By Lucia Mutikani
WASHINGTON (Reuters) – The U.S. economy likely contracted at its steepest pace since the Great Depression in the second quarter as the COVID-19 pandemic destroyed consumer and business spending, potentially wiping out more than five years of growth.
The bulk of the historic plunge in gross domestic product expected to be reported by the Commerce Department on Thursday occurred in April when activity almost ground to an abrupt halt after restaurants, bars and factories among others were shuttered in mid-March to slow the spread of coronavirus.
Though activity picked up starting in May, momentum has slowed amid a resurgence in new cases of the illness, especially in the densely populated South and West regions where authorities in hard-hit areas are closing businesses again or pausing reopenings. That has tempered hopes of a sharp rebound in growth in the third quarter.
Federal Reserve Chair Jerome Powell on Wednesday acknowledged the slowdown in activity. The U.S. central bank kept interest rates near zero and pledged to continue pumping money into the economy.
“The bottom fell out of the economy in the second quarter,” said Sung Won Sohn, a finance and economics professor at Loyola Marymount University in Los Angeles. “The outlook is not very good. Americans are not behaving well in terms of social distancing, the infection rate is unacceptably high and that means economic growth cannot gain any traction.”
Gross domestic product probably collapsed at a 34.1% annualized rate last quarter, according to a Reuters survey of economists. That would be the deepest decline in output since the government started keeping records in 1947.
The drop in GDP would be more than triple the previous all-time decline of 10% in the second quarter of 1958. On a non-annualized basis, GDP likely tumbled 10.6%. The economy contracted 5% in the first quarter.
“The forecast implies that the level of real GDP actually fell by roughly 11% in the first two quarters of 2020,” said Lou Crandall, chief economist at Wrightson ICAP in Jersey City. “If so, that would wipe out more than five years of growth, and pull real GDP back to its levels last seen in the middle of 2014, at least as currently reported.”
With the second-quarter GDP report, the government will publish revisions to data going back five years. The economy slipped into recession in February.
The plunge in GDP and faltering recovery could put pressure on the White House and Congress to agree on a second stimulus package. President Donald Trump, whose opinion poll numbers have tanked as he struggles to manage the pandemic, economic crisis and protests over racial injustice three months before the Nov. 3 election, said on Wednesday he was in no hurry.
SEA OF RED
Economists say without the historic fiscal package of nearly $3 trillion, the economic contraction would have been deeper. The package offered companies help paying wages and gave millions of unemployed Americans a weekly $600 supplement, which expires on Saturday. Many companies have exhausted their loans.
This, together with the sky-rocketing coronavirus infections is keeping layoffs elevated.
A report from the Labor Department on Thursday is expected to show new claims for unemployment benefits increased to 1.45 million in the week ending July 25 from 1.416 million in the prior period, according to a Reuters survey.
Should the GDP estimate meet expectations, output would be down 11.5% from its peak before the recession to the lowest point during the downturn, underscoring the magnitude of the economic crisis. The economy contracted 4% peak to trough during the Great Recession.
“This is on a par with the downturn experienced as World War Two concluded, but that occurred over three years, not two quarters, as is happening today,” said James Knightley, chief international economist at ING in New York. “Financial markets have priced in a vigorous recovery. I fear there could be more stumbling blocks to come.”
Consumer spending, which accounts for more than two-third of the U.S. economy, is expected to have contracted at the same margin as GDP in the second quarter. Major retailers, including JC Penney and Neiman Marcus, have filed for bankruptcy.
A similar pace of decline is anticipated in business investment. Boeing Co on Wednesday reported a bigger-than-expected quarterly loss and slashed production on its widebody programs. The pandemic has also crushed oil prices, leading to deep cuts in shale oil production and layoffs.
The housing market was also likely not spared. Despite the record fiscal package, a historic drop is expected in government spending, driven by state and local governments, whose budgets have been decimated in the fight against coronavirus.
