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The big problem coronavirus poses for White House economists – CNN

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“A lot of it depends on things I have no expertise in,” Hassett, previously a CNN contributor, said in an interview this past week with Poppy Harlow.
That’s the surreal reality facing President Donald Trump’s economic team as growth turns into contraction and 30 million Americans have lost their jobs. It is a Great Depression-level economic crisis that has everything to do with public health — but, unlike the 2008 financial collapse, very little to do with anything wrong in the underlying economy.
As a result, the tools economists typically use for adjusting supply and demand — targeted spending, tax cuts, changes to trade and regulatory policy — hold little power. The restoration of American prosperity lies more in the hands of the public health officials, epidemiologists and scientists racing to develop a coronavirus vaccine.
“The No. 1 rule of virus economics is, go stop the virus if you want to fix the economy,” says Austan Goolsbee, a former economic adviser to President Barack Obama. He suggested that White House economists pore over state-by-state data to identify the best ways to halt epidemic spread.
Success would preserve the possibility of the rapid “V-shaped” recovery that the Trump administration has embraced as its objective. The quest to achieve it has led Trump to allow federal guidelines to expire and goad governors into re-opening their states for business despite warnings from public health officials of resurgent infections.
The Congressional Budget Office, which rarely tracks administration optimism, also envisions a solid rebound as economic activity resumes. After plummeting at a 40% annual rate during April, May and June, the CBO forecasts, output will grow at a 17% rate in the second half of 2020.
But all forecasts for this unprecedented situation depend on factors no economist can confidently anticipate. How many businesses will have preserved enough of their workforces and customers to profitably re-open when governors flash the green light? If infections spike again, can advances in testing and treatments contain them? Or could renewed shutdowns throw the economic engine back into reverse this fall?
The mix of public fear, financial hardship and business uncertainty creates enormous doubt — which is Kryptonite to corporate planners and consumers alike.
“This isn’t going to be a V, let’s face it,” concludes former CBO director Doug Holtz-Eakin.
The job for Trump’s economic team, Holtz-Eakin says, is identifying “the right set of policies to support the economy in this new world we’re in.” That could include regulatory changes that help businesses adapt workplaces to accommodate health concerns, or expansion of broadband infrastructure to meet increased demand for telehealth and other services provided at a distance.
The pandemic threatens permanent damage to sectors requiring close-quarters contact among large groups, such as the cruise ship industry. Shuttered malls, which for years have lost market share to online retailers, may never recover.
Yet the most urgent immediate economic task is simply preserving connections among businesses, their workers, and their customers so they can restore familiar patterns when health conditions permit.
“Try to reduce the permanent destruction,” says Betsey Stevenson, another former Obama economist. “Every single day, there’s a little bit of crumbling going on.”
Too much crumbling would transform a short-term coronavirus shutdown into long-term economic blight. Business failures turn sound bank loans into defaults, which in turn could create a self-perpetuating financial crisis.
To stave that off, the Federal Reserve and Congress alike have thrown a lifeline of cash at the entire American economy. Instead of altering the economy’s path, the goal is simply to keep its head above water until the pandemic storm has passed.
“We’re just going to have to keep doing it,” says Andrew Metrick, who directs the Yale University Program on Financial Stability. “Traditional economic policy things — that’s not what we need right now.”
But that’s easier to sustain for the independent Fed through its credit facilities than for a divided Congress and President through direct spending decisions. As the trillions mount and aid priorities widen, the Republican President and Senate have begun to balk.
“The liquidity and cash phase is coming to an end,” White House National Economic Council director Larry Kudlow cautioned in recent days. He signaled a return to the president’s pre-pandemic agenda, including tax-cuts and infrastructure investment.
With Trump now trailing in crucial battleground states, election-year pressures threaten to create new risks. After other White House aides suggested punishing Beijing over the coronavirus by defaulting on Chinese-held US debt — a step certain to raise borrowing costs and damage the nation’s financial pre-eminence – Trump’s economic team rushed to publicly quash the idea.
The turn toward recriminations and traditional priorities signals confidence among some advisers — if not those responsible for public health – that progress against the virus has opened the door to economic resurgence. “We’re on the other side of the medical aspect of this,” the president’s son-in-law Jared Kushner said last week.
Hassett sounded less sure.
“Opening up will be a significant positive event,” he cautioned, “but only if opening up does not lead to a renewal of this terrible contagion.”

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Swiss Economy Slumps the Most in Decades – Yahoo Canada Finance

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Swiss Economy Slumps the Most in Decades

(Bloomberg) — Switzerland’s economy slumped the most in at least four decades as a result of the coronavirus pandemic, with private consumption and investment plummeting.

First-quarter gross domestic product plunged 2.6%, data from the State Secretariat for Economic Affairs showed. That’s worse than the 2.1% hit forecast by economists in a Bloomberg survey and the biggest three-month contraction since the start of the time series in 1980.

Like neighboring France, Italy and Germany, Switzerland responded to the pandemic by winding down much of public life. The hotel and restaurant sector experienced a 23.4% drop in output, according to the data on Wednesday.

Although the Swiss economy fared slightly worse than Germany’s in the first quarter, the contractions in France and Italy were far more severe.

Swiss government subsidies have kept a lid on unemployment and helped companies avoid a cash crunch, but the SECO still expects the economy to shrink 6.7% this year before staging a slow recovery in 2021.

Machine industry group Swissmem said that 80% of its member companies were forced to apply for short-time work, and that the full impact of the pandemic wouldn’t be felt by the sector until the second or third quarter of this year.

