Good News this week! B&Q is set to reopen 155 stores following the shutdown announced by the Prime Minister, just four weeks ago. Manufacturers including Jaguar, Bentley and Aston Martin are returning to work.
House builders, led by Taylor Wimpey will return to building sites. Social distancing measures must be put in place. Only one man on a ladder at any one time, that sort of thing. Businesses are encouraged to return to work as soon as possible.
Further relaxation of the UK clamp down will be made at the end of the month. Garden Centres are expected to open for the May Bank Holiday. A statement on early stage schooling may also be included in the package. In Georgia USA, gyms, hair dressing salons, bowling alleys and tattoo parlors are opening now, as Governor Brian Kemp prioritizes life for Americans in the South East state.
In the UK, the government is concerned there appears to be some relaxation of stringent observance of the lock down measures. Car usage is creeping up, more people in the parks, loitering with intent to sunbathe. The NHS is worried, people are avoiding the health service. Essential treatments including cancer care avoided.
The focus in policy is moving away from isolation, quarantine and lock down to testing, tracking and tracing. Grab a mask if you can get one. We are heading out. Herd immunity, didn't get much of a run, the mediaeval measures of containment are proving to be too expensive. Now the focus is on testing, testing, testing. At least it will assure the people, something is being done.
The Treasury has been taken aback by the reaction to the containment measures. One in four staff have been furloughed under the government scheme. 430,000 firms and 3.2 million workers are now claiming support at a cost of almost £4 billion pounds per month.
80% of businesses in accommodation and food have closed. 70% of companies involved in entertainment and recreation have shuttered for the duration. 40% in construction, 30% in manufacturing, 25% in transportation and storage. Retail sales fell in March by 6%, much worse is to follow in the second quarter. Clothing sales slumped by 30%, alcohol sales jumped by a comparable amount, as the nation turned to drink.
Primark reported zero revenues in April. Boohoo reported record revenues in the year to March. Online sales increased by 12.5% in the latest data, accounting for over 22% of all transactions, a record high.
From the data now available, we estimate GDP (O) output based will fall by 20% in the second quarter. For the year as a whole, growth could fall by 10%. The recovery in 2021 will offset most, if not all of the gain.
The real good news in the blue sky horizon ... hospital admissions in London and the South East are falling. The number of recorded deaths also appears to have peaked. Each death a family tragedy of course but the narrative is supporting an end to lock down. The social cost is high, the economic cost is astronomical …
Treasury to borrow £225 billion ...
The OBR forecast borrowing will increase by £270 billion in the current financial year, compared to £48 billion in the year to March 2020.
The Debt Management Office is set to tap the markets for £225 billion in the current quarter. A combination of new funding requirement and current debt rollover. Market appetite is considered to be strong for the issue. Who would have thought the 30 basis points on offer for ten year gilts would lure buyers into the fray. The Bank of England is ready to act as the buyer of last resort should lenders shudder. The process of Dire Straits QE, "money for nothing, gilts for free" has never been so sorely needed on Planet ZIRP.
Over in the US, Morgan Stanley estimate the deficit will be over $3.7 trillion dollars in calendar year 2020 and a further $3 trillion dollars next year. The government signed off on a $2 trillion dollar rescue package for the economy, over 4 million workers in the US sought unemployment benefit last week.
26 million have now made claims over the past five weeks as the pandemic measures hit the economy. Lay offs include staff from within the Trump empire including Mar-a-Lago. No wonder the President is keen to secure a return to work soon. The search for a miracle cure continues in the President's mind. Medical advisors shake their heads in disbelief at the meanderings of the stable genius.
This week, the federal government scrambled Friday to stave off a potential wave of public health emergencies. The move was sparked by President Trump’s suggestion that injecting bleach or other household disinfectants into the body might cure people of the novel coronavirus.
In Maryland alone, the state government’s emergency hotline received more than 100 calls from residents inquiring whether injecting a disinfectant really was a cure. Only in America, where 38% of beer drinkers insist they will not buy Corona beer as the pandemic sweeps across nation.
That's all for this week. Have a great, safe, week-end, wash your hands and don't talk to strangers.
The government announced this week, the lock down will continue for another three weeks. The household siege, held over Easter. The continuation will run until the May Bank Holiday. It may be difficult to continue much into May, without some concessions to "Banged Up Britons".
