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Five ways coronavirus could hurt Trump's economy — and one way it might help – CNN



But now, the fast-spreading coronavirus, which has sickened more than 30,000 and killed more than 600 people, is threatening global growth. Supply chains have been disrupted, air travel has slowed, and shipping has taken a hit as Beijing has put entire cities on lock down.
It’s hard to know what the impact could be on the US economy.
“At this point in time, I think the economic impact will be somewhat minimal,” said Beth Ann Bovino, the US chief economist at S&P Global. One reason is because the US economy is primarily driven by domestic activity, which accounts for 85% of all economic activity, she said.
Goldman Sachs estimated it could take 0.4% off US GDP through March — but the bank also forecasts a rebound in the second quarter, potentially triggering a boomlet that could help Trump just as general election voters start to tune in.
Here’s where things could get ugly for the US economy in the short term:

Falling oil prices

The spread of the coronavirus has already hit demand for oil, clobbering prices — a problem for US producers, which are clustered in red states like Texas, Alaska and North Dakota, as well as purple states like New Mexico where Trump lost in the 2016 election.
In 2019, China’s oil demand made up about 14% of the world market and accounted for half of world oil demand growth, according to IHS Markit.
Plus, demand for jet fuel has also taken a hit because major airlines have suspended all flights to and from mainland China.
But it remains unclear if prices will remain low as the health crises continues. OPEC could decide to cut oil production, but has yet to decide on a plan.

Agricultural purchases

American farmers were hopeful that the preliminary, “phase one” trade deal reached with China last month could return some certainty to their export markets, which were rocked by Trump’s trade war.
In the agreement, China agreed to step up its purchases of US goods and agricultural products. But analysts were skeptical those commitments could be met, and the health crisis brings more doubt. Farmers could be waiting longer to see big orders for soybeans and corn coming from China.
While some farmers, a key constituency for Trump, have expressed frustration with the ongoing trade war with China, others have stuck by him and believe they’ll benefit in the long-term.
To help them get by in the short-term, and to shore up political support, the President drew up two massive aid packages for farmers hurt by the tariffs. Together, they’re worth $28 billion, or about double the final cost of the 2009 auto bailout after the financial crisis.
Washington officials earlier this week said the outbreak could delay some of those exports.
“It is true the ‘phase one’ trade deal, the export boom from that trade deal, will take longer because of the Chinese virus,” said Larry Kudlow, Trump’s chief economic adviser, in an interview with Fox Business on Tuesday.
But, in what could be a sign that Beijing is committed to following through on its commitments, China announced this week that it would halve additional tariffs on $75 billion worth of US imports.

Supply chain disruption

Factories have shut down across China, creating uncertainty for American companies that rely on Chinese suppliers. It’s unclear when those factories will reopen.
“People are bracing for some supply chain implications and are trying to understand what that’s going to be,” said Steve Lamar, president of the American Apparel and Footwear Association.
The impact is lessened, for now, because factories would have been shutdown for a week anyway because of the Lunar New Year. But if shipments of materials end up being delayed, it can have a ripple effect throughout the manufacturing process.
For now, Lamar said, most of his members are in a holding pattern. They’re worried about keeping their workers healthy and safe. They’re also worried about a rumor that disease can be spread through packaging shipped from China. The CDC says there is “likely very low risk” of that happening.
In addition to clothing and footwear, the smart phone and auto industries are heavily reliant on manufacturing in China. Qualcomm, which makes smart phone chips, has already lowered its earnings guidance for next quarter in part due to the virus outbreak in China.
General Motors and many other automakers have factories in Wuhan which has been on lock down since late January.

Weaker Chinese consumer demand

If Chinese consumers are staying home, it could hurt American companies doing business in China.
By the end of January, Starbucks had already closed more than half of its more than 4,000 Chinese locations. Apple temporarily closed its 42 stores in China, too.
Nike, Adidas, and Capri Holdings, which owns Versace, Jimmy Choo and Michael Kors, have also warned investors that they could take a hit if demand from China slumps.

Hits to tourism

The Trump administration is currently restricting entry into the United States from China, and Americans who have visited China within the last 14 days are screened for symptoms. Even if they show no signs of having the disease, they are asked to “self-quarantine” inside their home.
This is already hurting airlines. American Airlines and United Airlines have suspended flights to and from China until late March, and Delta has canceled flights until April 30.
It could also hurt restaurants and stores that benefit from Chinese tourism. More than 2.5 million Chinese visited the United States last year.

