IMF: Global economy faces worst recession since the Great Depression - as it happened

Graeme Wearden and Jasper Jolly

from on 2020-04-14 17:11 (#52410)

Rolling coverage of the latest economic and financial news

6.11pm BST

The International Monetary Fund today warned that the world faces its worst recession since the Great Depression of the 1930s - but stock markets appear to be fixated on a potential recovery.

Wall Street investors enjoyed a day of strong gains by the early afternoon in New York, with the S&P 500 up by 2.7% and the Nasdaq rising by 3.5%, aided by good news on a recovery in iPhone orders from China for Apple.

5.17pm BST

A bit more on Barclays: as well as delaying redundancies, it has also said that it will delay payments for its top two executives.

Mr Staley and Mr Morzaria are supportive of the remuneration committee's determination in this regard.

5.09pm BST

UK chancellor Rishi Sunak is holding the government's daily briefing right now.

The most important way to protect the economy is to protect people's health, Sunak said.

4.46pm BST

The coronavirus pandemic has exposed "cracks" in the global financial system and "will likely" see banks suffer both credit losses and market losses that will test their reserves, the International Monetary Fund (IMF) warned on Tuesday.

The IMF usually issues its global financial stability report and the earlier economic forecasts ahead of its spring meetings, but this year they have been replaced by virtual meetings.

This crisis presents a very serious threat to the stability of the global financial system. Following the COVID-19 outbreak, financial conditions tightened at unprecedented speed, exposing some "cracks" in global financial markets. [...]

These developments have raised the risk that the inability of borrowers to service their debts would put pressure on banks and cause credit markets to freeze up. A prolonged period of dislocation in financial markets could trigger distress among financial institutions, which, in turn, could lead to a credit crunch for nonfinancial borrowers, further exacerbating the economic downturn.

4.33pm BST

Apple is the big driver of the Nasdaq's outperformance, on signs that the world's third-biggest company by market capitalisation is seeing improvements in China.

Apple shipped 2.5 million iPhones in China in March, according to government data. It had shipped only 500,000 phones in China in February.

4.23pm BST

Across the Atlantic, Wall Street is on for another day of strong gains.

The S&P 500 is up by 1.9%, while the Dow Jones industrial average has risen by 1.4%.

4.20pm BST

Stock markets are a bit of a mixed bag across the world as trading approaches its end in Europe.

The FTSE 100 has lost 1%, or 59 points, to trade at about 5,784 points. Italy has also lost ground, with the FTSE MIB down by 0.6%.

4.13pm BST

There has been a spate of attacks on mobile network infrastructure because of completely baseless conspiracy theories about 5G. Now the attacks are directly affecting people in NHS hospitals, according to Vodafone.

Nick Jeffery, chief executive of Vodafone UK, has said that mobile phone arsonists targeted a mast providing connectivity to Nightingale hospital in Birmingham. Has told them to stop believing the "dangerous lie" of a link between 5G and coronavirus. https://t.co/5t5ZaYaLcM

It is deeply disappointing to learn that arsonists are still attacking our mobile phone masts - that's 20 so far. One of the sites targeted over the weekend provides mobile connectivity to the Nightingale hospital in Birmingham.

It's heart-rending enough that families cannot be there at the bedside of loved ones who are critically ill. It's even more upsetting that even the small solace of a phone or video call may now be denied them because of the selfish actions of a few deluded conspiracy theorists.

3.47pm BST

Barclays has become the lastest British bank to halt new job cuts while the coronavirus crisis is ongoing - following in the footsteps of HSBC and Lloyds.

The British lender also said it is offering additional financial support to staff already in the process of being made redundant, modelled on the government's furlough scheme which offers up to 80% of an employee's wages up to 2,500 pounds ($3,134.00) per month.

The payments will be funded by Barclays rather than the government, however. A Barclays spokesman confirmed the contents of the memo.

3.17pm BST

Back in the UK, the fashion chains Oasis and Warehouse are on the brink of administration.

Around 2,300 jobs are at risk, as the Covid-19 lockdown threatens to claim more retail victims.

3.15pm BST

Finance ministers from the world's biggest economies have moved another step closer to giving debt relief to poorer countries to help them handle the Covid-19 crisis.

G7 finance ministers and central bank chiefs say they 'stand ready' to provide temporary debt relief -- if other creditors agree [reminder, the IMF announced its own debt relief overnight].

Ministers and Governors noted that a number of the most vulnerable and poorest countries will face acute health and economic challenges related to the fallout of COVID-19.