Police in the parks urging people to "return to your homes, this is not a holiday" are not ideal You tube Clips for a laissez-faire Tory party. Matt Hancock was urged to present some "forward guidance" on when the lock up would be lifted. The Health Secretary could not resist. There would be five tests. Just like the five pillars of the Covid-19 tests. The results, not necessarily in order of importance ...
"When the NHS had capacity to cope, when the fatality rate could clearly be seen to be falling, when the same would apply to the infection rate, when we were testing over a gazillion people each week and when the Prime Minister was back in Downing Street, to take the blame if anything went wrong, with a second wave."
There is light at the end of the tunnel, the health secretary explained. The shortfall in PPE could be resolved, by urging front line staff to use essential equipment every other day of the week. More ventilators are on the way, soon to be redundant if latest medical advice is to be accepted. Just let patients lie on their stomachs, at least they won't be able to see what's going on around them.
In the economy more widely, the Office For Budget Responsibility added to the economic gloom, predicting GDP could fall by 35% in the second quarter. No mystery to the mechanics, construction output is assumed to fall by 70%, manufacturing by 50% and the leisure sector by almost 90%. Unemployment could rise to over 2 million according to the OBR model.
This week the ONS revealed that one in four businesses had closed in recent weeks as a result of the lock down policy. A further 38% had experienced a substantial reduction in activity. The OBR assumes a rapid rebound in the economy, once the second quarter has passed. The Adam Smith Institute warned on the other hand, that "without a plan to reopen the economy, there won't be one to do so."
As we warned earlier in the month, applying mediaeval measures of containment to a contemporary economy, will risk driving us all back to the Dark Ages. There is a debate emerging between the cost of life and the cost of livelihood. It will be a tough call for a young cabinet.
The data will not make this any easier. The case load of infections may have peaked in the UK but the outbreak is now following a "European path" rather than the Asian model precedent. The cabinet has another three weeks to assess the evidence. The health case, may yet pass the test, just in time to rescue the economy from significant permanent set back ...
China : Economy shrinks by over 6% in the first quarter ...
This week, China revealed the domestic economy fell by 6.8% in the first quarter.This was the first fall since records began in 1992. Industrial output fell by 8%. Investment fell by 16% and retail sales fell by almost 20%. The recovery will be hampered by the slow down in world trade and consumer caution in terms of spending plans and leisure habits. For the year as a whole, growth is expected to be around 2.5% compared to 6.1% last year. In the U.S. ...
Mutiny on the Bounty ...
It has been a tough week for the President. Trump experienced his worst melt down, ever according to reports from the White House Press Corp.
New chief of staff, Mark Meadows is said to be overwhelmed in the role and has been reduced to tears on occasions. Meadows is the fourth in the office under Trump. The odds are, he will be the shortest tenured yet.
This week Trump retweeted a call to sack Dr Anthtony Fauci, his own public health adviser. Funding for the World Health Organisation was suspended. The President blamed the WHO for assisting China, in a cover up of the initial outbreak and for criticism of his decision to suspend flights to China in January.
The North East state governors were accused of plotting to sabotage his exit policy. The President was set to order the states to open on the 1st May, until it was explained this was a state decision and not one for the White House. Then came the tweet ...
"Tell the Democrat Governors that “Mutiny On The Bounty” was one of my all time favorite movies. A good old fashioned mutiny every now and then is an exciting and invigorating thing to watch, especially when the mutineers need so much from the Captain. Too easy!"
On Friday, Trump urged the Democratic States of Michigan, Minnesota and Virginia to "LIBERATE" the people and to start loosening the strict social distancing guidelines. "Set my people FREE" the president's exhortation. The announcement came the day after the White House issued new federal guidelines on reopening the economy. The plan is to ease restrictions on businesses, residents, visitors to Trump hotels and Mar-a Lago specifically.
Goldman Sachs this week claimed the U.S. is past the worst. The number of infections does appeared to have peaked. The government and Federal Reserve have thrown some $6 trillion dollars at the economy. The President's name has been printed on the hand out checks. Still the unemployment number has surged by 22 million.
The call for a return to normality is understandable. A sense of panic is sweeping through the White House. Election looms within months. The State Governors, Democrat and Republican alike, will be more cautious in the return to work strategy ...
