Lockdowns hamper recovery in major world economies despite easing of curbs

An analysis of seven major economies, including India seems to suggest that all, save China, are struggling to turn around

While many blame the delay in the economic recovery in India to the small stimulus it has given, even the US economy could not turn around despite vast government support. The blame, in fact, has to be laid on Covid-19 cases and the consequent regional lockdowns that applied brakes on nascent recovery. Experts had already warned about it but the finance ministry only recently admitted that economic recovery is fragile because of these factors. India is not alone in this respect, as other major countries are fighting Covid-19 with lockdowns as well, with some exceptions such as Brazil. Let us look at the way developments are unfolding in major economies: 

The United States: 

The country has the highest number of coronavirus cases, at 5.2 million as on August 10, accounting for a fourth of total global infections. The world's largest economy contracted by as much as 32.9 per cent during the second quarter of 2020. That’s the biggest fall in the economy since the government began tracking data in 1947. In fact, the contraction is almost four times as much as the earlier economic decline of 8.4 per cent in the fourth quarter of 2008, which was the peak of the financial meltdown. This was despite the fact that the US provided a stimulus to the extent of 14.5 per cent of its GDP.  

The economy crashed due to stay-at-home orders that caused businesses to shut down. The economy had shrunk five per cent in Q1, which technically means it is now in recession. Recovery does not seem to be coming even after the second quarter. The government said the US regained 1.8 million jobs in July, which was lower than 4.79  million in June and 2.73 million in May. The increase in Covid positive cases, particularly in the Sun Belt states, prompted these regions to reimpose curbs on businesses, which hurt their hiring ability. 

However, President Donald Trump is not keen on a nationwide lockdown. He had said earlier this month that locking down in the United States to curb the coronavirus would cause more harm than good.

“It’s important for all Americans to recognise that a permanent lockdown is not a viable path for producing the result that you want or certainly not a viable path forward and would ultimately inflict more harm than it would prevent,” Trump said during a White House briefing on the virus. 

Brazil:

With Brazil having the highest number of coronavirus cases after the US, at three million, medical practitioners called for more lockdowns to prevent the pandemic from spreading. However, President Jair Bolsonaro looked the other way, which many say is also one of the reasons for the huge number of cases in Brazil. Bolsonaro has repeatedly said that the lockdowns imposed due to novel coronavirus "kill" and have "suffocated" the country's economy. 

"Without salaries and jobs, people die," he had said, as some states and municipalities imposed curbs. 

The economy now looks set to shrink slower than previously estimated. Economists at Bank of America have revised up their outlook, pegging the contraction at 5.7 per cent this year instead of 7.7 per cent as previously forecast.

In fact, Brazilian manufacturing expanded in July at the fastest pace on record, according to the IHS Purchasing Managers' Index (PMI). The index rose to 58.2 in July from 51.6 in June. That was the highest since the metric was first compiled in 2006.

But this has come at a cost. The president himself tested positive for coronavirus for the third time since July 7. Stating that he was taking hydroxychloroquine, he said he has been supporting the anti-malaria drug ever since the outbreak began, as he believes that coronavirus is just a "little flu", despite health experts' opinion to the contrary. 

On April 16, Bolsonaro dismissed Luiz Henrique Mandetta, Brazil's health ministerwho, from being an unsung minister in the Cabinet, became the most popular minister of the country due to the ministry’s good work in containing the pandemic. The new health minister Nelson Teich resigned a month later. 

News agency AFP quoted Domingos Alves, coordinator of the Health Intelligence Lab at the University of Sao Paulo's Ribeirao Preto medical school, as saying that if the current trends continue, the country should reach (200,000 deaths) on October 15 or 16. 

"But I'm afraid it could be even earlier, because the infection and fatality curves are likely to accelerate in the coming weeks... If things go on like this, we'll have a high level of daily deaths until there's a vaccine," he was quoted as saying.

India:

It was widely expected that India's economy would contract this financial year, even as there was hope that green shoots of recovery would emerge after the lockdown was eased on June 8, and further in July and August. In fact, the signals of recovery did appear in the economy in June, prompting Prime Minister Narendra Modi to say that power consumption, fertiliser sales, kharif sowing, exports, and digital payments in retail were showing signs of economic revival. 

However, the nascent recovery was hit by regionals lockdown in some states, disrupting supplies. Last month, credit rating agency Icra had sharply revised its forecast on the contraction in the Indian economy to 9.5 per cent for 2020-21 from its earlier assessment of five per cent. It attributed the revision to the climbing Covid-19 infections, resulting in a spate of localised lockdowns in some states and cities. 

According to the EcoScope report from Motilal Oswal Financial Services Limited (MOFSL), gross domestic product (GDP) is estimated to have contracted five per cent year on year in July, after falling 18-20 per cent in the first quarter of 2020-21. As such, MOFSL expected another decline of 2-3 per cent in GDP in the second quarter before showing growth in the following quarter. 

