If the end of the great toilet paper shortage is any indication, the U.S. economy has already bottomed out and a fragile recovery is underway.
After months of being hard to find, toilet paper is increasingly available on supermarket shelves and at popular online sites such as Amazon. Americans aren’t hoarding supplies as much or desperately seeking where to find rolls except in a diminishing number of coronavirus hotspots.
Toilet paper is not the only cue.
All 50 states have partly reopened their economies, people are slowly returning to work, consumer confidence has crept higher and Americans are driving further and getting out of their house more often, according to social mobility trackers. Signs of revival are everywhere.
“The economy has bottomed,” said Steve Blitz, chief economist of TS Lombard.
See:MarketWatch Coronavirus Recovery Tracker
The big unknown — what’s on everyone’s mind — is how quickly the U.S. recovers from the shock of a coronavirus pandemic that ignited the fastest and deepest economic slump in modern history. The Wall Street forecasting firm IHS Markit predicts gross domestic product in the second quarter will sink by a whopping 40% at an annualized pace, dwarfing anything the U.S. has witnessed before.
There’s little doubt among economists the U.S. will experience a burst of growth before the end of the year. Blitz likened the economy to a rubber duck being held under water in a bathtub. When it’s released, it briefly shoots up in the air — before falling back down.
That’s the most likely path of the recovery, analysts say. The U.S. will get a pop after most of the coronavirus restrictions are lifted, but the economy won’t be restored to pre-crisis levels for at least a few years.
The biggest barrier naturally is the virus itself. So long as a vaccine or treatment remains elusive, many Americans are likely to continue social distancing and avoiding large crowds on their own volition. Although the vast majority of people who have contracted the virus have survived, a recent poll by Harris Interactive found that 50% of Americans think they will die if they get COVID-19.
“A full recovery in the economy is going to hinge on how well society gets the pandemic under control,” said Boston Federal Reserve President Eric Rosengren. “If consumers are afraid to eat out, shop, travel, a relaxation of laws may do little to bring back customers and thus jobs.”
Read:There’s a limit on what the Fed can do to help, Rosengren says in MarketWatch interview
Absent a cure, large and critical segments of economy will require sweeping changes just to survive that could result in the loss of millions of jobs. These industries include airlines, hotels, retail stores and restaurants.
The restaurant-booking site OpenTable, for example, predicts one in four restaurants are likely to close because of the virus. And airlines that typically bank on selling at least 80% of their seats to make money will have to cut flights, amenities, and jobs if only 60% of their seats are filled in a post-pandemic world. Those are just a few of the nightmare scenarios.
See:TSA passenger travel totals
For now millions of workers in these fields are on furlough and getting paid unemployment benefits by the government. Others who work for idled small businesses have been put back on company payrolls through an emergency federal program that provides forgivable loans.
Yet if these job losses turn from temporary to permanent it will make a recovery all the harder, keeping unemployment in the double digits at least until 2021.
The jobless rate rose unofficially to almost 20% in May, according to a government analysis, from just 3.5% three months ago. More than 20 million people lost their jobs in April alone.
Read:Great Depression 2020? The unofficial U.S. jobless rate is at least 20%—or worse
Feeling growing public pressure and worried about falling tax revenue, every state is reopening their economies ore relaxing restrictions to try to limit the damage
“The longer stay-in-place restrictions prevail, the more likely job losses are permanent rather than temporary,” said economist Stephen Gallagher of Societe Generale.
There’s growing evidence that federal help is working for small business and state reopenings. The number of Americans in early May who were collecting unemployment benefits, known as continuing claims, actually fell for the first time since the crisis began.
“The much slower rise in continuing claims suggests that people are now beginning to return to work,” chief U.S. economist Paul Ashworth of Capital Economics said.
The Trump White House, with an eye toward the 2020 presidential elections, is pushing the states to reopen even faster. Yet most economy watchers, including Federal Reserve Chairman Jerome Powell, suggest Washington will have to spend even more than the $3 trillion it has already approved.
“This is the biggest shock we’ve seen in living memory. The question that looms in the air is, is it enough?” Powell told senators at a hearing on Tuesday about emergency loans for business.