To prevent the rallying haven franc from hurting the economy still further, the Swiss National Bank has stepped up the pace of its currency interventions. Its deposit rate is already at a record low of -0.75%.

(Updates detail on hospitality sector in 3rd paragraph)

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Australia Economy Contracts as End to Recession-Free Run Looms – BNNBloomberg.ca

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(Bloomberg) — Australia’s economy contracted in the first three months of the year, setting up an end to the nearly 29-year run without a recession as an even deeper slowdown looms for the current quarter.

Gross domestic product fell 0.3% from the final three months of 2019, the first quarterly drop since 2011, compared with a forecast 0.4% decline, statistics bureau data showed in Sydney Wednesday. From a year earlier, it expanded 1.4%, matching estimate

The result sets up an end to Australia’s record run of avoiding two consecutive quarters of negative GDP, having dodged recessions during the 1997 Asian Financial Crisis, the Dot Com Bubble and the 2008 global financial crisis. The current quarter will see a deep contraction, with almost 600,000 jobs lost in April alone and much of the economy in lockdown to contain the coronavirus.

Fiscal and monetary policy are working in tandem to rebuild the economy. The Reserve Bank of Australia has taken the cash rate near zero and lowering the cost of borrowing with its 0.25% bond yield target. The government has injected tens of billions of dollars into the economy to help tide businesses and households through the lockdown.

With the containment of the health crisis allowing activity to resume, how quickly businesses can get back on their feet, workers regain employment and households resume spending is the critical question.

“The rate of new infections has declined significantly and some restrictions have been eased earlier than was previously thought likely,” RBA Governor Philip Lowe said Tuesday after keeping borrowing costs unchanged.

“However, the outlook, including the nature and speed of the expected recovery, remains highly uncertain and the pandemic is likely to have long-lasting effects on the economy,” he said. “In the period immediately ahead, much will depend on the confidence that people and businesses have about the health situation and their own finances.”

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Australia’s Economy Contracts, Ending Three-Decade Expansion – Yahoo Canada Finance

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Australia’s Economy Contracts, Ending Three-Decade Expansion

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(Bloomberg) — Australia’s economy contracted in the first three months of the year, setting up an end to a nearly 29-year run without a recession as an even deeper slowdown looms for the current quarter.

Gross domestic product fell 0.3% from the final three months of 2019, the first quarterly drop since 2011, brought down by a collapse in household spending, statistics bureau data showed in Sydney Wednesday. Economists had forecast a 0.4% drop. From a year earlier, the economy expanded 1.4%, matching estimates.

The Australian dollar edged a little lower after the release, and traded at 69.32 U.S. cents at 1:06 p.m. in Sydney.

The result sets up an end to Australia’s record run of avoiding two consecutive quarters of shrinking GDP, having dodged recessions during the 1997 Asian Financial Crisis, the Dot Com Bubble and the 2008 global financial crisis. The current quarter will see a deep contraction, with almost 600,000 jobs lost in April alone and much of the economy in lockdown to contain the coronavirus.

Treasurer Josh Frydenberg, speaking after the release, accepted this fate when asked directly whether the economy is now in recession.

“The answer to that is yes,” he told reporters. “That is on the basis of the advice that I have from the Treasury Department about where the June quarter is expected to be.”

Fiscal and monetary policy are working in tandem to rebuild the economy. The Reserve Bank of Australia has taken the cash rate near zero and lowered the cost of borrowing with its 0.25% bond yield target. The government has injected tens of billions of dollars into the economy to help tide businesses and households through the lockdown.

With the containment of the health crisis allowing activity to resume, the critical question is how quickly businesses can get back on their feet, workers regain employment and households resume spending.

“Growth should resume in the September quarter, but the impact of COVID-19 will surely cast a long and lingering shadow over the global economy and Australia’s recovery,” said Callam Pickering, an economist at global jobs website Indeed Inc. who previously worked at the central bank. “Continued support from fiscal and monetary policy will be necessary throughout 2020 and beyond.”

Today’s report showed:

Household spending tumbled 1.1%, shaving 0.6 percentage point off GDP, driven by a 2.4% drop in services expenditure. Restrictions particularity impacted spending on travel, hotels, cafes and restaurantsGovernment spending jumped 1.8%, adding 0.3 percentage point. Payments to provide support during the pandemic are expected to rise in the current quarterThe savings ratio advanced to 5.5% from a downwardly revised 3.5% in the fourth quarterDwelling construction fell 1.7%, reflecting continued weakness in approvalsNon-mining business investment fell 1.7%, while mining investment rose 3.6% as miners invest in new technologies and automation

Rising commodity prices are boosting miners’ profitability, with the terms of trade 2.9% higher in the first three months of 2020, pushing the current account surplus to a record A$8.4 billion ($5.8 billion). Yet, miners will be keeping a watchful eye on the nation’s currency, which has surged almost 20% in the past two-and-a-half months.

What Bloomberg’s Economists Say

“Typically backward looking national accounts releases contain an array of hidden trends that are often overlooked. Mining investment has climbed to a 7-year high, Australia’s terms of trade have risen and exploration intentions are elevated. This bodes well for the recovery.”

James McIntyre, economist

The economic outlook is improving as the restrictions are lifted, but will continue to be constrained by closed borders that are hitting tourism and education exports. The government is discussing a fresh round of fiscal stimulus to try to put residential construction back on its feet.

(Updates with Treasurer and economist comments)

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