“The significant fiscal stimulus primarily shows up as transfer payments to facilitate consumer and business spend, rather than government spending,” said Alexander Lin, a U.S. economist at Bank of America Securities in New York.
Disruptions to global trade depressed exports and imports. Though a smaller import bill is positive for GDP, it cut inventories, leading to a drawdown of stocks by businesses and likely dragging output.
(Reporting by Lucia Mutikani; editing by Jonathan Oatis)
Lebanon's economy minister blames Beirut blast on 'incompetence' and 'stupid' decisions – CBC.ca
Raoul Nehme says he has no doubt that criminal negligence within successive Lebanese governments led to the devastating explosion that killed at least 135 people in Beirut on Tuesday.
More than 4,000 people were injured and huge swaths of the Lebanese capital city were destroyed in when 2,750 tonnes of ammonium nitrate in the city’s port area exploded.
The materials had been sitting in a Beirut warehouse since they were confiscated from a cargo ship in 2014, despite repeated warnings from customs officials that it was dangerous to leave them there. The government said Wednesday it is putting an unspecified number of Beirut port officials under house arrest pending an investigation.
Even before the blast, the country had been plunged deep into an economic crisis, with massive job losses, growing debt and shortages of electricity, water, and critical supplies — all exacerbated by political corruption and unrest, fighting along the southern border, and most recently, the COVID-19 pandemic.
Nehme, a former banker, was appointed Lebanon’s economy minister in January by new Prime Minister Hassan Diab in an effort to meet protesters’ demands for a cabinet made up of people with specialized expertise, rather than partisan ties.
He spoke to As It Happens guest host Susan Bonner about how his country plans to recover from the explosion. Here is part of their conversation.
You just visited the site of this explosion. What was that like?
It was very sad because we have a number of casualties within our employees — missing people and dead people.
The site of destruction is really an apocalypse. It is something you cannot imagine. Everything is flattened in the place where the explosion happened. It sank into the sea. The silos are half felled, half of them unfortunately on some of our employees. And they are practically destroyed. I don’t think we will be able to recover any part of it, which is a big problem for Lebanon.
Warehouses burned down, destroyed entirely. Everything is destroyed. It’s absolutely terrible.
Everywhere in Beirut, we have major damage. Glass falling, doors broken, flying through the apartments.
Our ministry, which is in the city, is entirely destroyed. Nothing is left. Everything is broken. [In] my office … two windows fell on the place where I sit. Luckily, I was not there.
[Earlier today I was] in a meeting with importers and then supermarkets to discuss with them what they needed to make sure that we ensured supply. And we had to do a meeting outside of Beirut because we have no office any more in Beirut left that could be used.
And even five, six kilometres out of Beirut, a lot of glass is broken. In Beirut, stores are damaged badly and products in the stores [are] damaged badly as well.
So for the economy, it is absolutely terrible. We already had a major problem and now we have these huge losses. We cannot assess how much the losses are, but they are certainly in billions of dollars, and we just don’t have the means to resolve these issues. We have to count on international aid, heavily.
Minister, you describe this as an apocalypse. And yet the government knew that this explosive material was sitting in this port for six years in Beirut. How much responsibility does the government bear for what happened?
Personally, I think that there is a huge responsibility for the successive governments. And this is why we established that investigation committee. And we will go to the end. Whoever was responsible since 2014 until now will have to be brought to court. And really, sanctions should be very hard.
What happened is just unacceptable. And we will go to the end of this investigation. Whoever is responsible, we will go after him, whoever it is, wherever he is.
You say there will be an investigation, but critics say this goes beyond just individuals, that this shows the negligence, incompetence and corruption that runs deep in Lebanon’s political class. Would you agree with that?
Yes, we have a lot of corruption. But in this case, it’s not corruption that played a role. It is certainly incompetence. It is certainly, as well, people not understanding and assessing the risks.
It is bureaucracy and, frankly, in my opinion, stupid behaviours and decisions.