That's all for this week. Have a great, safe, week-end, wash your hands and don't talk to strangers,
For more frequent updates on our C19 tracker, join our Guild Group. We monitor the world Health Situation Reports every morning. Track with us, the progress of our forecasts of the outbreak.
In Denmark, day schools and nursery schools will open on April 15th. All other restrictions, including the closure of bars, restaurants, hair dressing salons and shopping centers will stay in place, until the middle of May.
In Austria, DIY shops and garden centres will reopen next week. Retail stores and hair dressing salons will be open, from the end of the month.
In Spain, the lock down is to be partially eased. Factory and construction workers are to restart work. Most shops and offices will stay closed for the moment.
In Sweden, schools, nurseries, bars, restaurants and sports clubs, all remain open. Social distancing is observed within reason. To date, there has been no dramatic surge in cases or fatalities.
In the UK, the government is preparing options for an exit plan over coming weeks. Public Health England suggested schools could reopen, as coronavirus restrictions begin to be lifted. Head teachers are said to be lobbying, to reopen schools before the summer holiday, subject to scientific advice.
Paul Cosford, the agency's medical director, said that easing the lockdown for the young was being considered. "The importance of children being in school is paramount".
For the moment, the government has made it clear, it is too soon to consider reopening schools. The priority is to maintain the clampdown until there is clear evidence of a slow down in cases and fatalities across the country. Professor Ferguson, from Imperial College, in a Radio 4 Today programme said. "It's going to be several weeks before we can definitely conclude anything about the rate of decline and hence when measure may be lifted."
The good news, as expected, the UK case load peaked last week. The garden centres could be allowed to re-open soon, if the good weather continues. The kids could be back in school 'ere too long. We continue to expect some social relaxation by the end of April, with a more extensive release by the end of May.
"We don't want these measures to continue longer than is absolutely necessary" Professor Ferguson explained, "the economic costs, social costs, personal costs and health costs are huge" and so they are ... the economic costs, in particular, are simply unsustainable for too long ...
Lock down to cost Treasury ...
Reports this week, the lock down will cost the Treasury £2.4 billion per day as the shut down continues. The government has been shocked at the extent to which the social distancing measures have lead to a collapse in economic activity.
The Chamber of Commerce reported this week, 20% of their members intend to furlough all staff, two thirds said they would furlough between 75% to 100% of the workforce.
The Resolution Foundation, has suggested the government plan to subsidise wages could cost the Treasury £40 billion, every three months in which the scheme operates.The Bank of England has extended the Treasury's overdraft limit to assist with funding.
Consumer confidence has plummeted. The unemployment rate is set to double. Car sales fell by over 40% last month, retail sales fell by 40% last week. Footfall in shopping centres and retail parks collapsed as traffic fell by over 80%. Construction output fell. The latest reports from IHS Markit's PMI dropped to 39.3 in March from 52.6 prior month.
We await with some concern the data on manufacturing and the service sector, the numbers will not make for great reading within The Treasury.
Capital Economics have suggested the economy could shrink by 15% in the second quarter. CEBR, the Centre For Economics and Business Research have suggested a 30% drop is possible. Using a relatively simple output and employment model by sector, it is pretty easy to arrive at a drop in output of 20% which would lead to a jump in unemployment to 20% without government intervention.
In the US, JP Morgan is forecasting a collapse in GDP levels by 40% in the second quarter. Over 16 million jobless claims have been filed in the last three weeks. The number could rise to 25 million in April with the unemployment rate rising to over 20%.
WeWork has warned it will be skipping some rents, McDonald's has warned of "difficulties" as sales fell by 20% last month. The World Trade Organisation has warned, global trade is heading for an ugly fall. Danny Blanchflower is warning of a second great depression.
Most economists expect a rapid recovery once social sanctions are lifted. The lock down cannot continue for too long. In the U.S. the President is subject to conflicting advice from scientists and economists. The option to reopen the USA on Mayday would appear to be a step too soon even though the case load may have peaked in certain states already ...
That's all for this week. Have a great, safe, week-end, wash your hands and don't talk to strangers,
For more frequent updates on our C19 tracker, join our Guild Group. We monitor the world Health Situation Reports every morning. Track with us, the progress of our forecasts of the outbreak. Our social media reach is now extensive, we had over 75,000 views of our LinkedIn post last week.
