Early economic data released on Thursday in Europe and the US is indicating a black hole, sucking everything within reach into a collapse in demand the size of which we haven’t seen in 90 years — or possibly ever (in the case of aviation and travel, for example).
Evidence of the black hole provided a welcome dose of reality for the great COVID-19 recovery party which has seen governments, politicians and business continue to believe that it will be back to 2019 in a “V” bounce once the lockdowns are eased or lifted.
Snapback here we come!
The Eurozone economies saw growth fall 3.8% from the three months to December. European data (like Australia’s) is reported on a quarter-on-quarter basis, so on an annualised basis, the economy fell 14.4%, worse than the US dip at a 4.8% annual rate.
And that’s before what everyone agrees will be an even deeper slide in the June quarter. The Reserve Bank of Australia, remember, is forecasting a 10% slump here in the six months to June, with most happening this quarter.
Can we imagine what the current quarter’s data for Europe will be like when reported from the end of June onwards?
France and Italy saw their second quarterly falls, which put them into recession, while the Spanish economy fell more than 4% from the end of 2019.
The French economy contracted by 5.8%, pushing the country into deep recession after the fall in the three months to December. Spanish GDP sank a record 5.2%. Italian GDP fell 4.7% from the fourth quarter of 2019 (deeper than the 2.8% quarter-on-quarter slump seen in the first quarter of 2009, during the GFC).
Like France Italy is now in recession. Italian GDP fell 4.8% year on year. And that’s only the three months to March.
In every case business investment fell, as did consumer demand, some by as much as more than 6% in Spain, France and the US.
We know this has already spilled over into the oil market with the International Energy Agency (IEA) forecasting a 29 million barrels a day slump in demand for April alone.
Yesterday the IEA forecast global energy demand will drop 6% this year , the largest percentage decline in 70 years. Oil demand could drop by 9%, returning oil consumption to 2012 levels, and coal demand could decline by 8%. Global electricity demand is forecast to fall by 5%, nuclear demand by 3%.
Surveys this week show that not everyone one who has lost their job in the US in the past two months has been able to register or have their claims acknowledged because the state systems are inadequate and not set up to process so many claims at one time.
The whole edifice is being held aloft by central banks and government, especially central banks. Every major economy has some sort of market/debt/credit support scheme.
Analysts at Morgan Stanley said in a note on Wednesday that “G4 central banks … have announced aggressive quantitative easing programs” and are expected to make asset purchases of around US$13 trillion before this easing cycle concludes. This doesn’t include Australia, NZ, Singapore, India, and individual central banks in Europe.
Just imagine if those support schemes were not in place — we would be rapidly heading to a deep, deep depression.
No one has yet provided a realistic idea about how we will escape the slump. Reforms to tax, industrial relations and business regulations won’t engender any sort of quick hit needed to change confidence levels and get reluctant consumers interested in spending again.
Fed chair Jay Powell got it right on Wednesday when he said more spending will be needed to help economies escape the current slump.
He said the second quarter’s fall in growth would be “unprecedented”. The fall for the Eurozone for the March quarter, for example, was the largest on record.
If that’s unprecedented, what word could you use to describe what is expected to happen to growth this quarter?
What CoVid has helped us do is clearly delineate what is and isn’t essential on a daily basis within our society. While the dislocation and suffering of those who have lost their jobs and become victims of the shock that the pandemic has dealt us has been horrible, from the overall social viewpoint and given we need to de-grow society anyway in order to deal with climate change, we need to question the extent to which we wish to revert to a pre-pandemic economy.
NYTImes had an article today, headlined:
“Millions Had Risen Out of Poverty: Coronavirus Is Pulling Them Back –
Experts say that for the first time since 1998, global poverty will increase. At least half a billion people could slip into destination by the end of the year,” it wrote.
I do wonder if any of those half a billion, in Africa, the Middle East and parts of Asia, will be “questioning the extent they wish to revert” to their previous good fortune?
destitution (not destination!)
Could you say what happens to growth next quarter is “more unprecedented”?
This has demonstrated the extreme risks of a service based workforce. We have replaced tradespeople and people who did real stuff with baristas and consultants. We can actually DO very little it seems. At this point, the free world is led by two economic illiterates called Boris and Donald who have demonstrated incompetence in everything they have done other than gaming the system and bullying, and a skilled and stern woman who is alas at the end of her tether and her career, Frau Angela. Our PM is a kind of Trump lite who is likewise an illiterate in economics and many other things. Merkel has regard for the people and their death rate is 79 per million of population. Johnson and Trump think that leading is sitting on your arse. The UK has lost 394/million and the US 193. It also shows a clear correlation between urban crowding and death. The most urbanised and densely populated states of the US have much worse death rates per capita.
Many rethinks needed. They had to burn down half London to stop the plague in 1666.
Given that the Right constantly tell us that government has no money except what it steals via taxation how is it possible for those beneficent institutions, along with their even more open hearted central banks, are able to do all this soi disant “supporting”?
magick momey or borrowing from generations yet unborn?
Could it be that the naked Prince Ponzi is about to revealed to be entirely fictional?
The neolib project is crepusculent – I, for one, welcome a New Dawn.