27-04-20
From George Lucas, Raiz CEO
Economic impacts of COVID-19 becoming clearer
The world remains gripped by the COVID-19 crisis as the economic impact of government lockdowns globally are becoming clearer. Equity markets, which look 12 to 18 months ahead, are currently anticipating a swift recovery, while the economic data illustrates the significant impact to global unemployment and growth in the last few months.
GDP in China fell by 6.8 per cent year-on-year in the first quarter of 2020 — the first quarterly contraction since records began there in 1992. On a sector-by-sector basis, hospitality, retail and construction contracted at a double-digit pace, while IT and finance continued to grow.
In the US, a negative sign for the global superpower’s economy was the market price of WTI crude oil, which turned negative last week for the first time in history. This was caused by very weak demand and nowhere to store the excess oil.
Employment around the world falls
On the jobs front in the US, there was a further decline in initial US jobless claims to 4,427,000 last week. The data is consistent with the official jobless rate nearing 20 per cent in April. The jobs data coming out of the US is consistent with GDP declining at a 12 per cent annualised pace.
In Australia, the unemployment rate will likely jump as a result of job losses due to COVID-19 lockdown. However, the federal government’s JobKeeper program will muddy the official jobless rate in Australia, which Treasury forecasts may nearly double from 5.1 per cent to 10 per cent by June.
While the jobs market is deteriorating, panic buying of groceries and toilet paper in Australia resulted in a massive 8.2 per cent month-on-month jump in retail sales in March.
In Germany, the IFO Business Climate Index fell to a record low in April, pointing to a very sharp drop in GDP. The German economy will hold up a little better than the eurozone average this year, but it still looks set to contract by about 8 per cent over the year.
Looking forward
The equity markets have priced in the recent bad economic data well, rallying significantly off their lows. The rate of recovery in the global economy will be closely watched by the markets as restrictions are slowly removed.
The equity markets may be able to continue to rally if the global economy’s recovery is swift enough to satisfy the market. However, for the next few months expect to see economic data which is exceptionally poor.
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