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Business

China factory activity unexpectedly expands, but economy cannot shake off virus shock

BEIJING (Reuters) – Factory activity in China unexpectedly expanded in March from a collapse the month before, but analysts caution that a durable near-term recovery is far from assured as the global coronavirus crisis knocks foreign demand and threatens a steep economic slump.

China’s official Purchasing Managers’ Index (PMI) rose to 52 in March from a plunge to a record low of 35.7 in February, the National Bureau of Statistics (NBS) said on Tuesday, above the 50-point mark that separates monthly growth from contraction.

Analysts polled by Reuters had expected the March PMI to come in at 45.0.

The NBS attributed the surprise rebound in PMI to its record low base in February and cautioned that the readings do not signal a stabilization in economic activity.

That view was echoed by many analysts, who warn of a further period of struggle for China’s businesses and the broader economy due to the rapid spread of the virus across the world, the unprecedented lockdowns in several countries and the almost near certainty of a global recession.

“This does not mean that output is now back to its pre-virus trend. Instead, it simply suggests that economic activity improved modestly relative to February’s dismal showing, but remains well below pre-virus levels,” said Julian Evans-Pritchard, senior China economist at Capital Economics, in a note to clients.

The pandemic’s sweeping impact on production was underlined in two of Asia’s main export engines, Japan and South Korea. In Japan, industrial out rose at a slower pace in February and factories expect a plunge this month, while production in South Korea contracted the most in 11 years.

Economists are already forecasting a steep contraction in China’s first quarter gross domestic product, with some expecting a year-year slump of 9% or more – the first such contraction in three decades.

Nie Wen, economist at Shanghai-based Hwabao Trust, said given weak export orders, rising stockpile and soft prices, the underlying issue facing Chinese manufacturers has shifted to a lack of market demand, from production shutdowns forced by Chinese authorities.

The survey’s sub-index of manufacturing production picked up to 54.1 in March from February’s 27.8, but new export orders received by Chinese manufacturers were still mired in contraction, after ticking up to 46.4 from 28.7 in February.

Manufacturers are still facing big operational pressures, the survey showed, with over half of the respondents reporting a lack of market demand and 42% reporting financing issues, both up from the previous month.

“The biggest problem facing China’s economy in the second quarter is the slumping foreign demand,” said Nie, adding that authorities may roll out more policies on top of the billions of dollars pumped into the financial system since February to boost domestic consumption and tide over the shrinking overseas demand.

Markets reacted positively to the PMI survey, with Asian stock rising as investors seemed relieved by the rare good news as the pandemic showed few signs of abating.

China’s yuan, however, barely budged, reflecting analysts’ views that a sustainable bounce in manufacturing looked some way off despite a slowdown in China’s coronavirus infections from its peak in February.

GRIM OUTLOOK

Beijing, at great costs to the economy, had imposed draconian quarantine rules and travel restrictions to curb the pandemic that has killed more than 3,000 in the country.

While life for millions of people has started to slowly return to normal, the pace of business resumptions has been constrained by China’s efforts to guard against a second wave of infections from abroad.

The coronavirus, which originated late last year in China, has wreaked havoc along global supply chains and severely hurt foreign demand amid tight lockdowns in Europe, the United States and a number of other key economies where daily life has ground to a halt.

Already, Chinese exporters are seeing overseas orders being scrapped as the worldwide spike in coronavirus infections and deaths has forced many of the nation’s trading partners to slow or suspend production. Globally the outbreak has claimed the lives of over 37,000 people with more than 770,000 infections.

China should not set an economic growth target this year given the heightened uncertainty and avoid having to resort to “flood-like stimulus” to meet the goal, a central bank adviser said.

The service sector, which accounts for 60% of China’s GDP, also saw an expansion in activity, with the official non-manufacturing PMI rising to 52.3 from 29.6 in February, a separate NBS survey showed.

Analysts warn the outbreak could have a lingering impact despite the government loosening restrictions in recent weeks, as many people remain worried about the possibility of new infections or fretting about job security and potential cuts to wages as the economy struggles.

China’s urban jobless rate hit 6.2% in February, up one percentage point from the end of 2019, with analysts estimating about 5 million jobs lost in January-February period.

“The situation remains volatile as the trajectory of the COVID-19 virus outbreak in several key economies is still unpredictable,” ANZ analysts said in a note.

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Business

China factory activity unexpectedly expands, but economy unable to shake off virus shock

BEIJING (Reuters) – Factory activity in China unexpectedly expanded in March from a collapse the month before, but analysts caution that a durable near-term recovery is far from assured as the global coronavirus crisis knocks foreign demand and threatens a steep economic slump.

China’s official Purchasing Managers’ Index (PMI) rose to 52 in March from a plunge to a record low of 35.7 in February, the National Bureau of Statistics (NBS) said on Tuesday, above the 50-point mark that separates monthly growth from contraction.

Analysts polled by Reuters had expected the March PMI to come in at 45.0.

The NBS attributed the surprise rebound in PMI to its record low base in February and cautioned that the readings do not signal a stabilization in economic activity.

That view was echoed by many analysts, who warn of a further period of struggle for China’s businesses and the broader economy due to the rapid spread of the virus across the world, the unprecedented lockdowns in several countries and the almost near certainty of a global recession.

“This does not mean that output is now back to its pre-virus trend. Instead, it simply suggests that economic activity improved modestly relative to February’s dismal showing, but remains well below pre-virus levels,” said Julian Evans-Pritchard, senior China economist at Capital Economics, in a note to clients.

Economists are already forecasting a steep contraction in China’s first quarter gross domestic product, with some expecting a year-year slump of 9% or more – the first such contraction in three decades.

