US economy contracts as virus hits demand, business; European countries dig in for lengthy reopening

CORONAVIRUS ALERT 4/29/2020

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 US economy contracted in the first quarter as the virus hit consumer demand and businesses closed. Economies from France to Spain and Greece set out plans for a lengthy and gradual reopening of their economies. Some early, tentative signs of an uptick in economic activity emerged, but consumers are likely to remain leery of travel and public events until a proven vaccine is in place.
  • The US economy contracted at a 4.8 percent annualized pace in the first quarter, the biggest drop since 2008, as consumer demand shrank and factories went offline, Bloomberg reported. Economists surveyed by the newswire expected the decline to be 4 percent. Those figures effectively show that a recession has begun, with estimates indicating a record drop is to follow in the second quarter, according to Bloomberg.  
  • QUOTE: “The economy will continue to fall until the country opens back up,” said Chris Rupkey, chief economist at MUFG Union Bank in New York, Reuters reported. “If the economy fell this hard in the first quarter, with less than a month of pandemic lockdown for most states, don’t ask how far it will crater in the second quarter.”
  • European governments are digging in for the months ahead as they prepare to unlock the region’s economy through rules and advice amounting to a widespread change to everyday life, The Wall Street Journal said. French Prime Minister Édouard Philippe outlined more testing and a swath of restrictions to Congress covering travel, work, and social life once the country’s lockdown is lifted on May 11, the newspaper said. A four-phase process in Spain starts by allowing individual sport and takeout food service from May 4, while Greece will begin by reopening small shops and hairdressers then too, the newspaper said.
  • Timid signs are emerging of an uptick in some economic activity in European countries that have started to loosen lockdown restrictions, the Financial Times reported, making it the lead story in world coverage. Electricity consumption and travel are showing early signs of revival but it’s too soon for this to be reflected in official data, the Financial Times added.
  • Fewer than half of Americans plan to attend sports and other live events before there’s a proven coronavirus vaccine, Reuters reported, citing a Reuters/Ipsos opinion poll. That includes those who have gone to such events in the past, the poll found, a cause for concern for sports and entertainment industries, the newswire said.
  • Sixty percent of the world’s wealthiest investors believe a worldwide recession is highly likely in the next twelve months, but remain largely positive about the outlook longer-term, Bloomberg reported, citing a poll by UBS Global Wealth Management. Sixty-one percent of high net-worth individuals want to see stocks drop by a further 5 percent to 20 percent before buying, the poll showed, Bloomberg reported.
  • Lender Standard Chartered, which focuses on emerging markets, said it expects economies hit by coronavirus to recover later this year, and perhaps sooner in the case of China, Reuters reported. That optimistic outlook contrasts with other European banks who have posted first-quarter results so far, the newswire added.

TESTING, FACEBOOK

  • Australia plans to expand coronavirus screening to people without symptoms after the country secured 10 million more testing kits, a measure officials said is essential to allow restrictions on social movement to be eased, Reuters reported. Fortescue Metals Group founder Andrew Forrest got the kits from China and sold them to the government at a cost price of A$320 million ($209 million), the newswire said.
  • READ MORE: “It’s high time we bring the government’s decision making into the twenty-first century. The knowledge is there for how to do it,” writes the Atlantic Council’s Mathew J. Burrows. “What’s our excuse as a country for ignoring it?”
  • Mark Zuckerberg, chairman and chief executive of Facebook, has sought a prominent role for the social-media giant in the coronavirus crisis, The Wall Street Journal said in a long-form article. Zuckerberg, thirty-five, has recast the company’s board of directors and put himself in the limelight by interviewing high-profile politicians and health officials, the newspaper reported.
  • South Korean electronics giant Samsung expects a substantial drop in second-quarter earnings as the coronavirus outbreak dents demand for its televisions and smartphones, The New York Times reported.

AVIATION WOES

  • The aviation industry’s troubles are just starting, the Associated Press cited Airbus Chief Executive Guillaume Faury as saying, as the plane maker posted 481 million euros ($515 million) in first-quarter losses, sought billions in loans and furloughed thousands of workers in response to coronavirus. It will take a long time to persuade passengers to get back on airplanes, he conceded, the Associated Press said.
  • QUOTE: “We are in the gravest crisis the aerospace industry has ever known,” Faury said, the Associated Press reported. “Now we need to work as an industry to restore passenger confidence in air travel as we learn to coexist with this pandemic.”
  • Industrial conglomerate General Electric’s aviation unit posted a 14 percent drop in first-quarter orders to $7.5 billion, hurt by global restrictions on air travel, the Financial Times reported. Profits in that division fell 39 percent to about $1 billion, whereas the healthcare business did better, with profit up 15 percent at $896 million following demand for products to diagnose and treat coronavirus, the Financial Times said.

CHINA TRAVEL, PUSHBACK

  • The city of Beijing plans to ease quarantine restrictions for some domestic travelers from low-risk areas of China as soon as April 30 as the country’s capital gears up for the National People’s Congress, a major political gathering, Reuters reported, citing two unidentified people familiar with the matter.
  • China has mounted an aggressive diplomatic push to fend off criticism of how the country responded to the coronavirus outbreak and to squash efforts, including by Trump, to hold it to financial account for the pandemic, The New York Times reported.
  • QUOTE: “Beijing is mounting an all-hands-on-deck, no-holds-barred, global diplomatic effort to stem any move anywhere to censure it over its handling of the initial coronavirus outbreak in Wuhan,” said Richard McGregor, a China analyst with the Lowy Institute in Sydney, The New York Times reported.
  • Protestors in Lebanon took to the streets to demand economic relief as the country’s coronavirus lockdown eases and its economy deteriorates, The Wall Street Journal reported. One demonstrator died after soldiers in Tripoli, Lebanon’s second-biggest city, used live bullets, and demonstrators set fire to at least two closed banks, the newspaper said. That, along with small demonstrations in the capital Beirut, are the first signs of a violent backlash following weeks of quarantine, the Journal reported.
  • Kenya’s economy could contract by as much as 1 percent this year if disruptions caused by coronavirus last for about three months, Bloomberg reported, citing the World Bank. Kenya, East Africa’s biggest economy, has seen plummeting demand for agricultural exports and tourism to the country, with lower remittances from workers abroad expected to follow, the newswire said.

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