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The economy is hard to recover if the streets remain empty

The Economic Slump Is Turning Out to BE More Dangerous Than Coronavirus Itself

Posted Saturday, April 25, 2020 by
Skerdian Meta • 4 min read

When coronavirus broke out in China in December/January, most of the world got scared for a while, but then sort of forgot about it, since it was in a foreign country far away from home. Then, the virus spread in Italy and everyone panicked. The pandemic was quite severe in Italy, with hospitalized people overwhelming the health system for some time. The virus spread across Europe and in North America, now it is all over the world.

Europe went into a lock-down in early March, with US and Canada following suit a couple of weeks later. People have been quite cooperative in the lock-down, but they are getting anxious now as money runs out, despite the government grants. Unemployment has shot to the sky in just a month like never before, with jobless claims posting some astronomical numbers every week since mid March. The coronavirus curve has flattened in many countries and it is turning lower, but the lock-down continues which is killing the global economy.

This is now turning out to be a bigger problem than the virus itself. I mean, in the years following the 2008 financial crisis, died thousands of people due to poverty, protests, health issues and addictions due to the loss of their jobs, suicides etc. A similar thing might happen now due to coronavirus. So, besides the economic slump, the negative effects of this lock-down will be in human lives as well. But, first comes the economic impact, which is terrifying. Below are some economic reports form Europe and the US just n the last few days.


US March prelim durable goods orders

  • March prelim durable goods orders -14.4% vs -12.0% expected
  • February stood at +1.2%
  • Excluding transport -0.2% vs -6.5% exp
  • Prior ex transport -0.6% (revised to -0.7%)

As shown above, orders declined by a massive 14.4%, which is even bigger than expectations, which were for a 12% decline. But, the positive thing here is that almost all the contraction in orders has come form transportation orders. With people being locked down and the lock-down lasting for who knows how long, there are hundreds of millions of vehicles which are left to rot. So, as long as the lock-down lasts, orders for vehicles will be low.

UK March Retail Sales

  • March retail sales -5.1% vs -5.0% expected
  • February retail sales stood at -0.3%
  • Retail sales YoY -5.8% vs -5.0% expected
  • February retail sales YoY 0.0%
  • March retail sales (ex. autos, fuel) -3.8% vs -4.0% expected
  • February retail sales (ex. autos, fuel) -0.5%
  • Retail sales (ex. autos, fuel) YoY -4.1% vs -4.8% expected
  • February retail sales (ex. autos, fuel) YoY +0.5%

Retail sales turned negative in August last year, declining by 0.2%. Since then, they have been declining every month, apart from January when we saw a 0.9% increase, which didn’t last. They turned negative again in February, declining by 0.3%. But, that was still before the coronavirus lockdown. Now, the data for March is showing a major decline in retail sales, as shown above.

So, retail sales have declined by 5.1% in March, more than expected, and they will likely post another major decline for April. YoY sales fell by 5.8%, while core sales declined by 3.8% in March. The GBP didn’t mind much though, with GBP/USD actually ending up higher during the European session yesterday.

Germany April Ifo Business Climate Index

  • April Ifo business climate index 74.3 points vs 79.7 expected
  • March business climate index at 86.1 points
  • Expectations 69.4 points vs 75.0 expected
  • March expectations stood at 79.7 points
  • Current assessment 79.5 vs 80.5 expected
  • March current assessment at 93.0 points

The global shutdown due to coronavirus has hurt the global economy immensely, particularly the economies of the West. Manufacturing and especially services are heading to the bottom, with European services PMI falling close to 0 points, as we saw yesterday. The business climate has been deteriorating as well, with German Ifo business climate falling to record lows this month, as shown above.

US Weekly Unemployment Claims Report

  • Weekly unemployment claims 4,427K vs 4,500K expected
  • Prior week was 5,245K
  • Estimates ranged from 3.0m to 5.8m
  • Continuing claims 15,976K vs 16,738K expected
  • Prior continuing claims were 11,976K

The unemployment claims form the US jumped to above 5 million in March and above 6 million earlier this month, but they are starting to cool off, falling to 4 million range. Although, they remain quite high. The other thing is, the number of Americans eligible for unemployment benefits is declining, as more and more people become unemployed.

Germany April Flash Manufacturing PMI

  • April flash manufacturing PMI 34.4 vs 39.0 expected
  • March manufacturing stood at 45.4 points
  • Services PMI 15.9 vs 28.0 expected
  • March services stood at 31.7
  • Composite PMI 17.1 vs 28.5 expected
  • March composite PMI stood at 35.0

France April Flash Services Report

  • April flash services PMI at 10.4 points vs 24.5 expected
  • March services stood at 27.4 points
  • Manufacturing PMI March at 31.5 points vs 37.0 expected
  • March manufacturing stood at 43.2 points
  • Composite PMI 11.2 vs 24.5 expected
  • March composite PMI stood at 28.9 points

Eurozone April Flash Services PMI

  • Eurozone April flash services PMI 11.7 vs 22.8 expected
  • March services stood at 26.4
  • Manufacturing PMI 33.6 vs 38.0 expected
  • Manufacturing PMI March at 44.5
  • Composite PMI 13.5 vs 25.0 expected
  • March composite PMI stood at 29.7

Manufacturing and services fell into deep contraction in March as the virus broke out in Europe and in April, things have gone from bad to worse, as the lockdown continues. Services have fallen to record lows and are heading towards 0 points. Let’s hope things start to improve in May though. But, some economists are questioning even the V-shape recovery. If that doesn’t happen, things will go from bad to worse.

Comments by Ifo economist, Klaus Wohlrabe

  • There will likely be no V-shaped recovery
  • German economy is in its toughest time since the reunification
  • There will be signs of economic recovery from mid-year at the earliest

Despite the economic crash that Europe and the US are going through, many economists were agreeing that we would see a V-shaped recovery in summer after the virus lock-down ended. After all, China rebounded nicely in March after the dive in February, but at this point, whatever comes out of China we should take with a pinch of salt.

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