Growth: stirring not bouncing
* Join our weekly 30-minute “COVID-19” webinar this Thursday at 13:00 BST. We’ll cover the latest health and economic impacts and our guests, Kristin Park and Fiona Kaufman, will discuss how to strengthen supply chain resilience in the wake of the pandemic. To register for this week’s webinar, on 11 June, please visit: https://event.on24.com/wcc/r/2395434/43A63E151419CAF146502E14957B8597
* As the lockdown eases the global economy is starting to come back to life. Last week’s better than expected US jobs numbers, and a surge in private sector activity in China, reinforced the view in equity markets that the worst is past. On Friday the US S&P 500 equity index closed up almost 40% on its March lows.
* The economic numbers around the world paint a much more cautious picture. In the UK activity is stirring not bouncing.
* The UK started to emerge from lockdown on 13 May, with people who are unable to work at home ‘actively encouraged’ to return to work. Since 1 June schools have started to reopen as have car showrooms and open-air markets. From next Monday all non-essential shops will be allowed to get back to business.
* Real-time transaction data from credit card providers and banks shows that UK consumer spending has risen since April. Despite the pickup research group Fable Data notes that household spending in the final week of May was 18.5% lower than in the equivalent week of 2019. With the reopening of the housing market on 13 May property group Zoopla reported a sharp rise in the number of active enquiries. There are also tentative signs of an increase in shipping coming through UK ports.
* Road traffic data presented at the daily No10 press conference offers perhaps the clearest sign of a stirring of life. Traffic volumes, which dropped to 25% of normal levels in April, are running at around 70% of normal levels. Rail, bus and tube traffic, by contrast, have seen only slight increases, and are still running at less than 20% of normal levels.
* Businesses are slowly reopening. An Office for National Statistics (ONS) survey found that 81% of companies were operating in May up from 75% in late March and early April. 24% of businesses that had suspended trading were planning to resume operations before mid-June.
* Work is resuming under new, more restricted conditions. Social distancing and consumer caution will dampen activity and challenge the viability of some businesses. People are heeding the government’s injunction to avoid public transport, but doing so weighs on activity. From 8 June most people entering the UK by plane, ferry or train will be subject to a 14-day quarantine. The risk of new outbreaks, and the reimposition of lockdowns, will remain until the virus is eliminated or disappears.
* Data released on Friday offers some encouragement on this front, showing falling levels of infection in England. The ONS study, which involves swab testing a sample of households, suggests that one in 1,000 people had COVID-19 in the community between 17 and 30 May. The figures, which exclude hospitals and care homes, have dropped from a rate of one in 400 between 26 April and 8 May. The ONS also found that people who worked outside the home had 3.5 times higher estimated COVID-19 rates than those who worked from home.
* Even as the return to work gathers pace the lagged effects of earlier weakness will become increasingly apparent. Some jobs that were preserved by the furlough scheme will be lost as businesses reassess prospects. Lower levels of demand, social distancing and high debt will weigh on many businesses. Unemployment and business insolvencies are likely to rise as the lockdown is eased.
* For all of these risks we are forecasting what, by normal standards, would be extraordinarily strong growth in the third and fourth quarters of this year. Assuming a continued gradual easing of restrictions and no resurgence in cases we expect GDP to rise by 7.8% in July-September and by 4.2% in October-December.
* But this represent only a partial recovery from the huge decline in March-April, of perhaps 20-30%. Despite a prospective rebound we expect the UK economy at the end of this year to be 10.8% smaller than at the end of 2019. The hole in the economy made by COVID will take time to fill. Other countries face the same problem.
* Governments and central banks recognise that much more needs to be done to ensure recovery.
* Last week the German government became the first major European government to launch a post-COVID stimulus package worth €130bn, with extra spending, tax cuts and help to business. Other governments are likely to follow; on Friday the UK Treasury said it is considering announcing a further package of measures to support the economy in July. More substantial stimulus is likely be pushed back to the autumn when there is more clarity on the position of the UK economy.
* Last Thursday the European Central Bank announced a significant increase in its programme of quantitative easing designed to bolster growth. Having initially said that the Bank of England was not “planning or contemplating” negative interest rates, its governor, Andrew Bailey, last month told MPs that the idea was under “active review”.
