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Strategic Global Intelligence Brief for April 27, 2020

By Chris Kuehl, Ph.D., NACM Economist

Short Items of Interest—US Economy

Expectations for a Q3 Rebound
There remain a great many unknowns as far as the COVID-19 response is concerned. That makes predicting the path of the disease more than challenging. There is growing anticipation of a third quarter rebound based on the assumption that most of the business community will be allowed to reopen in the next month. The May rebound is the key to a boom by the third quarter. There seems to be mounting evidence of such a recovery. Several countries have already started to open up along with a few states in the U.S. The key to the size of the boom will be whether there is a secondary wave of infections and the extent to which restrictions will remain in place.

Social Distancing to Last a While Longer
This term has become yet another of those annoying new phrases we never heard until now. It is a shorter version of "stay away from people," but essentially means the same thing. Even as the business community starts to reopen, these admonitions will remain in place as the viral infection continues. This will complicate the recovery process for many. How does one maintain the suggested distance in a restaurant? Will people be able to hold meetings? What happens to occasions that encourage crowds? The fact is that people are social and forming groups is what we do. Returning to some semblance of normal will severely test the notion of distancing.

Upcoming GDP Numbers Will Shock
On Wednesday, we will get confirmation of what we already know all too well. The first quarter GDP numbers will be released; the bottom dropped out of the economy in March. The first two months of the year were an extension of the decent growth we saw in Q4 of last year, but after that, there has been economic carnage as the lockdown recession began. There are always the most excitable analysts who are predicting a collapse of as much as 25% in the GDP, but the consensus view is a drop of 3.5%. It would be the most severe since the recession of 2008 and the first economic contraction of any kind in the last six years. The expectation is that Q2 will look as bad, but that will depend on whether there is a real May rebound.

Short Items of Interest—Global Economy

Is New Zealand the New Normal?
As the world starts to contemplate the rebound, the next big question revolves around what life looks like now. New Zealand has had very little in the way of COVID-19 infection—among the lowest rates of infection and fewest deaths. They have declared victory over the virus and have reopened their economy. The "new economy" isn't the same, however. There will be permanent restrictions on close contact and new protocols that will enforce distance. These will affect everything from going to a hairdresser to a dentist. It will make forming crowds for any reason very difficult and people will be encouraged strongly to continue working in isolation at home.

What Will Really End the Crisis?
The steps that have been taken have been concerned with slowing the spread of the virus. That has been accomplished by draconian actions that shut down any semblance of normal life. The only way the world returns to that old pattern is when the virus is actually defeated by a combination of effective treatment, widespread testing and a vaccine. At the moment, none of these criteria are in place anywhere. Predictions hold that they will not be for many months and perhaps not until sometime in 2021.

Kim Yo Jong
Is North Korea about to see its first female leader? Very little is known about what happens in the "Hermit Kingdom." Never has this been truer. There are rumors that Kim Jong Un is gravely ill and may be dying. That has set off a flurry of speculation regarding who would succeed him. The closest relative would be his sister—Kim Yo Jong. She has a reputation for being as ruthless as her brother and far shrewder. She has managed to thrive in a very-male dominated environment after all.

Opening Up in Asia and Europe
The U.S. has only started down the path to opening up the economy; there are only a few states that have started the process. All eyes will be on Georgia as their governor decided to call off the lockdown sooner than anybody anticipated. The model developed by the University of Washington had predicted that Georgia would be one of the last to open based on the spread of the virus in Atlanta and in many of the rural communities. It was on their list for a June reopening. Now it has become the nation's guinea pig. Beyond the experience in Georgia, there will be an opportunity for the U.S. to look at what has been happening in other nations.

Analysis: China was at the epicenter of the viral outbreak and is now at the epicenter of the recovery phase. There has not been a new case of a COVID-19 death in over a week and there are no more COVID-19 patients in the Wuhan hospitals. The Hubei region had reached a peak in mid-March; there has been a steady decline in numbers of infections since then. One of the more pressing questions has been the reliability of data coming from China. It was abundantly clear that China was obfuscating and hiding data through the first few months of this year. As a matter of fact, it was obvious that China knew about this outbreak late last year and did nothing but try to hide it. In the last two months, the Chinese have not been able to hide the data as the country is overrun with members of the international health community. The CDC is there, WHO is there and so are representatives from every national health ministry in the world. They are now the ones collecting the data. The economy of the Wuhan region is getting back to normal. The same can be said for the whole of China. The limitation on their recovery is the rest of the world. The Chinese need their consumers back. The majority of them are in the U.S., Europe, Japan and other industrialized states.

