At 8 o’clock last Thursday, the UK ‘Clapped for Carers’ for possibly the last time.
The weekly applause started as a way of acknowledging the sacrifices made by front-line workers. But it has come to mean more than that. It has reconnected us with our neighbours, and brought cohesion to communities that, before the crisis, rarely interacted. It has brought together a nation which, for the last four years, has been bitterly divided.
But all good things come to an end. The gesture has become too politicised, Annemarie Plas, the woman behind the idea, said last week. Meaningful recognition of our frontline workers must come from inside parliament, not the pavement outside Downing Street.
Plas isn’t the only one to fear the influence of politics: global markets ended a fortnight-long rally on Friday after tensions between the US and China came to the fore.
A rally in industrial and energy stocks at the start of last week excited investors. The Dow Jones closed above 25,000 points for the first time since early March, logging the largest two-day advance in a month. The resurgence of cyclical stocks – which are more economically sensitive than defensive sectors such as healthcare and technology – suggested that the economy may have turned a corner.
However, indices turned red on Friday after the US reacted to China’s enforcement of a national security bill against Hong Kong. In a press conference on Friday, President Trump announced that the US considered Hong Kong to be ‘no longer autonomous’. However, he stopped short of declaring any specific measures against China: markets breathed a sigh of relief, ending the week relatively stable.
Since March, the greatest threat to economic recovery has been a second wave of the coronavirus. But with geopolitical tensions now in the mix, uncertainty is coming from multiple sources. Forecasting the shape of recovery is becoming increasingly difficult and complex.
Latin America became the new epicentre of the virus on Wednesday: the region now accounts for 40% of daily deaths globally, and Brazil, whose management of the virus sparked controversy, has more cases than any country except the US.
“The implications for the virus in Latin America are broad, encompassing healthcare shortages, economic challenges, and tragic humanitarian consequences,” said Edward Robertson, from Somerset Capital Management, managers of the St. James’s Place Global Emerging Markets fund. “Government responses have been wide-ranging, and different stances on testing and quarantine are resulting in a varying ability to control the rate of infection. The challenge governments now face is whether to open up the economy to stave off rising poverty and unemployment or maintain lockdown.” The MSCI Emerging Markets Latin America index has plateaued, remaining close to its mid-March low.
On Tuesday, the European Commission proposed a recovery package worth €750 billion. The package, which requires unanimous approval from EU member states, has considerable ramifications. It significantly increases economic integration in the European Union: the money will be taken as common debt, and issued to the regions and industries in the EU that have been hit hardest by the virus, and repaid through EU-wide taxes over the next 30 years. The package signifies a mutualisation of European debt that takes the bloc closer to something like a federal union.
“This proposal confirms that the EU is moving towards a substantial common fiscal response to the pandemic,” said John Higgins, economist at Capital Economics. Member states will debate the package in the middle of June, but pushback that could challenge the level and scope of economic integration is expected from Austria, Denmark, the Netherlands and Sweden – otherwise known as the ‘Frugal Four’.
The announcement lifted sentiment in eurozone markets: bonds from southern Europe’s debt-laden countries rallied in response, and equities lifted too.
“We have seen European stock markets rebound from the lows of March as monetary and fiscal stimulus has come in the matter of weeks since COVID-19 hit the headlines,” said Ken Hsia from Ninety One, manager of the St. James’s Place Continental European fund. “This compares to investors having to wait for months during the global financial crisis, showing that policymakers have learnt from the past.”
In England from today, children of some year groups will return to school, groups of six can gather outside, and some non-essential businesses will start to reopen.
The pickup in business activity may give the economy chance to offset some damage that has occurred in the second quarter of the year, when lockdown measures have been at their most intense. According to the Office for National Statistics, 24% of businesses are to restart trading in June, with 31% to open from July onwards.
However, reopening is only one side of the story. Businesses are relying on a rise in footfall and consumer spending to start turning a profit again. After three months in lockdown, one might presume that most people have been frugal during lockdown. But research from Capital Economics suggests that households have been saving less, not more. “There may not be much pent up demand, which would be another reason to think that the economy will only recover slowly,” warned economist Andrew Wishart.
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