Coronavirus: UK among economies at risk of record decline

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The coronavirus pandemic could trigger a larger global collapse than the Great Depression of the 1930s, suggests a closely watched international investigation.

Manufacturing and services sectors in key geographic areas, including the United Kingdom, the United States and the eurozone, recorded record activity declines in March, according to director index data of purchase.

The British figure rose from 53.0 in February to 36.0 in March.

Readings below 50 indicate a contraction.

Data are published by IHS Markit and the Chartered Institute of Procurement and Supply (CIPS).

‘Devastation’

Andrew Wishart, an economist at Capital Economics, said that PMIs probably underestimated the magnitude of the economic benefits.

“We anticipate a 15% drop” in economic output in the period April to June, he said, “a drop in output more significant than during the financial crisis or the Great Depression”, he said.

“Finding the words to describe the devastation is getting harder and harder as each region of the world fights to save human life as a top priority,” said Duncan Brock, director of the CIPS group.

“The likelihood of a global recession is now a given, although its duration and severity have not yet been revealed.”

The composite figure for the euro area manufacturing and services sectors was even worse, dropping from 51.6 in February to 29.7.

“Confidence in the future is the lowest recorded by the survey since the data was first available in July 2012,” said IHS Markit.

“The four largest countries surveyed all recorded record declines in activity, with Italy and Spain recording the largest reductions.”

“Worse to come”

Samuel Tombs at Pantheon Macroeconomics said Italian and Spanish figures show the crisis could worsen in April, when the level of infections is expected to peak in these countries.

As for the British figures, he said: “In one line: horrible, and probably not reflecting the total devastation”.

The comparable figure for the United States hit a new low of 40.9 in March, up from 49.6 in February.

Chris Williamson, chief economist at IHS Markit, said: “The political response to the economic damage caused by the virus is already unprecedented, but the collapse of business expectations for the coming year tells us that businesses are expect much worse.

“IHS Markit is now forecasting a contraction of around 5.5% of US GDP in 2020.”

These numbers would normally be up to date – a scary warning of impending economic disaster. Purchasing managers – senior executives at companies who follow what’s going on with a company’s orders and buy its supplies – see before everyone else if business goes down.

This table speaks for itself, adding to the evidence of the scale and suddenness of job losses and claims around the world. If we look only at the economic effect on orders and jobs, it’s no exaggeration to say that the impact of the Covid 19 closings around the world is now similar to the Great Depression – but on speed.

And what is most extraordinary is that, from a perspective, this horrible thing is a success for government policy. By ordering closures in an attempt to save lives, our government and others around the world have also ordered an unprecedented reduction in economic activity in terms of speed and depth. They demanded, ordered and demanded a huge recession – and they have one.

Hopefully when the closure is lifted and governments want a rebound, they will get what they want again.

This is quite another sign that the Covid 19 crisis is upsetting everything – environmental, social and economic -.

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