British Prime Minister Boris Johnson was hospitalized by his bout with COVID-19. He was forced to turn his powers over to other Cabinet officials but he is now back to work. That has encouraged many in the U.K. as it demonstrates that recovery is possible. Plans are under way to open the U.K. economy by the middle of May. The Italians have been among the hardest hit (along with Spain). The U.S. has been looking at a death rate of 164 per million while Italy is at 436 per million and Spain at 490 per million. Both of these nations have elected to loosen their restrictions. These had been some of the toughest in the world.

There is an expectation that looser restrictions will mean a possible renewed outbreak—as a matter of fact that is a near certainty. The question of control has shifted for many nations. The issue is now fatalities as opposed to infection. The polls taken indicate that people will accept getting sick as long as the possibility of death is remote. The changes in the last two months have been slight. There is still no reliable cure and a vaccine is still distant, but the treatment has improved as hospitals have started to catch up to the crisis. There have been improvements in testing as well. This may be enough for the moment as it starts to get society to the point that survival is common even as getting sick is also common.

Another nation that has gotten a lot of attention has been Sweden as they did not pursue the tight distancing policies the other states in Europe pursued. They have had 18,640 cases and 2,194 deaths. That is a rate of 217 per million and that puts them much higher than Germany as well as the U.S. The Swedes have been criticized by the other EU states for this policy.

A Look at Some of the Latest Data
The COVID-19 crisis has been a rapidly moving target in terms of data collection. Some nations have been better at it than others. Even modern states have differed in terms of how they measure deaths and illnesses. These numbers come from a collection of sources that include the WHO, CDC, European health authorities, U.S. agencies and those from Japan, South Korea, Singapore and others.

Analysis: There have been 2,250,829 cases reported and identified worldwide. There have 204,325 deaths attributed to the COVID-19 virus and there have been 843,453 recoveries reported. The country breakdowns are instructive as well. The U.S. has 964,075 cases and 54,375 deaths. There have been 118,336 recoveries and there are still 791,384 active cases. This results in 164 deaths per million. The U.S. was behind in terms of testing through the early months of the outbreak, but is rapidly catching up with a total of 5,317,351. Thus is 16,074 per million.

One of the nations that has been held up as an example of appropriate response has been Germany. They have had 157,026 cases and 5,880 deaths. That is a rate of 70 deaths per million. They still have 41, 346 active cases. Thus far, they have administered 2,072,669 tests, a rate of 24,738 per million.

Turning a Lockdown Recession into a Real Recession
As has been pointed out repeatedly, this has been a very unusual recession—unprecedented is the word that has been thrown around a lot. The part that has made it so unusual is that it was imposed by a governmental edict prompted by the threat of the COVID-19 epidemic. For the next several years, there will be an ongoing debate over whether this was an appropriate decision given the damage that has been caused by the shutdown. In simplest terms, there will be a debate over whether this was the right trade-off. The issue at hand now is when and how the global economy will come back. Now is when there is a real threat of this lockdown recession morphing into a "real" recession.

Analysis: There will be many decisions made in the weeks to come. The political leaders will be deciding how to reopen the economy and business will be deciding how to resume their production and activity. The most important decisions will be those made by the consumers in the U.S., Asia, Europe and everywhere else in the world. It will not matter if the lockdown is formally lifted and business decides to reopen if the consumer remains isolated and refuses to resume their old patterns.

