ANALYSIS COVID MARKETS ECONOMY
By James T. Areddy , ,
BUSINESSES ARE BRACING for a longer and steeper coronavirus-triggered downturn than the single-quarter event initially anticipated.
Likewise, Kevin M. Fogarty, president of Houston polymer maker Kraton Corp. told investors he sees growing concern from the spread of the virus, “with potential for the disruption and the duration to linger well into the second quarter or beyond.”
Economists aren’t forecasting a drawn-out global recession. They expect growth to rebound later this year once the epidemic is brought under control, but that could change if the virus continues to spread.
The outlook hinges hugely on China, where the epidemic began. The world’s second-largest economy looks likely to avoid a recession yet spread enough pain to cause widespread damage. Some business leaders are warning it could be late 2020 before operations normalize. China’s exports plunged 17% and imports fell 4% in the combined January-February period as activity at its ports and factories slowed to a crawl due to both the coronavirus and Lunar New Year. But while businesses may get back to work this month, global demand for Chinese goods could fall if the epidemic waylays other countries.
Many businesses and economists initially expected the epidemic would track the same temporary dip and rebound seen in 2003 during the outbreak of severe acute respiratory syndrome. Now—with all of Italy under quarantine and the numbers of infection cases rising in the U.S. and other major economies—that is looking optimistic.
China already faced challenges heading into 2020: the lowest growth rate in 30 years, debt that tripled in a decade, record numbers of bank collapses, bond defaults and bankruptcies, a doubling of some meat prices and such limited confidence in its currency and stocks that government rules control how both can be sold.
Other parts of the world faced vulnerabilities going into 2020, too. For eurozone economies, it was weak growth as the automobile industry struggled with a cooling market and the costs of developing a new generation of electric cars.
The U.S. economy has been a bright spot in the global picture. Growth was on a solid footing, albeit slowing, before the coronavirus hit, and the unemployment rate was at a 50-year low of 3.5% in February. Its resilience in the months ahead will depend chiefly on the consumer. If the U.S. economy is thrown off course this year, “it’s not necessarily because of vulnerabilities that were there and waiting to be exploited, it’s an all new situation,” said Stephen Stanley, chief economist at Amherst Pierpont Securities. “It’s going to be consumer-driven, people staying at home, not traveling and not spending.”
Companies’ bottom lines have also been hurting. U.S. corporate profits fell in the third quarter, the last quarter for which Commerce Department data is available. If company profits are weak in 2020, economists say firms could respond by slowing hiring or cutting jobs, and pulling back further on investment.
Farr initially expected a short-term slowdown followed by a quick recovery, but after watching governments struggle to deal with the virus threat, he now believes it will be a more drawn-out period of sluggish demand. “I think it’s going to be weaker than we thought,” he said, “and then it’s going to come back faster than I thought.” — The Wall Street Journal
INDIA HERE AND NOW http://www.indiahereandnow.com email:firstname.lastname@example.org