Daily Brief

In search of good news

Ugly contest

Economic forecasters are competing to paint the bleakest picture of the Covid-19 era economy. The International Monetary Fund expects global growth this year to fall to -3%, while Britain’s gross domestic product declines by 6.5%. Britain’s Office for Budgetary Responsibility sees the UK economy shrinking by 13% in 2020.

Inevitably, a great deal of guesswork is involved in the predictions. For example, the longer the lockdown, the bigger the economic hit, and the government is being coy about when and how it will allow people to return to work. The OBR report features estimates from a handful of other forecasters. For quarter-on-quarter growth in Q2 they range from the OBR’s -35% to KPMG’s best case scenario of -2.1%. For calendar 2020 the spread is -13% (OBR) to -2.6% (KPMG). The IMF puts annual growth this year at -6.5% with a 4% expansion following in 2021.

There appeared not to be the slightest dismay among investors about Britain’s economy tanking. That is doubtless because the prognosis elsewhere is no less dismal. The IMF sees annual contractions of 5.9% in the United States, 7.5% in Euroland, 7% in Germany and 6.2% in Canada. Sterling had another fairly successful day, strengthening by an average of 0.5%. It added two fifth of a US cent and was all but unchanged against the euro and Swiss franc.


Hesitant recovery

While Britain’s political leaders hesitate about ending the lockdown, America’s argue. The president claims he has “total” authority to order people back to work while state governors insist it is their call, not his. New York’s Andrew Cuomo told CNN: “The president doesn’t have total authority. We have a constitution, we don’t have a king.”

Nevertheless, there is a sense that most governments would dearly love to get their countries back to work, and the IMF’s pessimistic forecasts will have done nothing to change that view. Whenever the recovery begins, it is unlikely to happen quickly. Manufacturing and the like ought to be fairly easy to restart but it will be a different matter with the services sector, not least because many people will be reluctant to mingle in restaurants, theatres and aeroplanes until a vaccine becomes available.

It is also likely that households will be more inclined to save than to spend. Even those who avoid the harshest effects of this flash recession will have one eye on the possibility that another economic – or indeed medical - shock could be just around the corner.


More out-of-date statistics

Today’s most up to the minute ecostat has been and gone. Westpac’s measure of Australian consumer confidence “collapsed” in April, with its biggest monthly decline in 47 years. The Aussie dollar moved lower following – though not necessarily because of – the news.

There was a general move out of commodity-related currencies during the early hours, which also involved the NZ and Canadian dollars. The Kiwi suffered most, losing a net two and a half cents to sterling and taking last place for the day. It fell 1.3%, more than twice as much as the 0.6% hit taken by the AUD and CAD. The Japanese yen took first place, rising 0.2% and narrowly beating the Swiss franc in second place and the pound in third.

This morning’s economic statistics cover French, Spanish, Swedish and Italian inflation. US data after lunch relate to retail sales, manufacturing and the housing market. When the Bank of Canada holds its regular monetary policy meeting it is not expected to alter its 0.25% benchmark interest rate.

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