The next pivotal event for the economy is likely to come by midsummer when federal programs that offer extra unemployment benefits and subsidies to keep small business workers on payrolls expire. If not enough workers are able to return to their jobs because business is slow, Congress might need to add more money to the pot to prevent more mass layoffs and another shock to the economy.
Local and state governments are also coping with unprecedented declines in tax revenue and are being forced to lay off scores of workers. Democrats and Republicans are divided over whether to help them out, but if the crisis gets worse, a reluctant Trump White House might have to come to the rescue.
By the early fall, the fear over the virus returning is another potential obstacle on the path to recovery. If the disease starts to spread again and forces more state lockdowns, all the progress made during the warmer months could be lost.
Even if the virus remains contained in the fall, the lingering threat all but ensures states will retain some restrictions, limiting the size and speed of the rebound.
“A slow reopening will limit a renewed viral outbreak, but will also prolong the stress on workers and firms,” economists at Northern Trust predicted.
(Bloomberg) — The International Monetary Fund expects OPEC and its partners to start increasing oil output gradually from July, a transition that’s set to catapult Saudi Arabia back into the ranks of the world’s fastest-growing economies next year.
“We are assuming the full reversal of cuts is happening at the beginning of 2025,” Amine Mati, the lender’s mission chief to the kingdom, said in an interview in Washington, where the IMF and the World Bank are holding their spring meetings.
The view explains why the IMF is turning more upbeat on Saudi Arabia, whose economy contracted last year as it led the OPEC+ alliance alongside Russia in production cuts that squeezed supplies and pushed up crude prices. In 2022, record crude output propelled Saudi Arabia to the fastest expansion in the Group of 20.
Under the latest outlook unveiled this week, the IMF improved next year’s growth estimate for the world’s biggest crude exporter from 5.5% to 6% — second only to India among major economies in an upswing that would be among the kingdom’s fastest spurts over the past decade.
The fund projects Saudi oil output will reach 10 million barrels per day in early 2025, from what’s now a near three-year low of 9 million barrels. Saudi Arabia says its production capacity is around 12 million barrels a day and it’s rarely pumped as low as today’s levels in the past decade.
Mati said the IMF slightly lowered its forecast for Saudi economic growth this year to 2.6% from 2.7% based on actual figures for 2023 and the extension of production curbs to June. Bloomberg Economics predicts an expansion of 1.1% in 2024 and assumes the output cuts will stay until the end of this year.
Worsening hostilities in the Middle East provide the backdrop to a possible policy shift after oil prices topped $90 a barrel for the first time in months. The Organization of Petroleum Exporting Countries and its allies will gather on June 1 and some analysts expect the group may start to unwind the curbs.
After sacrificing sales volumes to support the oil market, Saudi Arabia may instead opt to pump more as it faces years of fiscal deficits and with crude prices still below what it needs to balance the budget.
Saudi Arabia is spending hundreds of billions of dollars to diversify an economy that still relies on oil and its close derivatives — petrochemicals and plastics — for more than 90% of its exports.
Restrictive US monetary policy won’t necessarily be a drag on Saudi Arabia, which usually moves in lockstep with the Federal Reserve to protect its currency peg to the dollar.
Mati sees a “negligible” impact from potentially slower interest-rate cuts by the Fed, given the structure of the Saudi banks’ balance sheets and the plentiful liquidity in the kingdom thanks to elevated oil prices.
The IMF also expects the “non-oil sector growth momentum to remain strong” for at least the next couple of years, Mati said, driven by the kingdom’s plans to develop industries from manufacturing to logistics.
The kingdom “has undertaken many transformative reforms and is doing a lot of the right actions in terms of the regulatory environment,” Mati said. “But I think it takes time for some of those reforms to materialize.”
©2024 Bloomberg L.P.
(Bloomberg) — The head of the International Monetary Fund warned the US that the global economy is closely watching interest rates and industrial policies given the potential spillovers from the world’s biggest economy and reserve currency.
“All eyes are on the US,” Kristalina Georgieva said in an interview on Bloomberg’s Surveillance on Thursday.
The two biggest issues, she said, are “what is going to happen with inflation and interest rates” and “how is the US going to navigate this world of more intrusive government policies.”
