Sobering Economic Data From Europe, Asia Dash Hopes for Swift Recovery
Date: Wednesday, July 15, 2020
Source: The Wall Street Journal
A brutal second-quarter contraction in Singapore and a feeble recovery in the U.K. give an early look at the tough climb facing the world economy
Early data from Europe and Asia suggest the recovery from the economic crisis precipitated by the coronavirus pandemic could take longer than originally hoped, with countries facing a long slog to recover lost jobs and income.
The U.K. economy expanded just 1.8% in May compared with April, a month that saw the country’s deepest contraction on record, according to figures published Tuesday. The rebound was feebler than economists had predicted and output in Britain remains around a quarter below the level it had reached in February.
Singapore—among the first countries to report second-quarter gross domestic product figures—estimated its economy shrank in the period by an annualized 41.2%. While Singapore has been lauded for public-health policies that have largely contained infections, its economy nonetheless suffered from the collapse in global trade.
China, Germany and the U.S. are due to report second-quarter GDP figures later this month. Economists are expecting a string of poor results as widespread restrictions on work and daily life hammered global activity and trade.
“Lockdowns hurt,” said Kallum Pickering, senior economist at Berenberg Bank in London.
Economists say the second quarter should represent the trough of the downturn as lockdowns ease world-wide. But with the virus far from defeated, the outlook for the global economy is uncertain and fragile, with questions looming especially over the U.S., where a sharp rise in new infections is endangering the country’s fledging recovery.
The Organization for Economic Cooperation and Development said this month it expects the global economy to shrink 6% this year—or almost 8% if a resurgence in infections prompts governments to once again button down their economies.
“We expect recovery to be a slow and uneven journey,” said Singapore Minister of Trade and Industry Chan Chun Sing.
In May, the U.K. government began lifting some of the restrictions on economic activity it had imposed at the height of the outbreak.
Manufacturing activity expanded as some factories resumed operations and construction activity also perked up. But the services sector grew only slightly, figures show, as most stores, restaurants, bars, hotels and theaters remained closed.
The U.K.’s small May expansion was much weaker than the 5% rebound on the month that economists polled by The Wall Street Journal had been expecting. Some surveys and indicators such as mobile phone data had pointed to a quicker recovery.
Sterling edged lower following the release of the data, down 0.3% against the U.S. dollar and 0.2% against the euro. The yield on the 10-year U.K. government bond fell to 0.161% from 0.189% on Monday.
The U.K. has reported more cases of coronavirus infection and more deaths linked to Covid-19, the disease caused by the virus, than any other country in Europe. Almost 300,000 infections have been detected and almost 45,000 fatalities recorded.
May’s data reinforce expectations the U.K. is likely to suffer one of the worst economic hits as well. The OECD said the country is on course to shrink 11.5% in 2020, the biggest fall it anticipates among advanced economies.
Singapore’s annualized 41.2% contraction in the second-quarter was the worst on record for the country. Annualized growth figures extrapolate what would happen over a full year if the economy grew or contracted at the same rate as in the quarter being measured. The economy finished the second quarter 12.6% smaller than it was at the end of the same period a year earlier, estimates showed.
Singapore residents were required to stay home for most of April and all of May, causing retail spending to slump, and strict border controls have kept tourists away. Construction activity came to a halt after outbreaks of Covid-19 were reported in dormitories that house migrant workers who provide much of the sector’s manpower.
The dire economic numbers come a few days after the Southeast Asian country’s national elections in which the ruling party kept its decadeslong hold on power but lost a record number of seats to the opposition.
Singapore has confirmed more than 46,000 cases of Covid-19, the highest rate per capita in Southeast Asia, in part due to its extensive testing. Free, high-quality health care has helped keep fatalities low; the city-state has reported 26 deaths from the virus.
The official death toll world-wide, which disease experts say likely underestimates the true cost of the pandemic, neared 575,000 Monday, according to data compiled by Johns Hopkins University. More than 13 million people are known to have been infected.