Ministers and Governors support multilateral efforts to assist these countries and stand ready to provide a time-bound suspension on debt service payments due on official bilateral claims for all countries eligible for World Bank concessional financing, if joined by all bilateral official creditors in the G20 and as agreed with the Paris Club. This initiative would provide liquidity support to help these countries deal with the health and economic impacts of the crisis.

#G7 backs debt moratorium for poor countries if #G20 creditors, Paris Club join https://t.co/AAM7Sbeph5

PRESS RELEASE: Chair's Summary - G7 Finance Ministers And Central Bank Governors Virtual Meetinghttps://t.co/8aoSBJRp8i

2.43pm BST

Wall Street is shrugging off the prospect of a dire recession this year.

Stocks have opened higher in New York, where the Dow Jones industrial average has gained 486 points, or just over 2%, to 23,877. The S&P 500 is also up 2%.

2.36pm BST

Our economics editor Larry Elliott has delved into the military history books to argue that the IMF has been blindsided by Covid-19 -- while it was worrying about other dangers:

In 1941, Britain considered its colony of Singapore to be pretty much impregnable. But while the naval base was bristling with big guns, its defences were geared towards preventing a sea-based invasion and when the attack came it was on land, down the Malay peninsula. Britain was expecting trouble, just not from that direction.

The same fate has befallen the International Monetary Fund, which has been fretting for some time about excessive financial speculation on the back of permanently lowinterest rates and the risks posed by global heating but - like almost everybody else - failed to spot where the immediate threat was coming from.

2.31pm BST

Here's Rain Newton-Smith, CBI chief economist, on the IMF's forecast of a global recession - and the OBR's scenario that Britain's GDP shrinks by 35% this quarter.

"This makes for bleak reading and stresses the need for the right policies to support our economy through this crisis. The need for coordinated global action to rebuild confidence has rarely been greater.

"The Government will also need to work with businesses and many parts of civil society here at home, to create a plan to revive the economy once the lockdown is lifted."

2.21pm BST

Gita Gopinath also says it is important that world leaders aren't driven into protectionism by the coronavirus crisis.

She calls on them to avoid imposing restrictions on trade in medical supplies.

2.10pm BST

The IMF is holding a virtual press conference now to discuss its new World Economic Outlook.

Q: Why is the IMF expecting the eurozone economy to shrink so much more than the United States this year? (-7.5% vs -5.9%)?

IMF'S CHIEF ECONOMIST GOPINATH: BRITAIN HAS TAKEN AN AGGRESSIVE FISCAL APPROACH TO CORONAVIRUS.

"UK has done all the right things at this point" dice Gita Gopinath, FMI, presentando las previsiones.
Me quito el sombrero ante la efectividad de la diplomacia britinica. https://t.co/BzpttEOZS0

1.55pm BST

1.51pm BST

You can read more about the IMF's new report on their blog, here.

There is extreme uncertainty around the global growth forecast but we know the global economy will be in recession in 2020, with markdowns on the projections expected across regions and countries. See the numbers in the #IMFBlog #WEO https://t.co/5rJQbhTmkm pic.twitter.com/9v5nO6ExjZ

1.49pm BST

The IMF is also urging governments and central bankers to spend heavily to protect their economies from the worst effects of the Great Lockdown.

Chief economist Gita Gopinath says the Covid-19 crisis needs to be dealt with in two phases - first, containment and stabilization, then recovery.

Quarantines, lockdowns, and social distancing are all critical for slowing transmission, giving the health care system time to handle the surge in demand for its services and buying time for researchers to try to develop therapies and a vaccine. These measures can help avoid an even more severe and protracted slump in activity and set the stage for economic recovery. Increased health care spending is essential to ensure health care systems have adequate capacity and resources.

Special dispensations for medical professionals-who are on the frontlines of combating the pandemic-should be considered, including, for example, education allowances for their families or generous survivor benefits.

1.41pm BST

There is one glimmer of light in the IMF's forecasts - they show a recovery in 2021. But not enough to make up for this year's decline.

For the global economy, it predicts growth of 5.8% in 2021, bouncing back from a 3% decline this year.

1.36pm BST

Here's our economics editor Larry Elliott on the IMF's new forecasts:

1.30pm BST

Newsflash: The International Monetary Fund has warned that the world faces its worst recession since the Great Depression of the 1930s.

In its new World Economic Outlook, the Fund has slashed its growth forecasts dramatically, predicting painful contractions in all advanced economies, and most emerging countries too.