The sustained strength of the US dollar is “concerning” for other currencies, particularly the lack of clarity on how long that may last.
“That’s what I hear from countries,” said the leader of the fund, which has about 190 members. “How long will the Fed be stuck with higher interest rates?”
Georgieva was speaking on the sidelines of the IMF and World Bank’s spring meetings in Washington, where policymakers have been debating the impacts of Washington and Beijing’s policies and their geopolitical rivalry.
Read More: A Resilient Global Economy Masks Growing Debt and Inequality
Georgieva said the IMF is optimistic that the conditions will be right for the Federal Reserve to start cutting rates this year.
“The Fed is not yet prepared, and rightly so, to cut,” she said. “How fast? I don’t think we should gear up for a rapid decline in interest rates.”
The IMF chief also repeated her concerns about China devoting too much capital and labor toward export-oriented manufacturing, causing other countries, including the US, to retaliate with protectionist policies.
China Overcapacity
“If China builds overcapacity and pushes exports that create reciprocity of action, then we are in a world of more fragmentation not less, and that ultimately is not good for China,” Georgieva said.
“What I want to see China doing is get serious about reforms, get serious about demand and consumption,” she added.
A number of countries have recently criticized China for what they see as excessive state subsidies for manufacturers, particularly in clean energy sectors, that might flood global markets with cheap goods and threaten competing firms.
US Treasury Secretary Janet Yellen hammered at the theme during a recent trip to China, repeatedly calling on Beijing to shift its economic policy toward stimulating domestic demand.
Chinese officials have acknowledged the risk of overcapacity in some areas, but have largely portrayed the criticism as overblown and hypocritical, coming from countries that are also ramping up clean energy subsidies.
(Updates with additional Georgieva comments from eighth paragraph.)
©2024 Bloomberg L.P.
The head of the International Monetary Fund warned the US that the global economy is closely watching interest rates and industrial policies given the potential spillovers from the world’s biggest economy and reserve currency.
Author of the article:
Published Apr 18, 2024 • 2 minute read
(Bloomberg) — The head of the International Monetary Fund warned the US that the global economy is closely watching interest rates and industrial policies given the potential spillovers from the world’s biggest economy and reserve currency.
“All eyes are on the US,” Kristalina Georgieva said in an interview on Bloomberg’s Surveillance on Thursday.
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The two biggest issues, she said, are “what is going to happen with inflation and interest rates” and “how is the US going to navigate this world of more intrusive government policies.”
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Article content
The sustained strength of the US dollar is “concerning” for other currencies, particularly the lack of clarity on how long that may last.
“That’s what I hear from countries,” said the leader of the fund, which has about 190 members. “How long will the Fed be stuck with higher interest rates?”
Georgieva was speaking on the sidelines of the IMF and World Bank’s spring meetings in Washington, where policymakers have been debating the impacts of Washington and Beijing’s policies and their geopolitical rivalry.
Read More: A Resilient Global Economy Masks Growing Debt and Inequality
Georgieva said the IMF is optimistic that the conditions will be right for the Federal Reserve to start cutting rates this year.
“The Fed is not yet prepared, and rightly so, to cut,” she said. “How fast? I don’t think we should gear up for a rapid decline in interest rates.”
The IMF chief also repeated her concerns about China devoting too much capital and labor toward export-oriented manufacturing, causing other countries, including the US, to retaliate with protectionist policies.
China Overcapacity
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Article content
“If China builds overcapacity and pushes exports that create reciprocity of action, then we are in a world of more fragmentation not less, and that ultimately is not good for China,” Georgieva said.
“What I want to see China doing is get serious about reforms, get serious about demand and consumption,” she added.
A number of countries have recently criticized China for what they see as excessive state subsidies for manufacturers, particularly in clean energy sectors, that might flood global markets with cheap goods and threaten competing firms.
US Treasury Secretary Janet Yellen hammered at the theme during a recent trip to China, repeatedly calling on Beijing to shift its economic policy toward stimulating domestic demand.
Chinese officials have acknowledged the risk of overcapacity in some areas, but have largely portrayed the criticism as overblown and hypocritical, coming from countries that are also ramping up clean energy subsidies.
(Updates with additional Georgieva comments from eighth paragraph.)
Article content
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