As sections of the global economy tip-toe toward reopening, it’s becoming clearer that a full recovery from the worst slump since the 1930s will be impossible until a vaccine or treatment is found for the deadly coronavirus.
Consumers will stay on edge and companies will be held back as temperature checks and distancing rules are set to remain in workplaces, restaurants, schools, airports, sports stadiums and more.
China — the first major economy consumed by the virus and the first to emerge on the other side — has been able to revive production but not demand. The lesson for other economies: it’ll be a stop-start path back toward normal.
There’s also the risk of new flare ups. Some 108 million people in China’s northeast region have been put back under varying degrees of lockdown amid a new cluster of infections. Doctors there are also seeing the coronavirus manifest differently, suggesting that it may be changing in unknown ways.
In South Korea – where the virus was controlled without a hard lockdown — consumer spending remains weak as infections continue to pop up.
Sweden’s highly contested response left much of the economy open, yet the country is still headed for its worst recession since World War II.
That means global policy makers — who have already announced trillions of dollars of fiscal and monetary support — will need to keep the stimulus flowing to avoid yet more company failures and job losses. Federal Reserve Chairman Jerome Powell has warned that a full recovery will need to wait until the scientists deliver, a warning echoed by his Australian counterpart.
“If we don’t get breakthroughs on the medical front, then I think it’s going to be quite a slow recovery,” Australia’s central bank chief, Philip Lowe, said this week. “We’ve got a lot resting on the shoulders of the scientists here.”
Harvard University professor Carmen Reinhart, who is the incoming chief economist of the World Bank, had a similar message. “We’re not going to have something akin to full normalization unless we (a) have a vaccine and (b) — and this is a big if — that vaccine is accessible to the global population at large,” she told the Harvard Gazette.
With global infections topping five million and a death toll of over 330,000, there’s an air of desperation for good news on either a vaccine or effective anti-viral.
Shares in Cambridge, Massachusetts-based Moderna Inc. hit a record on Monday on early data from a small trial of the company’s coronavirus vaccine. It gave up some of those gains in later days as investors weighed the early nature of the vaccine data.
A survey of money managers by Bank of America Corp. found the biggest tail risk is a second wave of the virus that means restrictions will have to be imposed again. Only 10% expect a rapid rebound, the bank said in a note titled “V is for Vaccine”.
The race for a cure has a geopolitical edge too. U.S. President Donald Trump has vowed a Manhattan Project-style effort dubbed “Operation Warp Speed” to develop a cure, while China’s President Xi Jinping has pledged to make one universally available once it’s developed.
The fusion of when successful drugs can be found and when economies can get back to normal is dominating sentiment in financial markets.
“There is a global bounty on the virus,” said Stephen Jen, who runs hedge fund and advisory firm Eurizon SLJ Capital in London. “I don’t see how it is wiser for investors to bet on the virus than to bet on science, technology, and unlimited political and financial capital in the world to contain and defeat the virus.”
Health experts caution that the process for developing an effective immunity will take time – possibly years. And even then it will need distribution on an unprecedented scale, according to Anita Zaidi, Director of Vaccine Development and Surveillance at the Bill & Melinda Gates Foundation.
“I am optimistic we can develop a vaccine by the end of 2020,” she said during a discussion hosted by Bloomberg New Economy. “I am not very hopeful that we can deploy a vaccine for mass use by the end of 2020 because of the unprecedented scale needed to immunize the whole world.”
Deutsche Bank AG economists are working on the basis that a vaccine or a cure won’t be widely available for the next year and a half.
In the meantime, the cogs of global commerce are in limbo. The International Monetary Fund has warned the “Great Lockdown” recession would be the steepest in almost a century. More than 1 billion workers are at high risk of a pay cut or losing their job, the International Labour Organization warned in April. World merchandise trade volume is likely to fall “precipitously” in the first half of 2020, according to the World Trade Organization.
Critically, consumer confidence is shattered. One example: U.K. retail sales dropped by almost a fifth in April.
Bloomberg Economics estimates the lockdowns triggered a drop in activity of around 30% and their research found that the first steps to relax controls will have a more positive impact on activity than later ones.
Central bank chiefs, who have had to resort to considering scenarios instead of hard forecasts, are staying in crisis mode.
Powell has pledged to keep using the Fed’s tools. The Bank of Japan, in an emergency meeting on Friday, launched a new lending program worth 30 trillion yen ($279 billion) to support small businesses as a key inflation gauge slid below zero in April for the first time in more than three years. India’s central bank cut interest rates in an unscheduled announcement on Friday to their lowest since 2000.
While the world waits for a vaccine, workers employed in areas like tourism will need to be reskilled and shifted to where there’s demand, a process that will take time, said Shaun Roache, Asia-Pacific chief economist at S&P Global Ratings.
“Without a medical solution, either a vaccine or effective therapy, persistent behavior change would lead to large structural shifts in the economy,” he said.
Big employers are already adapting to the new, new normal. Facebook Inc. plans to hire more remote workers in areas where the company doesn’t have an office, and let some current employees work from home permanently. JPMorgan Chase & Co. expects to keep its offices half full at the most for the “foreseeable future.”