First, the shock is large. The output loss associated with this health emergency and related containment measures likely dwarfs the losses that triggered the global financial crisis.

Second, like in a war or a political crisis, there is continued severe uncertainty about the duration and intensity of the shock.

It is very likely that this year the global economy will experience its worst recession since the Great Depression, surpassing that seen during the global financial crisis a decade ago. The Great Lockdown, as one might call it, is projected to shrink global growth dramatically.

A partial recovery is projected for 2021, with above trend growth rates, but the level of GDP will remain below the pre-virus trend, with considerable uncertainty about the strength of the rebound. Much worse growth outcomes are possible and maybe even likely.

1.14pm BST

Time for a quick recap, before the International Monetary Fund releases its new World Economic Outlook.

12.39pm BST

Britain's new shadow chancellor, Anneliese Dodds, says the OBR's grim forecasts show that the government must do more to protect the economy.

Labour has been working constructively with Government on its economic support package. It is clear that additional action needs to be taken to increase the take-up of the different measures. We have called for urgent action in relation to the loans scheme in particular, as take-up is worryingly low.

"It is absolutely critical that government now does all it can to minimise the depth and length of the economic impact from necessary anti-Coronavirus measures."

"Behind these very concerning figures lie many businesses which have gone bust and many people who have lost their jobs." - @AnnelieseDodds https://t.co/Rc8HkkPjdh

Basically this OBR scenario is a perfect "V" shaped recovery -- no long-term impact on the level of GDP at all.

Can think of a few economists who are sceptical about that! pic.twitter.com/VGhHWBX56d

OBR scenario assumes no scarring at all. So it is a one-off hit.

That assumption will not last the test of time. The only question is how wrong is it.

Here is the 35% breakdown by sector pic.twitter.com/Dfa7VAixkP

12.25pm BST

Newsflash: Britain's economy could shrink by a third during this quarter as the Covid-19 lockdown continues, joblessless would hit 10%, and the government's deficit could surge by over 200bn.

That's according to a new scenario drawn up by the UK fiscal watchdog, which paints an alarming picture of the impact of the coronavirus.

The Government's policy response will also have substantial direct budgetary costs, but the measures are designed specifically to support individuals and businesses through this temporary shock and so they should help prevent greater economic and fiscal damage in the long term.

The immediate cost of the Government's actions may be high, but we can be confident that the cost of inaction would ultimately have been much higher.

SO:

Q2 = around -35%
Q3 = around +25%
Q4 = around +20%

Overall annual decline in GDP in 2020
- -13% - higher than world wars, GFC

Only 1920/21 compares pic.twitter.com/ZkJaBDIEcR

12.11pm BST

We also have results from JP Morgan, and they show that its earnings have been hit by the coronavirus.

Earnings for the last quarter are down 70% at 78 cents per share, while group net revenues fell 3%.

"The first quarter delivered some unprecedented challenges and required us to focus on what we as a bank could do - outside of our ordinary course of business - to remain strong, resilient and well-positioned to support all of our stakeholders.

In Consumer & Community Banking, we have remained focused on meeting our customers' needs. Approximately three quarters of our 5,000 branches have been open - all with heightened safety procedures and many with drive-through options - and the vast majority of our over 16,000 ATMs remain open. In March alone, we opened half a million new accounts for our card customers and extended over $6 billion of new and increased credit lines, and we were active in Home Lending and Auto.

11.54am BST

Just in: pharmaceuticals and consumer goods firm Johnson & Johnson has hiked its dividend to shareholders.

J&J has beaten Wall Street expectations for the last quarter too, as it handles the Covid-19 crisis better than many other companies.

Net income rose to $5.80 billion, or $2.17 a share, from $3.75 billion, or $1.39 a share, from a year ago. Excluding non-recurring items, adjusted earnings per share rose to $2.30 from $2.10, beating the FactSet consensus of $2.01.

Revenue grew 3.3% to $20.69 billion, above the FactSet consensus of $19.73 billion, with all three business segments topping expectations.

11.24am BST

Nearly all leading fund managers expect the world economy to contract this year.

That's according to Bank of America's monthly survey of investors, just released, which found that 93% investors expect a global recession in 2020. Not a surprise (although who are the 7% who don't?!)

