He’s doing his best.
Mark Makela/Getty Images
We appear to have reached the stage where just about everybody is terrified of what the coronavirus outbreak will do to the economy.
The Federal Reserve pulled the fire alarm this weekend, announcing that it would cut interest rates to near zero and take other emergency measures that it last used during the 2008 financial meltdown. The U.S. stock market responded to this news on Monday with its worst trading session since 1987, during which the S&P 500 plummeted by around 12 percent. Economists at the UCLA Anderson School of Management think the economy has already stopped growing and will contract at a 6.5 percent rate next quarter (Goldman Sachs thinks 5 percent). Former White House economist Kevin Hassett, a relentless optimist if there ever was one, told CNN that the world faced close to a 100 percent chance of recession, and April could bring 1 million job losses. Even President Donald Trump momentarily lowered his reality distortion field and admitted the nation “may” be headed for recession. His former aide Gary Cohn thinks we’re probably at the start of one already.
One of the few people who does not appear to be particularly ruffled is Larry Kudlow, the former TV talking head who is now Trump’s top economic adviser. He told reporters that any downturn would be brief—a mere “weeks and months.” This is worrisome, since Kudlow is notoriously wrong about everything. He is the George Costanza of economic forecasters: Whatever the man predicts, it is safe to expect the opposite.
In other words, the conventional wisdom is absolutely correct: Everybody should be terrified about what’s coming. Our public health officials have no idea how long this crisis might last. But China just released a batch of data showing that the fight against COVID-19, which required mass lockdowns throughout the country, basically demolished its economy over the past several months. Here in the U.S., we’re already seeing early signs of the virus’s economic toll. On Saturday night, restaurants had 40 percent fewer diners compared with a year before, according to OpenTable. And that was before New York City and Washington state closed all of theirs down. More than 12 million Americans work in restaurants, bars, and fast food. It’s not hard to see where all this is going. Our economy is headed into a strange, fluish hibernation.
The one upside to all this fear is that it’s spurring action. The Fed has risen to the occasion, both by slashing rates early and by announcing a massive bond-buying spree to prevent a serious credit crunch from developing. Nobody—least of all the central bank itself—thinks these moves will be enough on their own to prevent the economy from sliding into recession, which is part of why the stock market fell in response. (On Sunday, Chairman Jerome Powell all but begged Congress to take action, calling a fiscal response “critical.”) But its swift maneuvering may at least prevent that downturn from creating a full-fledged financial crisis, like we saw in 2008.
There could even be hope in Congress. The original relief bill that the House and White House negotiated to expand sick pay and medical leave may have been woefully insufficient, seeing as it only covered a fraction of the workforce. But now, both Republicans and Democrats in the Senate are talking about more dramatic action. Like some left-wing members of the House, Utah Sen. Mitt Romney wants to send $1,000 checks to every adult, which would help tide families over and buoy the economy a bit. Sen. Tom Cotton of Arkansas also says he wants to get more cash into the hands of affected workers. The pressure in Congress to do something dramatic seems to be growing along with the sense of danger. Meanwhile, the White House says that it is aiming for $800 billion in total stimulus. Half of that would come from a payroll tax cut that practically nobody outside the administration seems to support, because it targets the people who’d need it least. But if the administration can come to an agreement with Congress, a large, spending package could make the recession both shallower and shorter, sparing us all a long slog to recovery once the virus has been contained.
Everyone is frightened. But as a result, Washington might, conceivably, pull its act together to prevent some economic pain. Let’s hope.
For more on the economic impact of the coronavirus, listen to Tuesday’s episode of What Next.
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(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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