Coronavirus hits consumer confidence, businesses in Europe; Germany’s Merkel urges patience

CORONAVIRUS ALERT 4/23/2020

The Atlantic Council’s Coronavirus Alert is a regular summary of policy, economic, and business events around the emergency. To stay updated, sign up to the Coronavirus Alert here.

In top stories today:

  • The coronavirus outbreak took its toll on consumer confidence and business activity alike in Europe, with progress to prevent a second wave of the disease set to be “painfully slow.” A summit meeting of European leaders is expected to make limited progress to support the region’s battered economy. Germany’s Chancellor Angela Merkel said the pandemic is “still at the beginning.”
  • The statistics say… there are now more than 2.6 million cases worldwide in 185 countries and territories; in excess of 180,000 people have died.   
  • QUOTE: “We are still far from out of the woods,” Germany’s Chancellor Angela Merkel told the Bundestag lower house of parliament, Reuters reported. “We are not living in the final phase of the pandemic, but still at the beginning.”
  • Consumer confidence slumped to a level not seen since the 2009 financial crisis, illustrating the pandemic’s heavy economic and financial toll, the Financial Times said. An indicator fell 11.1 points to minus 22.7, according to the European Commission’s monthly survey published on April 22, the newspaper said.   
  • Business activity in the eurozone suffered too in April because of the coronavirus outbreak, CNBC reported. The IHS Markit Purchasing Managers’ Index, measuring services and manufacturing, fell to 13.5, according to preliminary data, following its biggest ever monthly decline to 29.7 in March, CNBC added.
  • All shoulders to the European wheel? Patience. European Union leaders may take until the summer or beyond to agree on how to help the region’s economy to recover from coronavirus, Reuters cited an unidentified official as saying. A summit meeting of European leaders on April 23 is expected only to arrive at a broad deal on using the bloc’s 2021 to 2027 budget to boost growth, also to approve 500 billion euros of support measures starting in June, the newswire added.
  • Angela Merkel, the chancellor of Germany, Europe’s biggest economy, said European Union members should be ready to make higher, time-limited contributions to the bloc’s budget rather than to issue common debt, Reuters reported. Merkel, who is worried that Germans are relaxing social distancing measures, encouraged people to show discipline and endurance to contend with the coronavirus outbreak, the newswire reported.
  • QUOTE: “The instrument we can do it with is the EU budget. It must be possible to do things quickly in a crisis situation and then of course conduct a refinancing in the years after,” German Finance Minister Olaf Scholz said in an interview with ZDF television on April 23, Bloomberg reported. “That’s the best way to do it and it’s in line with European treaties, which is also very important.”
  • The coronavirus keeps pushing Americans out of the jobs market at an unprecedented rate, as more than 4.4 million people filed for unemployment benefits last week, The Washington Post reported. That’s the fifth week in a row of job losses, taking to 26.5 million the total of people either laid off or furloughed between March 15 and April 18, the newspaper said.
  • READ MORE: “We lack full information about the size and the speed with which this wave (of non-performing loans and bankruptcies triggered by the COVID-19 crisis) is approaching, though we can say with some confidence: Big. Fast,” writes the Atlantic Council’s Bart Oosterveld. “Every day, new exponential curves blast through the entire prior history of price, market, and risk indicators.” 
  • The European Central Bank will accept some junk bonds as loan collateral, the latest measure to help lenders in the eurozone access cash during the coronavirus crisis, The Wall Street Journal reported. That means central banks will be able to use government bonds from Italy or Spain as collateral even if they are downgraded by credit-rating agencies, the newspaper said.
  • QUOTE: “Hopes are pinned on containment measures being slowly lifted to help ease the paralysis,” said Chris Williamson, chief business economist at IHS Markit, Bloomberg reported. “However, progress looks set to be painfully slow to prevent a second wave of infections. In the face of such a prolonged slump in demand, job losses could intensify from the current record pace and new fears will be raised as to the economic cost of containing the virus.”

HOME IS BEST?

  • Globalization (bad), produce at home (good)? Not so fast, says the European Union’s top trade official. A recent increase in medical manufacturing in Europe is a response to the coronavirus crisis but not a long-term solution, EU trade commissioner Paul Hogan said in an interview with Trade Secrets, the Financial Times’ newsletter on globalization. The bloc should also press ahead with reaching new trade deals to cut tariffs, Hogan said, the newspaper reported.
  • QUOTE: “Strategic autonomy does not mean we should aim for self-sufficiency,” Hogan told the Financial Times in an interview. “Given the complexity of supply chains to the European Union, this would be an unattainable goal… we have to look at how to build resilience based on how we can diversify, not be totally reliant on one geographical entity for supplies of everything.”
  • India is working on an incentives plan to lure companies’ manufacturing from China to India, including possible capital spending benefits, as the coronavirus crisis prompts a desire among manufacturers to avoid overreliance on one place, The Economic Times reported. Quartz highlighted the article in its daily email to readers.

DEBT FREEZE, AMAZON

  • Migrant workers are likely to send 20 percent less money home because of the economic crisis caused by coronavirus, global remittances that many economies increasingly depend on, The Wall Street Journal reported. Global payments sent home are expected to drop to $572 billion this year from $714 billion in 2019, according to the World Bank, the newspaper said.
  • Pakistan hopes to have its debt frozen and use the savings to fight the spread of coronavirus, the Financial Times reported, citing its finance ministry. The country is set to be the first large developing nation to ask for a standstill on debt repayments under an initiative by the Group of Twenty (G20) economies, the newspaper said.
  • Argentina didn’t pay foreign debt due on April 22, setting off a countdown to a possible default in May unless authorities and investors can restructure tens of billions of dollars in the country’s borrowing, The Wall Street Journal reported, citing the economy ministry.
  • Deforestation in Brazil’s Amazon rainforest has increased at the fastest pace in years as the coronavirus crisis sidelined hundreds of environmental enforcement agents, even before the dry season from May to October that’s usually busiest for clearances, The Wall Street Journal reported. Brazil’s National Institute for Space Research data show 2,031 square miles of clearings, almost the size of Delaware, from August 2019 to March 2020, the Journal said. That area is 71 percent bigger than the record for the equivalent period recorded in 2016 and 2017, the newspaper said.

WRISTBANDS, COLLABORATION

  • Quarantine wristbands. The Sydney Morning Herald runs a story about their planned use in India, in the thousands so far, to monitor where people go, to take their temperature, and to help with contact tracing to counter the spread of coronavirus. Hong Kong has used wristbands to track overseas travelers ordered to self-isolate, while South Korea plans to give them to people who flout quarantine orders, the newspaper said.
  • An increasing number of health professionals favor a collaborative public health strategy called “One Health” to prevent the next pandemic using lessons garnered from wildlife outbreaks, an approach that taps the expertise of veterinary surgeons, ecologists, and conservationists, as well as medical doctors and researchers, The South China Morning Post reported.
  • The world should look to South Korea as a way to emerge from coronavirus without adversely affecting economic growth, one economist told CNBC. The country contained the disease’s spread by mass testing and strict social isolation but without totally shutting down business, said Trinh Nguyen, a senior economist at French investment bank Natixis, CNBC reported.
  • QUOTE: “If you think one lockdown is painful enough, imagine a second,” Edward Luce wrote in an editorial headlined “The risk of a US double-dip recession is real” in the Financial Times. “The shock of a second wave of sheltering-in-place would be orders of magnitude worse. Twice bitten, multiple shy.”

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