The circuit breaker to all of this would be a scientific breakthrough, said Torsten Slok, Deutsche Bank Securities Chief Economist.
“A vaccine would change everything,” he said.
Charts Showing Good and Bad News for Nigeria's Economy Last Week – BNN
(Bloomberg) — Africa’s largest economy had a week of good and bad news as the oil price rebounded to the highest level in two months, while the negative impact of the coronavirus pandemic on consumers and business activity became clearer.
Crude prices have doubled since hitting a two-decade low in April, climbing past $40 a barrel after OPEC+ cuts started taking excess supplies from the market. With oil bringing in 90% of foreign exchange revenue for the continent’s largest producer, this will boost government income and dollar liquidity. Ironically, Nigeria is among the countries accused by the production group of not fully complying with the reductions that helped push up prices in the last month.
The following four charts show some of the bad and the good for Nigeria.
If oil prices stabilize close to the current levels until the end of the year, it would add modest upside risks to forecasts for economic growth, public finances and international reserves, said Mahmoud Harb, a director at Fitch Ratings. A 10% rise in the full year’s average crude price above the company’s current forecast of $35 per barrel would improve Nigeria’s current-account deficit by about 1.5% of gross domestic product, he said.
Yields on Nigerian bonds maturing in 2047 fell from an all-time high of 13.2% on March 19 to 8.6% on Friday, a sign that investor concern has eased. Although the West African nation has ruled out going to international bond markets this year, the cost of raising new debt will be relatively lower now if it chooses to.
Although the purchasing managers index of Stanbic IBTC Bank and IHS Markit’ rose last month, it remained below 50, suggesting the economy of Africa’s largest crude producer will shrink in the second quarter. The central bank said last week Nigeria may avert a recession and that the drop in GDP could be less than the 3.4% projected by the International Monetary Fund, but its own manufacturing PMI fell to 42.4 in May after staying above 50 for 36 consecutive months. The manufacturing PMI compiled by Lagos-based FBNQuest Capital fell to 43.3 in May from 45.8, with all sub-indices in contracting territory.
“The recession this year will be smaller than in advanced and many peer economies because of the limits to Nigeria’s integration within the global economy,” analysts at investment banking firm, FBNQuest wrote in a note on Friday. “For the same reason its U-shaped recovery in 2021 is likely to disappoint. Household demand remains squeezed.”
Nigeran consumers are feeling the impact of the disruption in economic activities, data released Friday by the statistics agency shows. At least 79% of respondents in a survey said their incomes have decreased since mid-March, when restrictions were imposed to curb the spread the pandemic. More than 42% who were working before the pandemic now say they no longer do and 51% of households were forced to buy less food due to higher costs.
©2020 Bloomberg L.P.
Coronavirus 'a devastating blow for world economy' – BBC News
The coronavirus pandemic is a “devastating blow” for the world economy, according to World Bank President David Malpass.
Mr Malpass warned that billions of people would have their livelihoods affected by the pandemic.
He said that the economic fallout could last for a decade.
In May, Mr Malpass warned that 60 million people could be pushed into “extreme poverty” by the effects of coronavirus.
The World Bank defines “extreme poverty” as living on less than $1.90 (£1.55) per person per day.
However, in an interview on Friday Mr Malpass said that more than 60 million people could find themselves with less than £1 per day to live on.
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Mr Malpass told BBC Radio 4’s The World This Weekend: “It [coronavirus] has been a devastating blow for the economy.
“The combination of the pandemic itself, and the shutdowns, has meant billions of people whose livelihoods have been disrupted. That’s concerning.
“Both the direct consequences, meaning lost income, but also then the health consequences, the social consequences, are really harsh.”
Mr Malpass warned it’s been those who can least afford it who’ve suffered the most.
“We can see that with the stock market in the US being relatively high, and yet people in the poor countries being not only unemployed, but unable to get any work even in the informal sector. And that’s going to have consequences for a decade.”
The World Bank, along with its counterparts, has been providing support to the worst affected countries, but says much more is needed.
It is calling on commercial lenders such as banks and pension funds to offer debt relief to poor countries.
He would also like them to make the terms of their loans clearer, so other investors are more confident about putting money into those economies.
Targeted government support and measures to shore up the private sector are also vital to rebuild economies, the World Bank argues.
Investment and support would create jobs in areas like manufacturing, to replace those in the worst affected sectors, such as tourism, which may have been permanently lost.
‘Tensions and inequality’
Mr Malpass admits the damage to global trade, and inclinations to bring supply chains closer to home or erect trade barriers, are a challenge.
“When trade is reduced, that creates its own set of tensions and inequality… I’m sure [the global economy] will be interconnected in the future, maybe less than it was pre-COVID.”
But ultimately, Mr Malpass said the “catastrophe” could be overcome, and that people were “flexible, they’re resilient” .
“I think it’s possible to find paths, it’s hard work for countries and governments to do that.
