Investment Clock insights

Coronavirus views 3 April 2020 - economic viewpoint


Melanie Baker

3 April 2020

Although there has been some encouraging news, for example from Italy where the growth in new cases has been slowing, it is clear from incoming case numbers that we are still some way off being able to contemplate easing social distancing measures in Europe, let alone the US. In the meantime therefore, levels of economic activity remain well below pre-crisis norms. Data have underscored the challenge facing policymakers. Over the week, the latest US weekly initial jobless claims number showed another a record jump of more than 6 million. Benefit claims have risen sharply in the UK for example too. Incoming March survey data remain consistent with a large hit to business activity and confidence in Europe and the US.
China = what lies ahead for Europe? As social distancing measures have eased, economic activity data in China have improved. China’s March business surveys this week all improved significantly. However, business surveys generally ask firms whether activity has increased or decreased, not how by much. That is important in the current context where the level of economic activity is likely still significantly below pre-crisis levels. Export-related components of the surveys still signal contraction, consistent with weak global demand now holding back China’s recovery. Meanwhile reminders that things aren’t normal and that social easing can’t be unwound in one easy move while there is re-infection risk, came in the shape of some reversals of social easing (e.g. cinemas shutting again and lockdown being re-imposed in Jia county).
Economic policy support remains remarkable in scale and pace…: The scale of increase in indicators of US unemployment this week underlies the scale of the challenge policymakers have in trying to limit the long-term economic damage from this crisis. The good news is that policymakers globally continue to step up and introduce measures that improve the likelihood of economic activity being able to pick up robustly once social distancing measures ease. Again, we’ve seen measures designed to keep the financial system working (e.g. Fed’s announcement this week of a repo facility for overseas central banks), limit damage to household finances (e.g. the direct wage subsidy scheme announced by Australia at the start of the week) and keep viable businesses afloat. Other highlights included a 50bps rate cut in Canada late last Friday and a policy easing message from Chinese authorities.

Although there has been some encouraging news, for example from Italy where the growth in new cases has been slowing, it is clear from incoming case numbers that we are still some way off being able to contemplate easing social distancing measures in Europe, let alone the US. In the meantime therefore, levels of economic activity remain well below pre-crisis norms. Data have underscored the challenge facing policymakers. Over the week, the latest US weekly initial jobless claims number showed another a record jump of more than 6 million. Benefit claims have risen sharply in the UK for example too. Incoming March survey data remain consistent with a large hit to business activity and confidence in Europe and the US.

China = what lies ahead for Europe? As social distancing measures have eased, economic activity data in China have improved. China’s March business surveys this week all improved significantly. However, business surveys generally ask firms whether activity has increased or decreased, not by how much. That is important in the current context where the level of economic activity is likely still significantly below pre-crisis levels. Export-related components of the surveys still signal contraction, consistent with weak global demand now holding back China’s recovery. Meanwhile reminders that things aren’t normal and that social easing can’t be unwound in one easy move while there is re-infection risk, came in the shape of some reversals of social easing (e.g. cinemas shutting again and lockdown being re-imposed in Jia county).

Economic policy support remains remarkable in scale and pace…: The scale of increase in indicators of US unemployment this week underlies the scale of the challenge policymakers have in trying to limit the long-term economic damage from this crisis. The good news is that policymakers globally continue to step up and introduce measures that improve the likelihood of economic activity being able to pick up robustly once social distancing measures ease. Again, we’ve seen measures designed to keep the financial system working (e.g. Fed’s announcement this week of a repo facility for overseas central banks), limit damage to household finances (e.g. the direct wage subsidy scheme announced by Australia at the start of the week) and keep viable businesses afloat. Other highlights included a 50bps rate cut in Canada late last Friday and a policy easing message from Chinese authorities.

For professional clients only, not suitable for retail investors. Please note that this is a fast moving environment and markets and impacts on portfolios are changing. Opinions contained in this blog post are represent views of the author at time of writing. Past performance is not a reliable indicator of future results. The value of investments and the income from them is not guaranteed and may go down as well as up and investors may not get back the amount originally invested. The views expressed are the author’s own and do not constitute investment advice. Portfolio holdings are subject to change, for information only and are not investment recommendations.