BofA Global Fund Manager Survey update:

- 93% expect global recession in 2020
- 52% say U-shaped recovery, 22% W-shaped, 15% V-shaped, 7% L-shaped, 3% Other
- Cash levels rise to 5.9% (highest level since 9/11 terrorist attacks)
- 57% say biggest tail risk is 2nd #Covid19 wave

11.02am BST

Britain's FTSE 250 index of medium-sized companies is not having a good day, currently down 1.45% at 16,169 points (a drop of 237 points).

Cineworld, which was forced to close cinemas in the UK and Europe, are down 11%.

It is possible that the forced closure of our sites, as required by the Government, could amount to a technical breach of our secured financing arrangements but, as a first step, we are announcing today that a temporary waiver until 15^th May has now been granted to avoid this pending further discussions.

10.37am BST

UK retail chain Next has now re-closed its website for the day, just hours after re-opening today, because of a surge in orders.

Next says it will reopen on Wednesday, and is carefully limiting orders so staff can comply with physical distancing rules.

Analysts at Peel Hunt said that Next had hit its order deadline for Tuesday by 08.30am.

The retailer has relaunched its warehouse and online store nearly three weeks after they closed as it said it had made changes to protect staff from coronavirus infection. Initially the site will only sell childrenswear and small homewares but may extend that in future. The retailer asked for volunteers to staff the warehouse and 3,000 have come forward so far.

In the grand scheme of things it is a small step in the right direction, but it sends out a positive message - some limited online business is better than no business.

10.32am BST

British banks and other lenders have provided over 1.2 million mortgage payment holidays to households hit by the coronavirus outbreak - according to industry group UK Finance.

It says:

"Action by lenders means one in nine mortgages in the UK are now subject to a payment holiday.

10.17am BST

France's finance minister has warned that its economy will suffer an even sharper recession than first feared, as measures to contain the Covid-19 outbreak are extended.

Bruna Le Maire says GDP is now expected to shrunk by 8% in 2020 -- an extremely painful contraction, and even worse than the 6% previously expected.

"If we need to do more, then we will do more. We will be there."

10.04am BST

The FTSE 100 is not sharing today's rally - it's now down 36 points or 0.6% at 5806.

That's still a sharp improvement on last month's lows (when it closed below 5,000 points for the first time since 2011).

9.50am BST

European stock markets are holding steadily at their highest levels in over a month.

The EU-wide Stoxx 600 index is trading at 334 points, up 0.8% today - its highest level since 11 March, and up from 280 points three weeks ago.

"European markets may have been closed for Easter weekend but other major markets around the world were still open, so the value of the MSCI World index was still calculated yesterday. The index closed at 1956.75, which is 19.6% below its all-time high, and that means that at the moment we are no longer in a bear market.

This really highlights just how much markets have recovered from the lows it hit towards the end of March. The MSCI World is actually up 22% since then. We've seen some absolutely huge moves over the last few weeks and for us this just shows how difficult it is to try and time the market.

9.08am BST

Overnight, the International Monetary Fund has announced it will provide debt relief to some of the world's poorest countries, to help them handle the coronavirus pandemic.

The Fund will cancel debt payment which it is owed by 25 countries - mostly in Africa - over the next six months to free up vital cash for healthcare.

"This provides grants to our poorest and most vulnerable members to cover their IMF debt obligations for an initial phase over the next six months and will help them channel more of their scarce financial resources towards vital emergency medical and other relief efforts.

I am very pleased that the IMF's Executive Board just agreed to provide immediate debt service relief to 25 of the poorest countries for the next 6 months. This will provide them space to reorient funding towards critical areas to address #COVID19. https://t.co/Qvn996Bzbc pic.twitter.com/8eKNoRscKt

This debt cancellation helps keep money in countries so it can be used for urgent health spending and social protection. Crucially, the payments are being cancelled rather than rolled into the future.

"However, the scale of the economic crisis faced by developing countries requires the IMF to go much further. The IMF is sitting on $27 billion of reserves and over $135 billion of gold. It can afford to cancel more debt, and now is the time to do it. We need the cancellation of payments to be extended to a much bigger group of developing countries and be for the next full year. Beyond the IMF, debt cancellation needs to cover payments to all creditors, including the private sector, alongside the commencement of a process to work out how to bring debts down to a sustainable level once the crisis is over."

8.48am BST

Just in: Budget airline Wizz Air says it is cutting 1,000 jobs, due to the impact of Covid-19.

Despite its best efforts, the Company is taking the difficult step to make 1,000 positions redundant, representing a 19% workforce reduction. Additional employee furlough measures have also been and will be taken in the short term as necessitated by the travel restrictions due the COVID-19 pandemic.

