The coronavirus crisis: sharp GDP falls in US and Eurozone in 2020Q2

Date: 3rd August 2020

In this Perspective Ruth Lea, Economic Adviser to the Arbuthnot Banking Group, discusses the latest key developments:
    • US GDP fell by 32.9% (QOQ, annualised, 8.2%, non-annualised), following a 5.0% (annualised, 1.25% non-annualised) decline in 2020Q1.
    • Eurozone GDP fell of 12.1% (QOQ) in 2020Q2, materially more than in the US, following a 3.6% (QOQ) decline in 2020Q1. German GDP contracted 10.1% in 2020Q2, whilst French GDP fell 13.8%, Italian GDP was down 12.4% and Spanish GDP slumped 18.5%.
    • Nevertheless, the ECB 'eyed recovery' at its July meeting, whilst the Fed struck a cautious note at its July meeting citing concerns over a slowing recovery.
    • The first estimate of UK GDP for 2020Q2 is due on 12 August.
    • The ONS's latest Business Impact of Coronavirus Survey (BICS, for 29 June-12 July) showed a further increase in the proportion of businesses trading, as lockdown restrictions were eased.
    • The MPC is due to meet next week. No change in policy is expected but the Bank's revised forecast/scenario will be of interest. The Bank's May 'illustrative scenario' projected a fall in GDP of 14% in 2020.
    UK economic update:
    • Bank data on consumer credit suggested households remained cautious in June, though the repayment was just £0.1bn, following repayments of £4.5bn in May, £7.3bn in April and £3.7bn in March.
    • Bank data on mortgage approvals showed some recovery in June, whilst mortgage borrowing was up £1.9bn.
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    • Despite some pick-up in June, car production was still 48.2% down (YOY) in the month.
    UK policy developments:
    • The PM recently postponed some easing of lockdown restrictions, originally due on 1 August. Casinos, bowling alleys, skating rinks and remaining close contact services must remain closed until 15 August at the earliest.
    • As from 1 August, employers must pay NICs and pension contributions for workers furloughed under the Coronavirus Job Retention Scheme (CJRS).
    • The latest data show the CJRS has cost nearly £32bn to date and the Self-Employment Income Support Scheme (SEISS) nearly £8bn.
    • The latest data show businesses have borrowed nearly £50bn to date through the Coronavirus Business Interruption Loan Scheme (CBILS), the Coronavirus Large Business Interruption Loan Scheme (CLIBLS) and the Bounce Back Loan Scheme (BBLS), with the BBLS accounting for nearly £34bn.
    Footnote: the ONS survey on COVID-19 infections (England):
    • The ONS concluded in its latest release (for week 20-26 July) there had been a 'slight increase' in the number of people testing positive in recent weeks.
    • They could not, however, say '…with any confidence whether…infection rates differ by region in England, nor whether infection rates have increased in different regions over the past six weeks'.
    • Modelling suggested '…there is now some evidence that the incidence of new infections has increased in recent weeks'.
    Ruth Lea said, 'Evidence is accumulating on the impact of the coronavirus pandemic on GDP for several key international economies. US GDP fell over 8% in 2020Q2, and there are concerns the recovery is slowing. Meanwhile Eurozone GDP fell 12% in the quarter, with an 18% slump in Spain. China's GDP, however, bounced back over 11% in 2020Q2, after falling 10% in 2020Q1.''.

'We must wait until 12 August for the first estimate of UK GDP, but the OBR assumed a fall of over 20% in their recent Fiscal Sustainability Report. The Bank's economic assessment, due next week, will be especially interesting. Suffice to say, continued restrictions continue to hamper economic revival, and the PM's recent postponement of some further easing of the restrictions was disappointing.'


  • For full story: http://www.arbuthnotgroup.com/economic_perspectives_group.html

    Press enquiries:

    Arbuthnot Banking Group PLC:

    Ruth Lea, Economic Adviser
    07800 608 674, 020 8346 3482
    ruthlea@arbuthnot.co.uk
    Follow Ruth on Twitter @RuthLeaEcon

    Maitland:
    Sam Cartwright
    020 7379 4415
    Jais Mehaji
    020 7379 5151
    arbuthnot@maitland.co.uk

    In this Perspective Ruth Lea, Economic Adviser to the Arbuthnot Banking Group, discusses the latest UK economic developments:
  • Retail sales continued to recover in June. They rose 13.9% (MOM) to be just 0.6% lower than in February 2020.
  • A notable feature was the very high proportion bought online, at 31.8% in June, slightly down in May's record 33.3%, but still well up on February's 20.0%.
  • The Markit/CIPS flash composite PMI showed continued improvement in July. Services returned to growth, whilst manufacturing's growth accelerated.
  • The ONS's latest Business Impact of Coronavirus Survey (BICS, for 29 June-12 July) showed a further increase in the proportion of businesses trading, as lockdown restrictions were eased.
  • Public sector net borrowing (PSNB) rocketed in June to £35.5bn, compared with £7.2bn a year earlier, reflecting weaker revenues and higher expenditure. Borrowing in the first three months of FY2020 totalled a record £127.9bn. Public sector net debt (PSND) rose to £1,983.8bn by end-June, some 99.6% of GDP.
International developments included:
  • The Markit/CIPS flash composite PMIs for the Eurozone showed continued to improve in July, suggesting a return to growth. The improvement in the US PMI was less encouraging, suggesting that output had merely 'stabilised' in July. The relative weakness was partly attributed to renewed COVID-19 containment measures.
  • The European Council brokered agreement on 21 July for both the EU's Budget for 2021-27 (€1,074bn agreed) and the €750bn Next Generation EU (NGEU) coronavirus recovery package. The NGEU comprises €390bn of grants and €360bn of low-interest loans. Italy and Spain are expected to be the major beneficiaries.
Concerning Brexit:
  • The fifth round of negotiations on the UK-EU future relationship took place last week, with little apparent progress. Fishing rights and the 'level playing field' on regulatory alignment continue to be especially contentious issues. Informal negotiations will continue week beginning 27 July, and the next (the sixth) round of formal negotiations will take place week beginning 17 August.
  • In preparation for the end of the transition period (31 December 2020), the Government recently announced a £705mn funding package to ensure GB border systems will be fully operational after that date. The Government has also updated its post-transition period points-based immigration system.
Ruth Lea said, 'The recovery in retail sales is encouraging, but it must still be noted that parts of the economy are still materially restricted by the social distancing rules and the labour market is weakening. The OBR's recently released 'central scenario', a modified 'V' shaped recovery in which the V is not symmetric with recovery slower than collapse and some overall loss of output, seems to be a reasonable analysis of economic prospects. Meanwhile, the public finances are deteriorating very quickly, with the OBR's central scenario projection for borrowing, modified for the Chancellor's July measures, at over £370bn in FY2020, looking entirely plausible.'


For full story: http://www.arbuthnotgroup.com/economic_perspectives_group.html

Press enquiries:

Arbuthnot Banking Group PLC:

Ruth Lea, Economic Adviser
07800 608 674, 020 8346 3482
ruthlea@arbuthnot.co.uk
Follow Ruth on Twitter @RuthLeaEcon

Maitland:
Sam Cartwright
020 7379 4415
Jais Mehaji
020 7379 5151
arbuthnot@maitland.co.uk
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Arbuthnot Banking Group plc published this content on 03 August 2020 and is solely responsible for the information contained therein. Distributed by Public, unedited and unaltered, on 03 August 2020 10:41:09 UTC