There have been polls taken that are providing some early clues. Remember that these have been limited as there has not been an opportunity for most people to return to their old lives and the surveys have been isolated and regional. The interesting part is that these are all showing a similar breakdown in terms of attitude regardless of country. Roughly a quarter of the respondents are indicating they are ready to jump back into their previous patterns. They will gladly resume their habits as far as eating out, attending events, shopping and reporting to work. The majority of the people in this category are under the age of 40 and they are overwhelmingly male. Roughly a quarter of the respondents indicate they do not believe the pandemic threat has eased. They intend to continue to self-isolate and are not ready to resume their old patterns and habits. This population is generally over the age of 60 and the majority are women. That leaves the crucial 50%. It will be their decisions that will determine the ability of the economy to resume a steady growth pattern.

It is not clear what it will take to push this 50% in one direction or the other, but there have been some clues. The first is a desire to hear a clear and unified message. The comments from the survey respondents indicate they are confused by the different messages. One group of leaders seem to assert that the worry over the pandemic is overstated and, anyway, the peak of the infection has been reached so it is time to reopen everything. The next group of leaders asserts the threat is as bad as it ever was and will certainly worsen if things are not locked down. There is no clarity on any of the key issues—the spread of the virus, treatment options, vaccines and the like. There has been more public trust in leaders such as Angela Merkel in Germany and South Korea's Moon Jae-in and less trust in leaders from Italy, China, India and the U.S.

Beyond the issue of trust and believability, there is the very personal issue of how long people can last without a return to some semblance of normal. The biggest worry is job related as people are running out of money and need to get their jobs and income back. The next areas of concern are more personal—the need to see people. Relatives feel stranded, friends start to drift away and strains develop in households that are locked down. The general sense is that people are not prepared to endure this level of "social isolation" much longer.

Grim Statements from the CBO
What follows are some pretty miserable numbers—a description of a U.S. economy that is falling to levels not seen since the 1930s and 1940s. There is one thing to keep in mind as you read this and other accounts of this type. The data is extrapolated data—a look at what would happen if all the current trends hold as they are. We already know that they will not. The economy will rebound to some degree once the lockdown ends. How much of a rebound is not known and neither do we know what shape the economy will be in when the dust settles. What the CBO is illustrating is what happens if we take no actions to dig out of this crisis.

Analysis: The decline in the second quarter will be extreme and certainly in recession territory—a 12% decline. If this were to carry on for the remainder of the year, the economy would dip by 40%. That is certainly Great Depression territory. The jobless rate would be at 14% and there would be at least 27 million jobs lost by the end of the year. The deficit would reach levels not seen since the end of the Second World War ($3.7 trillion). This would be due to the combination of aggressive spending by the government and nearly no additional revenue from taxation.

This is the bleakest of projected outcomes and assumes there is no recovery in the business community. It is obvious that this will not be allowed to happen—business has been starting to reopen in some communities already. The general sense is that most states will be on some path to reopening by the end of May. The best way to look at data like this is would be to compare it to the dire predictions issued by those worried about the spread of the virus. It is essentially a matter of competing doomsday predictions—one has us all dying of COVID-19 and the other has us all dying from economic collapse and deprivation. The truth will be somewhere in between, but at this stage it is nearly impossible to determine where that middle ground will end up.

Back in the Bee Business
For the last couple of years, I have not pursued the hobby of beekeeping. The last hives I had were lost to the most wretched little creatures on the planet—the wax moth. These nasty little creeps will devastate a hive in a flash unless one catches the infestation early enough. That was the problem. I was not able to visit the hives often enough with my weird travel schedule and they got a foothold. Now that I am housebound for a while, I have decided to try again. Over the weekend, I installed a couple of hives of Italians—the breed that seems to tolerate heat. I had forgotten how interesting these little girls can be.

After getting them introduced to their new home, I just sat and watched them for a while. They were busy cleaning one another and themselves and getting familiar with the new digs. Many landed on me and wandered around trying to decide whether I was a giant flower or not as I had managed to spill a little sugar water on my bee suit. By Sunday, they were hitting the garden flowers with some enthusiasm and at one point they were all over the outside of their hives enjoying the sun. I am forbidden to poke around inside the hive until tomorrow as one needs to give the ladies time to get to know the queen before releasing her to start her duties. Once out of her little box, she will start populating the hive and I can get to watch the process begin. I have missed my bees. This time I can be more than a bee haver and actually deserve the moniker of beekeeper.

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Monday, 25 May 2020