Besides, the IHS Markit manufacturing purchasing managers’ index (PMI) fell to 46 in July, from 47.2 in June, as regional lockdowns hit the sector. On the other hand, the annual SBI Composite Index that touched the lowest level of 35.9 this June, increased significantly to 46 in July. The monthly index reached a low of 24.0 in April and improved thereafter to 40.5 in July. The index of industrial production contracted for the fourth straight month in June, shrinking 16.6 per cent. This comes against a 33.8 per cent fall in May and the historic 57.6 per cent slide in April. India had 2.2 million coronavirus cases as on August 10, or a tenth of the total global cases. India provided fiscal stimulus to the extent of 0.8 per cent of GDP, one of the lowest in the world. 

Russia:

The Russian economy fell by 9.5-10 per cent in the second quarter of 2020, the country's central bank estimated in July. It said Russia's economic recovery will be “gradual, lengthy and uneven,” with the spillover effects of disruptions to production and supply chains still expanding. Russia provided a stimulus at 2.8 per cent of its GDP. The World Bank expected the country's economy to shrink six per cent this year, the most since 2009, under pressure from the coronavirus pandemic and falling oil prices. 

Russia is behind India in terms of the number of cases, at about 890,000. 

Brent crude fell from average of $55.66 a barrel in February to $32.01 in March and then further to $18.38 in April. However, it rose from there to $29.38 in May and to $40.27 in June.

Russian President Vladimir Putin had said in July that the country's coronavirus outbreak had stabilised, but warned that the situation remained difficult and could easily deteriorate. Officials eased most virus restrictions in June ahead of a nationwide vote on constitutional reforms for extending Putin's rule. Putin recorded a victory following which he is set to stay in power till the middle of the next decade--till 2036.

As lockdown was eased, IHS PMI for manufacturing rose to 49.4 in June from 36.2 in May and 31.3 in April. However, the index fell again to 48.4 in July, due to weak demand conditions. 

Meanwhile, a locally developed vaccine for Covid-19 has been given regulatory approval after less than two months of testing on humans. Putin said the vaccine had passed all the required checks, adding that his daughter had already been given it. Officials have said they plan to start mass inoculation in October.

South Africa:

The country is yet to release its second quarter GDP numbers for 2020. However, lead indicators showed its economy is yet to recover from the slowdown that started even before the coronavirus outbreak. The IHS PMI rose to 44.9 in July from 42.5 in June, its second increase in a row but still far below the 50 mark that separates expansion from contraction.

Africa's most industrialised economy enforced a severe lockdown late March to prevent coronavirus from spreading. It has gradually eased restrictions on most economic activities since. The country had 560,000 cases as on August 10. 

South Africa was in recession before the pandemic struck, with recurring power cuts by struggling state utility Eskom and weak business confidence that dampened economic activity.

The July reading was the 15th in succession below 50, showing the downturn had begun well before the pandemic.

According to OECD, South Africa's economy could contract 8.2 per cent this year, and grow just 0.6 per cent in 2021, if a second wave of Covid-19 hits the country and its main trading partners. If a second wave is avoided, its economy will contract 7.5 per cent in 2020 before rebounding 2.5 per cent next year, OECD said in its report.  

Euro Zone:

The region's GDP declined 12.1 per cent in the second quarter of 2020, the lowest growth since data collection started in 1995.

Within the region, Spain's economy  was the worst hit, shrinking by 18.5 per cent. It was followed by France (13.8 per cent decline), Italy (250,000 Covid cases) 12.4 per cent and German (220.000 cases) at 10.1 per cent. 

The region had seen a 3.6 per cent decline in the economy in the first quarter. As such, the 19-country zone was pushed into recession, as lockdown was enforced by many nations in the initial months of the second quarter. 

The lockdown was gradually eased, leading to the Markit PMI for services rising to 58.5 from 47.8 in June. Besides, the European Commission’s economic sentiment indicator has now risen three months in a row, with July’s 87-point level firmly above the second quarter’s average of 71.1.

The situation is still volatile with the recent increase in Covid-19 infections in some countries. Spain had 600,000 coronavirus cases, Italy 0.25 million, Germany 0.22 million and France at 0.19 million cases as on August 10. 

In a positive development, the European Union has now decided on a recovery fund that will provide about 0.8 per cent of GDP fiscal stimulus, both in 2021 and 2022. 

China:

The country where the coronavirus originated recovered the fastest from contraction. Its economy grew 3.2 per cent in the second quarter of 2020 after a 6.8 per cent fall in the previous three months. The novel coronavirus was first detected in the Chinese city of Wuhan last December. Since then, it has spread across the world, infecting and killing hundreds of thousands and forcing cities into lockdown. 

A month after it was declared a global pandemic, China started easing restrictions from April. As on August 10, China had 84,668 positive cases, less than even total Covid-19 deaths in the US and Brazil. However, there has been a surge of cases in parts of China recently. The government has earmarked a record 3.75 trillion yuan ($534 billion) in special local government bonds this year. The People’s Bank of China (PBOC) has rolled out a slew of steps since February, including cuts in lending rates, banks’ reserve requirement ratios (RRR) and targeted support for virus-hit companies such as cheap loans.

The Caixin/Markit manufacturing Purchasing Managers’ Index (PMI) came in at 52.8 for July, marking its third straight month of expansion. The index was the highest in nearly a decade. This means that the manufacturing sector responded to policy  measures even as the export orders remained low at 48.3 points.