8.40am BST

Next shares are also rallying, up 2.2% after it announced plans to reopen its online shopping.

On Thursday 26 March NEXT announced it had temporarily closed its Online business along with its Warehousing and Distribution Operations, having listened very carefully to colleagues.

NEXT has since implemented very extensive additional safety measures and having consulted with colleagues and our recognised union, USDAW, it will re-open Online in a very limited way from today, Tuesday 14 April 2020. Initially only categories that our customers most need will be offered, such as Childrenswear and selected small Home items. Other product ranges may be added at a later date.

8.24am BST

Shares in pharmaceuticals giant AstraZeneca have surged 6% after it started testing whether its Calquence drug can help treat severely ill Covid-19 patients.

Calquence is a blood cancer treatment - it inhibits an enzyme called Bruton's tyrosine kinase (BTK) which helps some leukemic cells to survive and proliferate (details here).

"With this trial we are responding to the novel insights of the scientific community and hope to demonstrate that adding Calquence to best supportive care reduces the need to place patients on ventilators and improves their chances of survival. This is the fastest launch of any clinical trial in the history of AstraZeneca."

8.07am BST

European markets have opened higher too, with the Stoxx 600 gaining 1% - and Germany jumping 1.6%.

But in London the rally is a little more muted, with the FTSE 100 gaining 0.5% or 30 points.

8.05am BST

Asia-Pacific stock markets have hit a one-month high, helped by the better-than-expected trade data from China.

The major indices have all gained ground, lifting MSCI's benchmark Asian index to a four-week high - and 20% above its lowest point in March.

Analysts said some of the tail risks that had threatened a much deeper and prolonged downturn were starting to dissipate thanks to a slowdown in new coronavirus cases in major economies and a raft of monetary and fiscal stimulus globally.

Market sentiment was boosted by data showing China's exports in March fell only 6.6% from the year-ago period, smaller than the expected 14% plunge. Imports eased a modest 0.9% compared with expectations for a 9.5% drop.

7.44am BST

New trade data from China offers hope that its economy may be recovering from the coronavirus shock.
Chinese exports fell by 6.6% year-on-year in March in US dollar terms, according to the General Administration of Customs, while imports shrank 0.9%. That's a marked improvement on January and February, when imports shrank 4% and exports contracted by over 17%.

China trade data in yuan terms only, via Reuters

March:
Exports -3.5% y/y
Imports +2.4% y/y
Trade balance +130 bln yuan (RTRS calculation)

Q1:
Exports -11.4% y/y
Imports -0.7% y/y
Trade surplus 98.33 bln yuan

No USD numbers yet

Asian equities kicked off the week on a mostly positive note on the back of encouraging trade data in China. Chinese exports fell 6.6% in March versus a 14% slump expected by analysts and a 17.2% decline recorded a month earlier. Imports retreated 0.9% y-o-y during the same month versus -9.5% penciled in and -4.0% printed a month earlier.

The Chinese trade surplus rose to $19 billion in March, up from $ -7.09 billion printed in February. Due Friday, the Chinese GDP should however confirm a 6% drop in the first quarter. But for now, the market mood seems to hold.

7.28am BST

Good morning, and welcome to our rolling coverage of the world economy, the financial markets, the eurozone and business.

After a refreshing break for Easter, stock markets are resuming their recovery - despite plenty of evidence that the global economy is being dragged into a deep recession by Covid-19.

European Opening Calls:#FTSE 5939 +1.64%#DAX 10773 +1.97%#CAC 4565 +1.29%#AEX 512 +0.86%#MIB 17993 +2.11%#IBEX 7147 +1.07%#OMX 1542 +2.87%#STOXX 2938 +1.56%#IGOpeningCall

For markets, it's a matter of financial conditions over fundamentals at the moment. The Fed's moves last week to open up its credit lines to a broader range of borrowers, and deepen the amount of credit it extends, has eased credit risk in the market.

Recovering from this acute period in the outbreak is just the beginning and not the end. We believe the path to re-opening the economy is going to be long. It will require turning on and off various forms of social distancing and will only come to an end when vaccines are available, in the spring of 2021 at the earliest.

Morgan Stanley: "While we understand the desire for optimism, we also caution that the US outbreak is far from over. Recovering from this acute period in the outbreak is just the beginning and not the end. We believe the path to re-opening the economy is going to be long." pic.twitter.com/dnrcTS89SV

This is from Matthew Harrison, head of biotech research at Morgan Stanley. pic.twitter.com/GeTFoM57pM

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