“But we can encourage that effort… I’m an optimist, over the long run, that human nature is strong, and innovation is real. The world is moving fast and connectivity… has never been higher. And so that gives hope for the future.”
However, he admits the challenge is getting the right plans in place at the right time – and in the meantime, the pain could be considerable.
Guardians of the World Economy Stagger From Rescue to Recovery – Yahoo Canada Finance
(Bloomberg) — The world’s governments and central banks are shifting from rescue to recovery mode as the deepest slump since the Great Depression shows signs of bottoming out.
After rolling out trillions of dollars worth of measures to prevent their economies and markets from collapsing, they are now doubling down with even more spending to backstop a recovery as coronavirus lockdowns ease. In what counts for good news these days, Bloomberg Economics’ global GDP growth tracker showed economies contracted at an annualized rate of 2.3% in May, less than the 4.8% slump in April.
“Policy makers are moving from triage to recovery,” said Deutsche Bank Securities Chief Economist Torsten Slok. “They are realizing that more fiscal support will be needed to households and small businesses to prevent this liquidity crisis from turning into a solvency crisis.”
The new wave of stimulus has both governments and central banks moving in sync to continue flooding lenders, markets and companies with cheap credit at an unprecedented pace.
The European Central Bank last week expanded its asset purchases by 600 billion euros ($677 billion) to 1.35 trillion euros, and extended them until at least the end of June 2021. And Germany’s government agreed another 130 billion-euro fiscal stimulus push and said it will back a proposed new 750 billion-euro European Union recovery fund.
“Action had to be taken,” ECB President Christine Lagarde said in a press conference.
It’s a similar story in Asia.
Japan is planning another $1.1 trillion worth of spending in its biggest splurge yet and the central bank in May called an emergency meeting to roll out 30 trillion yen ($274 billion) of loan support for small businesses.
China last week unveiled another 3.6 trillion yuan ($508 billion) in spending and South Korea’s 76 trillion won ($63 billion) ‘New Deal’ fiscal package is its largest to date.
In the U.S., lawmakers continue to debate extra fiscal stimulus and the Federal Reserve, which meets on June 10, has just launched a new Main Street Lending Program, the latest in trillions of support it has already poured into the economy and markets.
While the Fed is unlikely to signal any moves when its officials gather this week, many economists expect it to harden its commitment to easy monetary policy later in the year and perhaps even start pursing a Japan-style campaign to control long-term borrowing rates.
The latest U.S. jobs numbers give some hope that the stimulus unleashed so far is beginning to kick in. A record 2.5 million workers were added by employers during May while unemployment declined to 13.3%, wrong footing economists who had forecast widespread job losses.
Read more: Economists Have Biggest Miss Ever in U.S. Jobs-Report Shocker
To be sure, there’s far from consensus that the latest wave of support will be enough to get growth back to where it was at the start of the year. Some of the steps being taken are merely to replace existing policies as they start to expire.
“It seems clear already approved packages are perceived to be not enough,” said Alicia Garcia Herrero, chief Asia-Pacific economist at Natixis SA.
There are other concerns that monetary policy can only do so much to revive growth before it loses its potency.
“How does the Fed actually get money to millions and millions of households and small businesses, that is difficult to do operationally,” former New York Federal Reserve Bank President William Dudley told Bloomberg Television.
“It’s much easier to intervene in the capital markets where the Fed can rely on counterparties, primary dealers and others,” Dudley said. “It is much more difficult to lend one by one to millions of different entities.”
Another risk is a return to austerity, even if it seems unlikely now. JPMorgan recently predicted a fiscal thrust of 3.3% of GDP this year and 1.5% drag next year.
U.S. senators have put the brakes on a $3 trillion fiscal package that was approved by lower house lawmakers. China’s government has ruled out a return to the kind of large scale stimulus it rolled out after the global financial crisis, preferring to keep a lid on rising debt.
Still, because the crisis meant economies were forced into shutdown, much of the emergency response so far has been less about driving growth and more about avoiding total collapse. It’s that dynamic which is leaving governments with little option but to borrow harder.
“We shouldn’t look at the positive immediate growth impact of the opening up process as being the rate of growth that may last,” said David Mann, chief economist for Standard Chartered Plc.
Creating jobs will be mission critical to cementing any upswing. That will need support for firms to retrain employees, incentives to hire older workers and for governments to continue with wage subsidies. More than one in six people have stopped working since the onset of the crisis, according to the International Labour Organization, which in April estimated more than 1 billion workers were at high risk of a pay cut or losing their job.
“A faster job market recovery will speed up the economic healing and reduce the risk from widening income inequality and social stress,” said Chua Hak Bin, senior economist at Maybank Kim Eng Research Pte.
Ultimately, the rescue of economies will go well beyond quantitative solutions and into the realm of story telling too, as policy makers will need to inject confidence back into wary consumers and executives, said Stephen Jen, who runs hedge fund and advisory firm Eurizon SLJ Capital in London.
“Human psychology is the same and is now as important as the mechanics of delivering the fiscal stimuli themselves,” he said.
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