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Chile's Economy Stagnates in Second Quarter as Demand Withers – Bloomberg



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Chile’s Economy Stagnates in Second Quarter as Demand Withers  Bloomberg

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Fed saw evidence of a slowing economy at its last meeting – Advisor's Edge



Slower growth, they noted, could “set the stage” for inflation to gradually fall to the central bank’s 2% annual goal, though it remained “far above” that target.

In both June and July, the Fed sought to curb high inflation by twice raising its key rate by an unusually large three quarters of a percentage point. At their meeting last month, the policymakers said it might “become appropriate at some point to slow the pace of policy rate increases.”

The U.S. central bank had been slow to respond to a resurgence of inflation in the spring of 2021 as the economy roared back from the 2020 pandemic recession. Chair Jerome Powell characterized high inflation as merely “transitory,” mainly a result of supply chain backlogs that would soon unsnarl and ease inflationary pressure. They didn’t, and year-over-year inflation hit a 40-year high of 9.1% in June before edging lower last month.

So the Fed raised its benchmark rate at its meeting in March and again in May, June and July. Those moves have raised the central bank’s key rate, which influences many consumer and business loans, from near zero to a range of 2.25% to 2.5%, the highest since 2018.

Powell has said the Fed will do what it will take to tame inflation, and more rate hikes are expected. But many economists worry that the Fed will overdo it in the other direction by tightening credit so much as to trigger a recession.

Concerns about a potential recession have been eased, for now, by the ongoing strength of the job market. Employers added a robust 528,000 jobs last month, and the unemployment rate has hit 3.5%, matching a half-century low that was reached just before the pandemic erupted in 2020.

In the minutes released Wednesday, the Fed’s policymakers acknowledged the strength of the job market. But they also noted that hiring tends to be a lagging indicator of the economy’s health. And they pointed to signs that the job market might be cooling, including an increase in the number of Americans filing for unemployment benefits, a drop in Americans quitting their jobs and a reduction in job openings.

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Growing recessionary trends in major economies – World Socialist Web Site – WSWS



The world’s major economies are showing growing recessionary trends under the impact of the disruption caused by governments’ “let it rip” policies on COVID-19, rising inflation and the higher interest rate regime being imposed by central banks aimed at crushing workers’ wage demands.

Amid concerns of the spread of COVID-19, a shopper wears a mask as she looks over meat products at a grocery store in Dallas, April 29, 2020. (AP Photo/LM Otero, File)

The US, the world’s largest economy, has experienced two successive quarters of negative growth, with indications of further contraction to come as consumer spending is hit by rising prices in basic items.

The impact of COVID is reflected in the employment and labour market data. The US labour force is 600,000 smaller than at the start of the pandemic in 2020. But as the Wall Street Journal noted in a recent article “it is several million smaller if you adjust for the increase in population.” The number of workers has fallen by 400,000 since March.

The labour force participation—the proportion of the population over the age of 16 in work or seeking work—is continuing to fall. It was 62.1 percent in July, down from 62.4 percent in March. Before the onset of the pandemic, it was 63.4 percent.

The hit to the US economy is also reflected in economic output data. According to projections by the Congressional Budget Office, gross domestic product in the second quarter was 2 percent below where it had expected to be in January 2020. Employment is also 2 percent lower than predicted—a loss of around 3 million jobs.

At the same time, inflation is now running at between 8 percent and 9 percent, with essential grocery items up more than 13 percent over the past year. While wages have risen, they have fallen behind the inflation rate, meaning in real terms that there has been a fall of 3.6 percent in the wage of the average worker. This means there is downward pressure on consumption spending which accounts for up to 70 percent of US GDP.

China, the world’s second largest economy, is experiencing a significant downturn in growth. The economy grew by only 0.4 percent in the second quarter, barely escaping an outright contraction, and the outlook appears to be worsening.

On Tuesday, Chinese Premier Li Keqiang held a meeting with local officials from six key provinces, accounting for 40 percent of its economy, calling on them to undertake measures to boost growth after July data on consumption and industrial production came in below expectations.

The worsening outlook for the Chinese economy is the result of the global pandemic, which the Chinese government, in contrast to all others, is battling to control, and the sharp decline in the property market.

