The Prime Minister outlined plans to get Britain back to normal this week. The advice to work from home will be dropped next month. Employers will be offered greater discretion to determine, how and when, employees may return to the work place.
Civil servants will return to Whitehall. The use of public transport will be extended. Casinos and bowling alleys will reopen. Skating rinks will thrill, once again, to the sound of blades on ice.
Exhibitions halls will open. Business events will resume. Fans may be allowed to return to the sports stadiums in October, if all goes well. "Let's get Britain back to normal, in time for Christmas" the message from Boris Johnson. "Let's get business, back to normal, in time for Brexit" he should have added.
There is much to be done to avoid a significant setback this year. Latest ONS data suggests the economy fell by 24% in the second quarter. Construction output fell by 40%, manufacturing output fell by 25%. Retail, transport and storage sectors fell by over 30%. The leisure sector collapsed by 90%, to just 10% of prior output.
The latest jobs figures mask the underlying problem. The furlough scheme is providing much needed support to the jobs market. The u-rate held steady at 3.9%. The number of people officially unemployed ticked up slightly to 1.35 million.
Ominous signs abound. Underlying earnings growth slowed to 0.7%, bonus pay fell by 24%. The number of vacancies fell to 333,000 compared to 800,000 at the start of the year.The experimental ONS claimant count hit the 2.6 million level, compared to 1.4 million in March.
How back will it get? We now expect growth for the year as a whole to fall by just over 12%. Our detailed sector output model suggests a V shaped recovery, with output down by around 8% in the final quarter of the year.
The number of people unemployed by the end of the year will rise to over 2.5 million if the furlough scheme is ended in October. We would still expect a significant recovery by the Spring of next year if all goes well.
For a more detailed presentation, join us for The Saturday Economist Live on the 31st July or the Brabners Quarterly Economic Briefing on the 23rd July. We outline our forecasts by quarter and by sector.
China Avoids Recession ...
In China, GDP increased by 3.2% in the second quarter of the year, following a drop of 6.8% in the first quarter. The second largest economy in the world avoided a technical recession, defined as two consecutive quarters of negative growth.
Exports increased by 0.5%, imports increased by 2.7%. Manufacturing increased by over 4% in the quarter. Growth of 5% is expected in the second half of the year. China will be the first major economy to achieve positive economic growth as Europe, Japan and the US struggle to reopen their economies.
In the US, some states are pausing or reversing plans to reopen businesses. Nationally, 3.6 million Covid cases have now been reported. The fatality rate is set to hit 150,000 by the end of July. The daily death toll is rising. Texas, Arizona and South Carolina have seen death rates double. Significant spikes have been seen in California and Tennessee.
The White House is struggling to formulate an appropriate response. The President has been committing less of his time and energy to managing the pandemic. "He is not really working this anymore, he doesn't want to be distracted by it" the claim in the Washington Post this week-end.
In a latest poll, 64% do not trust what the President is saying about the pandemic. Just 33% approve of Trump's handling of the crisis. With just over 100 days to go to the election, Joe Biden is now 11 points ahead in the polls. Body bags and refrigerated trucks are heading to Florida. The swing state is faced with a real crisis as curfews are imposed in parts of the state.
The US economy will shrink by an estimated 6% this year. The unemployment rate is over 10%. 54% of voters say they approve of Trump's handling of the economy ... Joe Biden's personal rating is slipping ... the race is far from over yet ...
The Saturday Economist
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The material is based upon information which we consider to be reliable but we do not represent that it is accurate or complete and it should not be relied upon as such. We accept no liability for errors, or omissions of opinion or fact. In particular, no reliance should be placed on the comments on trends in financial markets. The presentation should not be construed as the giving of investment advice.