But, Minister, there were warnings that came from port officials over the years. Six formal letters to the country’s judiciary asking that this dangerous material be removed and, in fact, proposing ways to deal with it. How does this not go beyond just bureaucratic incompetence to criminal negligence?
What happened is criminal negligence. Absolutely. I fully agree with you. And it is criminal negligence from a lot of people.
But I don’t want to go beyond the investigation and say what my personal opinion is. The investigation will happen, and everyone that has a responsibility in it, everyone will have to be punished, will have to bear the consequences of what we lived through.
As for the economic consequences, that is your responsibility directly. How can you recover from this when … Lebanon was already dealing with virtual economic collapse, and now this?
Well, even before this, I was very clear, stating that without [the International Monetary Fund], we cannot get out of this problem and out of these issues.
IMF brings two things to the table. It brings financing, and [it] brings discipline. And that discipline brings in other assistance from the World Bank, from other countries, from [the International Financing Corporation] and so on.
So this is really what is important and what leads us to go to this program. But that was before. And now we have added this really cataclysm, as I told you. We just can’t handle it. We don’t have the means to handle it.
I’ll give you just one example. Where are we going to bring all the glass to replace windows? We just don’t have that. Where are we going to bring the aluminum? We don’t have that. All the doors, all the knobs, all the warehouses that were burned down.
We lived through a small Hiroshima…. It is really something that is just absolutely incredible.
So, what do you want me to say? It’s appalling. All day we have been working on emergency plans. And I have to say that we are very lucky that a lot of countries have been proposing that assistance, and [French] President [Emmanuel] Macron is coming tomorrow to Lebanon to prove once again that France is with us.
You talk about all the supplies that you will need to rebuild. Supplies will be forthcoming, as you say. But how do you convince the international community that you have the right government and the right bureaucracy and the credibility to do what needs to be done?
There is only one way to do it. Only one way and not two way. Not 19 ways. One way. We have to do the reforms that have been requested by the international community for over 20 years.
You are not a politician. You were brought in as a technocrat to help deal with the economic crisis. Do you personally believe that there is the political will to change the way Lebanon is governed?
I believe that the politicians will all have woken up to the problem enough to understand that we have now to stand united and work hand-in-hand to resolve all these problems. Because this is the solution. We have to stop bickering. Political bickering doesn’t take us anywhere. It takes us to a bigger problem.
You had hope when you took this job six months ago. How much hope do you have now, given everything that Lebanon has to face?
Look, with this new crisis, it’s getting more difficult. But I am always hopeful. My nature is to fight and never stop fighting, and to succeed.
So I am hopeful. And, always, there is light at the end of the tunnel. It is going to be difficult. It’s going to be hard. It’s going to be painful. Very painful. But we will succeed.
What do you say to so many people in Lebanon? To the many Canadians who have family in Lebanon who feel so hopeless right now?
We need your help.
Written by Sheena Goodyear with files from The Associated Press. Interview produced by Jeanne Armstrong. Q&A edited for length and clarity.
Sweden's economy less hard-hit by coronavirus – BBC News
Sweden, which avoided a lockdown during the height of the Covid-19 pandemic, saw its economy shrink 8.6% in the April-to-June period from the previous three months.
The flash estimate from the Swedish statistics office indicated that the country fared better than other EU nations which took stricter measures.
However, it was still the largest quarterly fall for at least 40 years.
The European Union saw a contraction of 11.9% for the same period.
Individual nations did even worse, with Spain seeing an 18.5% contraction, while the French and Italian economies shrank by 13.8% and 12.4% respectively.
“The downturn in GDP is the largest for a single quarter for the period of 1980 and forward,” Statistics Sweden said.
“It is, as expected, a dramatic downturn. But compared to other countries, it is considerably better, for instance if you compare to southern Europe,” said Nordea bank chief analyst Torbjorn Isaksson.
Sweden has largely relied on voluntary social distancing guidelines since the start of the pandemic, including working from home where possible and avoiding public transport.
Although businesses have largely continued to operate in Sweden, the country’s economy is highly dependent on exports, which were hit by lack of demand from abroad during the pandemic.
