*Updated at 11:58 p.m. to include comment from Texas Comptroller Glenn Hegar’s office.
Comptroller Glenn Hegar briefed Texas House members on the state’s economy and budget Sunday night, saying that while it was too soon for specific forecasts, both are expected to take potentially massive hits in the wake of the new coronavirus pandemic, according to multiple people who were on the conference call.
The members-only call, led by House Speaker Dennis Bonnen, R-Angleton, was one of state lawmakers’ first glimpses of the impact the virus is expected to have on multiple industries, state finances and Texas’ largely oil-fed savings account, known as the Economic Stabilization Fund or the rainy day fund.
Hegar, who referred to the state of the economy as “the current recession,” according to multiple people on the roughly hourlong call, predicted both the general revenue for the state budget and the savings account balance will be drastically lower — possibly by billions of dollars — when he makes a revised fiscal forecast. He said that update could happen in July.
Later Sunday, the comptroller’s office said that unless the Legislature spent money out of the savings account before July, the balance for the fund would be revised down, but not by more than $1 billion.
In October 2019, Hegar estimated that the state budget would have a nearly $3 billion balance for the fiscal 2020-21 biennium. The balance of the Economic Stabilization Fund, Hegar announced at the time, would be around $9.3 billion by the end of the 2021 fiscal year in August of that year.
The virus has already shocked economies around the country, though it’s unclear how extensive the economic downturn will be. As the new coronavirus grew into a pandemic earlier this month and Saudi Arabia declared a price war on Russia, oil prices plummeted to their lowest points in decades. Since Texas is the nation’s top oil-producing state, its economy and budget are particularly sensitive to oil prices.
Then, as the virus started spreading within the state’s borders, officials shuttered or limited several industries’ operations to limit public interactions and stem the growth of new infections. Those two situations created a double whammy by slowing two key revenues that fuel the state’s budget and economy: sales taxes and oil and gas production. Experts have said the economic damage will largely depend
s on how long the public health crisis lasts.
Last week, Gov. Greg Abbott issued an executive order directing bars, dine-in restaurants and schools to close as he estimated that tens of thousands of Texans could test positive for the virus in coming weeks.
On Sunday, Hegar told lawmakers he plans to keep all parties updated as the picture for the next several months continues to crystallize. He also pointed to the post-9/11 economy as good perspective for what the near future could look like, and mentioned multiple times that the amount of federal funding that Texas receives could also have a major impact.
According to members on the call, Hegar fielded a number of questions, ranging from whether the governor has the jurisdiction to push back sales tax collections for specific industries — no, the comptroller said — to whether state dollars can be shifted around within the state budget during such a crisis.
Abbott, for his part, noted last week that he and the Legislature can tap into the state’s disaster relief fund immediately to help respond to the virus. He also said that the Economic Stabilization Fund could be used “at the appropriate time,” which he said would happen when state leaders “know the full extent of the challenge we’re dealing with.”
Before the stabilization fund could be used, Abbott would need to summon state lawmakers back to Austin for a special session before the Legislature reconvenes in January 2021. When asked at a town hall about the possibility for calling such a session, Abbott said “every option remains on the table,” while noting that there would not be any need for such an action if every Texan followed guidance to help curb the virus.
On Sunday night’s call, after a member mentioned a special session, Bonnen said Abbott had not yet said there was a need for one — though, the speaker added, that could of course change in the future.
Disclosure: The Texas Comptroller of Public Accounts has been a financial supporter of The Texas Tribune, a nonprofit, nonpartisan news organization that is funded in part by donations from members, foundations and corporate sponsors. Financial supporters play no role in the Tribune’s journalism. Find a complete list of them here.
Coronavirus economy: Recession or depression? – Aljazeera.com
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”.
Older workers will jump-start an economy post-pandemic faster than younger ones, argues Citigroup – MarketWatch
What do older workers have over younger ones as an economy tries to recover from a pandemic? They can potentially breathe life into a shut-down economy faster, in part because they have more money to spend and better health insurance in case they do get sick.
So said Dana Peterson and Catherine Mann, global economists at Citigroup, who poured cold water on one idea circulating among policy makers that would see younger workers allowed back on the job ahead of their older counterparts.
“First, allowing younger people to return to work may help restart the engines of the economy, but they are actually not the ones who drive much of the consumer spending that fuels GDP growth,” said the pair in a note to clients.
They cited evidence that shows peak spending is something that often happens later in life for advanced and emerging economies. “This is because older generations often have reached peak earnings, and own assets (homes and financial assets) that facilitate greater spending.”
Older generations also play harder, meaning they spend more on experiences, such as in the U.K., where those 50 and older spend more than twice as much than persons 18 to 49, while in the U.S., that peak spending on movies, shopping, travel, etc. occurs between ages 45 to 54. And spending stays elevated over the mid-50s to mid-70s range, they said.
The third reason harks back to a scene in the 1991 movie “Fried Green Tomatoes,” in which actress Kathy Bates rams the car of a couple of younger women who swiped her parking spot. “Face it girls, I’m older and I have more insurance.”
Older workers simply have better access to health care in case they do get sick, as opposed to younger co-workers. “In the U.S., which has one of the highest Universal Health Coverage service coverage indexes in the world at 84, younger persons spend the least on health care and insurance, and are also less likely to have health insurance,” the economists noted.
The health-care coverage situation is worse in South Asia and sub-Saharan Africa, and even in countries that have better coverage, younger people can still carry the virus and infect multigenerational households. That has been the case in Italy, where the disease has had a bigger effect with more deaths on the older population.
Finally, the economists argued that the modern workplace needs all ages to function.
“Indeed, older workers may have the experience required to help guide the activities of the younger generations,” said the economists. “Practically, many persons who are in management and positions of leadership skew older. Hence, it seems inconceivable that younger people can return to work in every facet without managers in place.”
It could take three years for the US economy to recover from COVID-19 – World Economic Forum
The US and Eurozone’s economies could take until 2023 to recover from the impact of the COVID-19 coronavirus crisis, according to a new report from consultancy McKinsey & Company.
If the public health response, including social distancing and lockdown measures, is initially successful but fails to prevent a resurgence in the virus, the world will experience a “muted” economic recovery, says McKinsey. In this scenario, while the global economy would recover to pre-crisis levels by the third quarter of 2022, the US economy would need until the first quarter of 2023 and Europe until the third quarter of the same year.
If the public health response is stronger and more successful – controlling the spread of the virus in each country within two-to-three months – the outlook could be more positive, with economic recovery by the third quarter of 2020 for the US, the fourth quarter of 2020 for China and the first quarter of 2021 for the Eurozone.
In these scenarios involving partially effective interventions, policy responses could partially offset economic damage and help to avoid a banking crisis, says McKinsey. The firm has modelled nine scenarios, ranging from rapid and effective control of the virus with highly effective policy interventions to a broad failure of public health measures and ineffective policy and economic interventions.
The economic impact in the US, however, could exceed anything experienced since the end of World War II.
The industries hardest hit by COVID-19, including commercial aerospace, travel and insurance, may see a slower recovery. Within the travel sector, the shock to immediate demand is estimated to be five-to-six times greater than following the terror attacks of 11 September 2001 – though recovery may be quicker for domestic travel. The crisis has also amplified existing challenges or vulnerabilities in the aerospace and automotive industries, which will affect their recovery rates.
As supply chains around the world are disrupted, the report warns that the full impact is yet to be felt. Business leaders must prepare for the effects on production, transport and logistics, and customer demand. These include a slump in demand from consumers leading to inventory “whiplash,” as well as parts and labour shortages due to manufacturing plants shutting or reducing capacity.
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