But if it was US politics that drove the world up then, it was US politics that threatens to rock the world now, as the country’s troubled response to the coronavirus pandemic emerges as the main risk of any lasting global recovery.
Officials from Mexico to Japan are already exhausted. Exports have taken a hit in Germany, and Canada is looking south with suspicion, knowing that any further blow to US growth will undoubtedly spill over.
“Globally, there will be difficult months and years to come and it is of particular concern that the number of COVID-19 cases continues to rise,” the International Monetary Fund said in a review of the US economy which cited “social unrest” due to rising poverty as one of the risks to economic growth.
“The risk that awaits us is that a large part of the American population will face a significant deterioration in the standard of living and significant economic difficulties for several years. This, in turn, can further weaken demand and exacerbate headwinds over the long term. ”
It was a clinical description of a grim set of facts: after the US government committed approximately $ 3 trillion to support the economy through a series of activity restrictions imposed to stem the virus in April and May, the disease is spreading across the United States to record levels as these support programs expire. More than 3.6 million people were infected and 140,000 killed. The daily growth in cases has tripled to more than 70,000 since mid-May, and the 7-day moving average of deaths, after declining steadily from April to July, has turned higher.
Meanwhile, the country has fractured over issues such as wearing masks which, in other parts of the world, have been readily adopted out of courtesy. While some key states like Texas and California are now reimposing restrictions, analysts have already noted a possible plateau in the US recovery with the country still 13.3 million jobs below February’s count.
A GLOBAL DISAPPOINTMENT
For the other major economic powers, this is added weight to their own struggles against the virus and to the economic spinoffs.
The US economy represents about a quarter of the world’s gross domestic product. While this is largely service-related, and much of the direct impact of the virus is linked to industries like restaurants with weak ties to the global economy, the connections are still there. A loss of employment leads to a drop in consumer spending leads to a decrease in imports; poor trading conditions result in less investment in equipment or supplies that are often produced elsewhere.
Since the start of the year, US imports to May have fallen by more than 13%, or about $ 176 billion.
In Germany, whose measures to contain the pandemic are considered to be among the most effective, exports to the United States fell 36% year-on-year in May. Analysts see little prospect of improvement, with auto sales in the United States from the start of the year until June down almost 24% from the previous year.
“It’s a real disappointment,” said Gabriel Felbermayr, president of the Kiel Institute for the World Economy, in a recent interview with the Deutschlandfunk radio network. The peak in infections in the United States, he said, could not be predicted.
In Japan, the speed of recovery is considered to be directly linked to the success of the United States in the fight against the virus.
“The recovery of Japan will be seriously delayed if the spread of the coronavirus in the United States is not stopped and exports to the United States from various Asian countries do not increase,” said Hideo Kumano, a former official with the Bank of Japan who is now chief economist at the Dai-ichi Life Research Institute.
PESSIMISM AT BOTH BORDERS
The US GDP projected by the IMF will decline this year by 6.6%, in accordance with the projections of many analysts.
The Bank of Canada is more pessimistic, forecasting an 8.1% drop in US GDP this year. This has already been lowered once as the health situation deteriorated.
Another step down would directly affect Canada, with perhaps three-quarters of the country’s exports passing through the United States border.
“We have removed our US projection … I would like to point out that there is a lot of uncertainty and that the main source of uncertainty is the evolution of the coronavirus itself,” said BOC Governor Tiff Macklem.
On the southern border, Mexico also has a record daily number of new cases, but President Andres Manuel Lopez Obrador has sometimes deflected criticism of his government’s efforts by stating the US figures.
Lopez Obrador embarked on a risky visit with President Donald Trump earlier in July, preparing for his trip to Washington out of economic necessity as Mexico tries to revive an economy that could contract by 10% or more this year, according to forecasts.
The Mexican president hopes that the new United States-Mexico-Canada Trade Agreement (USMCA), which came into effect on July 1, will boost business and investment, but pessimism about the outlook has increased.
“To the point that Americans lose jobs or income, it is a downward burden … and it will have ramifications for the ability to consume around the world,” said Elizabeth Crofoot, senior economist at the Conference Board, who documented a record decline in global consumer confidence in a recent survey.
“We take one step forward and two back.”
Reporting by Howard Schneider in Washington; Additional reporting by Reinhard Becker and Christian Kraemer in Berlin, Leika Kihara in Tokyo, Steve Scherer in Ottawa and Dave Graham in Mexico; Editing by Dan Burns and Matthew Lewis
Our standards:Thomson Reuters Trust Principles.