gloomier consumer expectations will weigh on spending as the holidays approach,” cautioned Kathy Bostjancic, chief U.S. financial economist at Oxford Economics.
Israel’s Gaza blockade has devastated Hamas-ruled territory’s economy, UN agency says – Global News
Israel’s blockade of the Hamas-ruled Gaza Strip has cost the seaside territory as much as $16.7 billion in economic losses and sent poverty and unemployment skyrocketing, a U.N. report said Wednesday, as it called on Israel to lift the closure.
The report by the U.N. Conference on Trade and Development echoed calls by numerous international bodies over the years criticizing the blockade. But its findings, looking at an 11-year period ending in 2018, marked perhaps the most detailed analysis of the Israeli policy to date.
Israel imposed the blockade in 2007 after Hamas, an Islamic militant group that opposes Israel’s existence, violently seized control of Gaza from the forces of the internationally recognized Palestinian Authority. The Israeli measures, along with restrictions by neighbouring Egypt, have tightly controlled the movement of people and goods in and out of the territory.
Israel says the restrictions are needed to keep Hamas from building up its military capabilities. The bitter enemies have fought three wars and numerous skirmishes over the years.
But critics say the blockade has amounted to collective punishment, hurting the living conditions of Gaza’s 2 million inhabitants while failing to oust Hamas or moderate its behaviour. Gaza has almost no clean drinking water, it suffers from frequent power outages and people cannot freely travel abroad.
“The result has been the near-collapse of Gaza’s regional economy and its isolation from the Palestinian economy and the rest of the world,” the U.N. agency said in a statement.
The report analyzed both the effects of the closure, which has greatly limited Gaza’s ability to export goods, as well as the effects of the three wars, which took place in 2008-2009, 2012 and 2014.
Video appears to show Israeli missiles intercept rockets fired from Gaza Strip
The last war was especially devastating, killing over 2,200 Palestinians, more than half of them civilians, and displacing some 100,000 people from homes that were damaged or destroyed, according to U.N. figures. Seventy-three people, including six civilians, were killed on the Israeli side, according to Israel’s Foreign Ministry, and indiscriminate Hamas rocket fire brought life to a standstill in southern Israel.
Using two methodologies, the report said that overall economic losses due to the blockade and wars ranged from $7.8 billion to $16.7 billion. It said Gaza’s economy grew by a total of just 4.8 per cent during the entire period, even as its population grew over 40 per cent.
These economic losses helped propel unemployment in Gaza from 35 per cent in 2006 to 52 per cent in 2018, one of the highest rates in the world, UNCTAD said.
It said the poverty rate jumped from 39 per cent in 2007 to 55 per cent in 2017. Based on Gaza’s economic trends before the closure, the report said the poverty rate could have been just 15 per cent in 2017 if the wars and blockade had not occurred.
“The impact is the impoverishment of the people of Gaza, who are already under blockade,” said Mahmoud Elkhafif, the agency’s co-ordinator of assistance to the Palestinian people and author of the report.
Israel has long accused the U.N. of being biased against it. The report, for instance, included only a brief mention that indiscriminate rocket fire at Israeli civilian areas is prohibited under international law. “Palestinian militants must cease that practice immediately,” it said.
Israel’s Foreign Ministry accused UNCTAD of failing its mission to assist developing economies and presenting a “one-sided and distorted depiction” that disregards ”terrorist organizations’ control over the Gaza Strip and their responsibility for what occurs in the Gaza Strip.“
Palestinian officials say Gaza ceasefire reached with Israel
“In light of all this, we cannot take the findings of the reports it publishes seriously, and this report is no different,” it said.
In Gaza, Hamas spokesman Hazem Qassem said the report revealed “the level of the crime” committed by Israel.
“This siege has amounted to a real war crime and pushed all services sectors in the Gaza Strip to collapse,” he said. “These figures also reveal the international inability to deal with the illegal siege on Gaza.”
Gisha, an Israeli human rights group that pushes for freedom of movement in an out of Gaza, said it was Israel’s “moral and legal obligation” to life the closure. “The true price paid by Palestinians in lost time, opportunities, and separation from loved ones is inestimable,” it said.
The U.N. agency said it compiled the report at the request of the U.N. General Assembly and noted that it did not include other costs of Israeli occupation over the Palestinians. Israel captured the West Bank, east Jerusalem and Gaza Strip in the 1967 Mideast war, though it withdrew from Gaza in 2005.
UNCTAD, a technical agency that seeks to reduce global inequality, recommended that Israel lift the blockade to allow free trade and movement. It also called for reconstruction of Gaza’s infrastructure, addressing Gaza’s electricity and water crisis, allowing the Palestinians to develop offshore natural gas fields and for the international community to push Hamas and the Palestinian Authority to reconcile.
Associated Press writer Fares Akram contributed reporting from Gaza City, Gaza Strip.
© 2020 The Canadian Press
As economy struggles, Fed weighs boosting bond purchases – Nanaimo News NOW
With the economy showing signs of slowing in the face a resurgence in coronavirus cases and a return to shutdowns in some areas, there has been market speculation that the Fed could decide to boost the size of its monthly purchases.
The minutes show that while no decision was taken on what to do or when, Fed officials were keeping their options open. Some analysts believe the Fed will make an announcement on boosting the bond purchase program at its next meeting on Dec. 15-16, especially if there has been no movement by Congress to provide more economic relief to individuals and businesses.
The minutes said that many Fed officials “judged that asset purchases helped provide insurance against risks that might reemerge in financial markets in an environment of high uncertainty.”
Concern has been growing among economists that the economy is slowing after an initial rebound this summer and could even topple into a double-dip recession in the early part of 2021 if Congress does not replenish expiring support programs.
At the White House Wednesday, Peter Navarro, one of President Donald Trump’s economic advisers, told reporters that a “sober” reading of the economic recovery shows “we are facing … a chasm ahead for millions of Americans unless there can be a bipartisan” deal to provide further economic relief.
The minutes released Wednesday covered the Fed’s Nov. 4-5 meeting, held just after the November elections, and were released with the customary lag of three weeks.
At the meeting, the central bank kept its benchmark interest rate at a record low near zero and signalled that it was prepared to do more if needed to support the economy.
A multitrillion-dollar stimulus effort enacted in the spring has helped support millions of Americans who have been thrown out of work and provided further assistance to struggling individuals and businesses.
But many of those programs have expired and jobless benefits are due to run out for millions of Americans by the end of this year.
Federal Reserve Chairman Jerome Powell had said at a news conference following the two-day meeting that Fed officials had discussed whether and how a bond buying program might be altered to provide more economic support.
In addition to increasing the size of the program, the Fed could decide to alter the composition of the bonds purchases to focus on buying long-term securities as a way of putting added downward pressure on long-term rates.
AP White House reporter Kevin Freking contributed to this report.
Martin Crutsinger, The Associated Press
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