In Italy, the epidemic is slowing down. Following four weeks of shutdown. Italian officials say it will take until Easter to reduce infections sufficiently, to begin a relaxation of quarantine measures.
Sections of industry will be urged to return to work, under stringent safety conditions. Italian restaurants and bars are expected to begin to re-open at some stage later in May.
In Spain, as expected, the case load peaked last week. Both Italy and Spain have recorded over 100,000 cases. The fatality rate is now 12% in Italy and approaches 10% in Spain. In the UK, 34,000 cases have been reported, the fatality rate is now 9%.
The good news we expect the peak to be reached within days. The intense "quarantina" period will have been completed at the end of April. Some relaxation of home confinement restrictions may then be possible.
Our analysis continues to suggest the crisis could be over by the end of May. The all clear sirens could be firing in early June. Restaurants and bars could be reopening in the month. Shoppers will return to the high street to snap up the bargains, as retailers shed stock.
From the data available from China and the experience in Europe, we are able to produce a projection of the case load in the UK against a European index. Our C19 index (below) maps the progress of UK cases against the model projection. If we are right, the UK case load will peak early next week. Overall some 110,000 cases will have been experienced in the cycle by early June.
Professor Neil Ferguson from Imperial College College, advising the government on the crisis, expects the case load to peak in the next week to ten days. He told BBC Radio 4 "The critical thing first is to get case numbers down. Then I am hopeful, in a few weeks time, we will be able to move to a regime which will be a little more relaxed in terms of social distancing".
Boris Johnson and Matt Hancock, have urged people to stick with the guidance and stay at home, maintaining strict social distancing guidelines. "If observance is relaxed, that would move us to a slightly more pessimistic scenario" Professor Ferguson explained.
Lord King, former Governor of the Bank of England, warned of "rebellion" if the shut down went on too long. Never one for sensationalism, he called for the government to set out an exit strategy and soon. "A lock down that lasts for months is unrealistic and will materially damage the economy." he said.
In due course we will begin to model the impact of Covid-19 on the UK and world economy. As the virus sweeps across the USA, the impact on jobs and the economy is already quite startling. In the UK, the impact can only be partially mitigated by Treasury largesse.
The government will set out the exit strategy soon. The case load must be seen to have peaked first. We cannot do otherwise. Applying mediaeval measures of containment, to a contemporary economy, will risk driving us all back to the Dark Ages ..
Beijing takes the lead in world crisis ...
As the domestic case load dwindles, Beijing is striving to take the lead in the world Covid-19 crisis. According to CNBC, this is the first international crisis in which China is actively taking a global leadership role.
On social and state media, China continues to promote its shipments of medical supplies to hard hit countries in Europe and Africa.
In the last few weeks. Chinese President Xi has been busy calling leaders across the world, rallying for global coordination in managing the outbreak. Health experts have been hosting video conferences with those from other countries to share the experience.
Keyu Jin, associate professor of economics at LSE, explained "This is the opportunity of the century for China to build trust in the world and to rebuild its international image. China does not want to waste an opportunity like this. China will cement its place as a global power."
In Washington, officials struggle to deal with the outbreak without offending President Trump. The President is convinced he is doing a great job, with an incredible grasp of virology and epidemiology. Who would have thought?
Dr Anthony Fauci is the task force doctor and expert immunologist advising the White House. Dr Fauci has contradicted and refuted Trump's claims about the virus multiple times in recent months. His counsel cannot be but short lived. Reporters at the White House press conferences regularly play the "Where's Fauci" game. The Doctors absence at any time, leads to an assumption he has been relived of duty. Not to worry, the President has everything under control but won't be taking the lead on the world stage just yet.
For more frequent updates on our C19 tracker, join our Guild Group. We monitor the world Health Situation Reports every morning. Track the progress of our forecasts of the outbreak and our timeline for relaxation.
Our social media coverage is extensive, we had almost 50,000 views of our LinkedIn post last week. We are building our presentation for the Brabners Economics Webinar at the end of the month. More on this next to follow ...
That's all for this week. Have a great, safe, week-end, wash your hands and don't talk to strangers,
Watch the numbers not the headlines,
The Saturday Economist
John Ashcroft publishes the Saturday Economist. Join the mailing list for FREE weekly updates on the UK and World Economy.
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.