Despite the contraction, Sweden is not yet in recession, since the first quarter saw growth of 0.1%.
An economy is generally deemed to be in recession if it contracts for two consecutive quarters.
Various forecasts predict the Swedish economy will still shrink by about 5% this year.
That is less than other countries hit hard by Covid-19, such as Italy, Spain and the UK, but still similar to the rest of Scandinavia.
Sweden’s unemployment rate of 9% remains the highest in the Nordics, up from 7.1% in March.
'$500 for everyone': Belarus leader's Soviet-style economy wears thin for some voters – TheChronicleHerald.ca
By Andrei Makhovsky
MINSK (Reuters) – Under President Alexander Lukashenko, the average monthly wage in Belarus has risen in dollar terms to $500 from $50 in 1999. For voters, there’s just one problem: it hit $500 in 2010, and has been stuck there ever since.
As Lukashenko, a 65-year-old former collective farm manager with a fondness for a Soviet-style command economy, seeks re-election on Sunday after 26 years in power, his economic record is being found wanting by some voters.
“My daughter tells me all the time: I love my country, I want to live in my country,” said Dmitry, a 53-year-old Minsk resident protesting against Lukashenko last week.
“But with what is happening here, there are no prospects for young people. No future,” he said, saying his daughter lived in the Czech Republic and had no plans to return.
He declined to give his surname for fear of reprisals in a country where little dissent is allowed.
Once cast by Washington as “Europe’s last dictator”, Lukashenko controls the levers of power in the strategically important country between East and West through which Russia sends its oil. He is expected to be re-elected.
But he faces protests by opposition supporters rallying around his main opponent, a former English teacher whose husband was jailed and cannot run himself.
Lukashenko is also facing criticism over his human rights record and dismissal of COVID-19 as “a psychosis”.
His once popular promise of “$500 for everyone” was a reflection of rising prosperity in the 2000s, but has become the butt of internet memes.
“People are really sick of it, people want change, people want some kind of development,” said Vadim Iossub, a senior analyst at financial company Alpari Eurasia.
Fraying ties between Belarus and Russia have prompted Moscow to scale back subsidised energy supplies that previously propped up Lukashenko’s rule, creating a $700-million budget hole as the coronavirus pandemic tipped the economy into recession.
Hundreds of thousands of Belarusians have moved abroad in recent years. Lukashenko said on Tuesday the population had fallen by 8%.
Around 70% of the economy and two-thirds of the workforce have remained in state hands in the former Soviet republic.
While the government has cut red tape for private entrepreneurs, whom Lukashenko once derided as “leeches”, the economy is dominated by public companies receiving government loans and subsidies.
The model has been underpinned by cheap Russian gas and crude oil, processed in Belarusian refineries and exported.
Addressing the nation on Tuesday, Lukashenko promised to double wages within five years and resisted calls for rapid change, casting Belarus as an island of stability at a time of global turmoil.
Lukashenko said he expected the economy to grow by 3-4% in coming years. He said his statist model should deliver that if production and exports are ramped up and Belarus starts to manufacture $4 billion of goods it currently imports annually.
“For the entire term of my presidency, I have not found an answer to the question: why are state-owned enterprises such an eyesore to everyone?” he said.
Belarus grew by an average of less than 1% annually between 2010-2020. In 2012, the purchasing power of Belarusian wages was 73 percent of that in neighbouring Poland. By 2020, it had dropped to 60 percent, according to official data.
Valery Tsepkalo, an election opponent who fled abroad fearing arrest, told Reuters Lukashenko had broken an “unwritten agreement” with voters to deliver prosperity in exchange for political obedience.
“He deprived Belarus people of political freedoms and he also deprives Belarus people of economic growth. This is one of the reasons society started to protest,” he said.
(Additional reporting by Gabrielle Tétrault-Farber in Moscow; writing by Matthias Williams, Editing by Andrew Osborn and Timothy Heritage)
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