* The recovery will need more help. Yet, reduced and shaky though it is, the UK economy is starting to recover.
OUR REVIEW OF LAST WEEK’S NEWS
The UK FTSE 100 equity index ended the week up 6.7% at 6,484. Markets worldwide posted strong gains as activity resumed.
COVID-19 impacts
* The US economy smashed expectations and added 2.5m jobs in May. The unemployment rate fell to 13.3% from 14.7% the previous month despite expectations it would rise to almost 20%
* The rise in US jobs comes despite an additional 1.9m initial jobless claims in the last week of May, taking the total since mid-March to 42.6m
* The total number of furloughed UK workers rose to 8.7m, over a quarter of the workforce
* UK house prices fell by 1.7% in May compared to the previous month
* UK consumers paid down a net £7.4bn of debt in April, in part due to consumers trimming credit card spending
* Levels of atmospheric carbon hit a new high in May despite lower emissions during lockdown
* The Australian economy is on course for its first recession in almost 30 years following a 0.3% contraction in the first quarter
* Revenues at Zoom, the video-conference provider, were up 169% in the three months to the end of April
* The German unemployment rate rose from 5.8% in April to 6.3% in May
* German manufacturers reported that new orders fell by 25.8% in May
Policy response
* Germany announced a €130bn package of tax cuts and increased spending including a temporary VAT cut and a payment of €300 per child
* The ECB announced an expansion of its asset-purchase programme by €600bn, exceeding economists’ expectations
* Face mask use will be mandated for users of public transport in the UK
* International arrivals to the UK will be required to self-isolate for 14 days, with exceptions for arrivals from Ireland and certain occupations
* Bangladesh, India, Mexico and Pakistan eased lockdown restrictions
* Austria lifted border restrictions on all neighbouring countries except Italy
* Denmark and Norway opened their borders to each other but not Sweden, which has seen a more extensive outbreak
Business news
* IAG chief executive Willie Walsh threatened legal action over the UK’s plan for a two-week quarantine for travellers
* Aston Martin, Rolls-Royce and Bentley are to cut 4,700 jobs between them. UK new car sales fell by 89% in May
* German car transmission supplier ZF Friedrichshafen is considering cutting 15,000 jobs
* The Financial Conduct Authority announced that almost a quarter of pension transfer advisers had withdrawn from the markets following an investigation into mis-selling
* Airline EasyJet, cruise operator Carnival, British Gas owner Centrica and engineering firm Meggitt will fall out of the FTSE 100 index on 22 June
* Software firm Avast, gambling company GVC Holdings, emergency repair provider Homeserve and retailer Kingfisher will move into the FTSE 100
* Australian supermarket chain Woolworths will distribute company shares to 100,000 employees as a reward for their work during the pandemic
* Five hotels in Bangkok are offering luxury isolation packages for travellers to spend their required 14-day quarantine on arrival to Thailand
* Vodafone will offer free unlimited broadband to UK firms with fewer than 50 employees for six months
* Hundreds of businesses issued statements in support of the Black Lives Matter movement following widespread demonstrations
Politics
* The EU’s chief negotiator accused the UK of “backtracking on the political declaration”, warning that there had not been significant progress in talks over the future EU-UK relationship
* A group representing 90% of businesses in Northern Ireland called for a delay to new trade checks planned for January warning that business had insufficient “bandwidth” following COVID-19
* Australia announced a new national security test for foreign investments following concern that sensitive industries were susceptible to takeovers
* The EU is considering similar legislation which would target takeovers subsidised by foreign governments, the FT reports
* US president Donald Trump asked regulators for recommendations to tighten financial reporting rules for Chinese companies listed in the US
* China warned the UK against “interfering in Hong Kong’s affairs” after the UK said it could offer a path to British citizenship for 3m Hong Kong residents
* OPEC and Russia agreed to maintain oil production cuts for another month to support the oil price
* US trade representative Robert Lighthizer announced an investigation into foreign digital services taxes which could lead to retaliatory tariffs
And finally… a drug test which relies on analysis of hair samples was abandoned after two randomly selected Northern Ireland police officers reported for duty with every hair shaved from their body. According to the Belfast Telegraph, the officers remain with the service – buzz cuts for fuzz klutz