Li’s appeal to local authorities to do more and promises that the central government would take measures to promote growth, came in the wake of a decision by the central bank to reduce medium-term interest rates to try to stimulate the economy.

The real estate sector, which accounts for more than a quarter of China’s economy once flow-on effects are considered, continues to worsen. The amount of “residential floor space,” on which construction began in the period from April to June this year, was down by nearly a half compared to last year.

Local government finances are being severely affected with revenue from land sales so far this year down by 31 percent, compared to the first six months of last year.

Consumption spending is only marginally higher than the first half of last year in real terms and running at 10 percent below the trend prior to the pandemic.

Germany, the world’s fourth largest economy, is on the brink of recession, if not already in one. Data released earlier this week showed that retail sales fell at the fastest annual rate since records began to be collected in 1994, down 8.8 percent compared to a year ago. This followed data which showed that German economic growth was stagnant in the second quarter.

The German economy is being battered by the effects of the ongoing NATO proxy war against Russia in Ukraine as gas prices spiral and supplies are cut, with effects hitting the entire eurozone economy.

The chief business economist at S&P Global Market Intelligence, Chris Williamson, told the Financial Times that manufacturing activity in Germany and elsewhere was “sinking into an increasingly deep downturn, adding to region’s recession risks.”

Last week, Clemens Fuest, head of the German economic think tank Ifo, said the concern was the “broad-based” nature of the weakness in the economy. In previous downturns, he said, when services suffered, industry recovered, and vice versa. “But now we’re seeing weakness across the board.”

Britain, the world’s fifth largest economy, continues to be hit by worsening economic events. Yesterday, it was reported that the official UK inflation rate for July, itself an understatement of the impact on working-class families, had reached 10 percent. It is set to rise even further with the Bank of England forecasting it will reach 13 percent by the end of the year.

The Bank of England has already predicted that the UK economy will move into recession with a contraction of at least 2 percent from peak to trough.

The contraction is now likely to be much higher with the central bank set to escalate its interest rate tightening policy, which is intended to drive the economy into recession to suppress the mounting wage demands throughout the British working class.

It is now expected that the central bank will carry out multiple increases of 50 basis points in its base interest rate for the rest of the year. Real wages are continuing to fall with the latest data showing they have fallen by 4.1 percent, the largest decline since record began in 2001.

Falling wages will bring cuts in consumption spending, accelerating the drive into recession.

The only “bright spot,” if it can be called that, in this worsening situation across the world’s major economies, is Japan, the world’s third largest economy.

Its economy grew at annualised rate of 2.2 percent in the second quarter, boosted by a rise in consumption spending as the government lifted COVID restrictions. But the rise is likely to be a one-off. In the first quarter GDP rose by only 0.1 percent and in its latest economic update in July the International Monetary Fund revised down its estimate of Japanese economic growth for 2022, from 2.4 percent in April to just 1.7 percent.

This week Bloomberg carried a significant report on the decline in orders for computer chips, which was sending “shudders through North Asia’s high-tech exporters, which historically serve as a bellwether for the international economy,”

It reported that South Korean chip companies, Samsung and SK Hynix, had signalled plans to cut back on investment while the Taiwan Semiconductor Manufacturing Company, the world’s largest producer, was going in the same direction.

South Korea’s technology exports fell in July for the first time in two years and “semiconductor inventories piled up in June at the fastest pace in more than six years.”

Bloomberg noted that exports from Korea, the world’s 12th largest economy, “have long correlated with global trade, meaning their decline will add to signs of trouble for a world economy facing headwinds from geopolitical risks to higher borrowing costs.”

The marked downward shift in the major economies is not the result of a conjunctural shift in the business cycle to be followed by an upturn.

It is one aspect of the general breakdown of the global capitalist economy, manifested in the ongoing COVID crisis, record levels of private and government debt, the economic effects of climate change, as can be seen in the fall in water levels in the Rhine hitting the movement of goods via barges in Germany, and the highest inflation in four decades, accelerated by the war against Russia and the increasing bellicosity against China.

And it is the outcome of the class war being waged by global finance capital against the international working class. The ruling classes, having handed out trillions of dollars to corporations and the financial markets in the form of direct government money and the provision of ultra-cheap funds by the central banks, are determined to make the working class pay in what amounts to a social counter-revolution.

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