Nie Wen, economist at Shanghai-based Hwabao Trust, said given weak export orders, rising stockpile and soft prices, the underlying issue facing Chinese manufacturers has shifted to a lack of market demand, from production shutdowns forced by Chinese authorities.

The survey’s sub-index of manufacturing production picked up to 54.1 in March from February’s 27.8, but new export orders received by Chinese manufacturers were still mired in contraction, after ticking up to 46.4 from 28.7 in February.

Manufacturers are still facing big operational pressures, the survey showed, with over half of the respondents reporting a lack of market demand and 42% reporting financing issues, both up from the previous month.

“The biggest problem facing China’s economy in the second quarter is the slumping foreign demand,” said Nie, adding that authorities may roll out more policies on top of the billions of dollars pumped into the financial system since February to boost domestic consumption and tide over the shrinking overseas demand.

Markets reacted positively to the PMI survey, with Asian stock rising as investors seemed relieved by the rare good news as the pandemic showed few signs of abating.

China’s yuan, however, didn’t budge, reflecting analysts’ broad views that a sustainable bounce in manufacturing activity looked some way off despite a slowdown in China’s coronavirus infections from its peak in February.

Beijing, at great costs to the economy, had imposed draconian quarantine rules and travel restrictions to curb the pandemic that has killed more than 3,000 in the country. But as locally transmitted infections dwindle, most businesses have reopened and life for millions of people has started to slowly return to normal.

Yet, the pace of business resumptions has been constrained by China’s efforts to guard against a second wave of infections from abroad.

GRIM OUTLOOK

The coronavirus, which originated late last year in China, has wreaked havoc along global supply chains and severely hurt foreign demand amid tight lockdowns in Europe, the United States and a number of other key economies where daily life has ground to a halt.

Already, Chinese exporters are seeing overseas orders being scrapped as the worldwide spike in coronavirus infections and deaths has forced many of the nation’s trading partners to slow or suspend production. Globally the outbreak has claimed the lives of over 37,000 people with more than 770,000 infections.

China should not set an economic growth target this year given the high level of uncertainty from the coronavirus pandemic and avoid having to resort to “flood-like stimulus” to meet the goal, a central bank adviser said.

China’s service sector activity also expanded, with official non-manufacturing PMI coming in at 52.3, from 29.6 in February, a separate NBS survey showed.

The service sector now makes up a larger share of China’s economy than at the time of the 2002/03 SARS coronavirus epidemic, accounting for about 60% of the country’s Gross Domestic Product (GDP).

Analysts warn the outbreak could have a lingering impact despite the government loosening restrictions in recent weeks, as many people remain worried about the possibility of new infections or fretting about job security and potential cuts to wages as the economy struggles.

China’s urban jobless rate hit 6.2% in February, up one percentage point from the end of 2019, with analysts estimating about 5 million jobs lost in January-February period.

“The situation remains volatile as the trajectory of the COVID-19 virus outbreak in several key economies is still unpredictable,” ANZ analysts said in a note.

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Economy

South Africa's treasury announces tax relief for business hit by coronavirus

JOHANNESBURG, March 29 (Reuters) – South Africa’s National Treasury said on Sunday it was introducing a new tax subsidy of 500 rand ($28) per month to employers for the next four months to cushion financial losses suffered by firms due to the coronavirus.

In a statement the treasury said it would also permit businesses with revenue of 50 million rand or less to delay paying 20% of their employees’ tax liabilities over the next four months.

The measures would take effect on April 1, the treasury said in a statement. ($1 = 17.6250 rand) (Reporting by Mfuneko Toyana, editing by Louise Heavens)

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Business

U.S. consumer sentiment near three-and-a-half-year low, spending tepid

WASHINGTON (Reuters) – U.S. consumer sentiment dropped to near a 3-1/2-year low in March as the coronavirus epidemic upended life for Americans, and consumer spending was sluggish in February, strengthening economists’ expectations of a deep recession.

The reports on Friday followed on the heels of data on Thursday that showed the number of Americans filing for unemployment benefits rocketed to a record 3.28 million last week, eclipsing the previous record of 695,000 set in 1982.

The highly contagious virus, which causes a respiratory illness called COVID-19, is wreaking havoc on the economy, prompting the Federal Reserve to take extraordinary measures and the U.S. Congress to assemble a record $2 trillion stimulus. Economists say the economy is already in recession.

“People are struggling to understand the magnitude and duration of the economic shock from COVID-19,” said Chris Low, chief economist at FHN Financial in New York. “Job losses are the most vivid demonstration of the new reality. As the reality sinks in, confidence is likely to fall into the mid-50s by May.”

The University of Michigan’s Consumer Sentiment Index fell to a reading of 89.1 this month, the lowest level since October 2016, from a final reading of 101.0 in February. It was the largest monthly drop in the index since October 2008, during the height of the financial crisis.

Economists polled by Reuters had forecast sentiment would drop to a final reading of 90.0 this month.

A measure of consumers’ perceptions of current economic conditions dropped to 103.7 this month from a reading of 114.8 in February. The survey’s gauge of consumer expectations tumbled to reading of 79.7 from 92.1 in February.

“Stabilizing confidence at its month’s-end level will be difficult given surging unemployment and falling household incomes,” Richard Curtin, chief economist for the Surveys of Consumers. “The extent of additional declines in April will depend on the success in curtailing the spread of the virus and how quickly households receive funds to relieve their financial hardships.”

In a separate report on Friday, the Commerce Department said consumer spending, which accounts for more than two-thirds of U.S. economic activity, increased 0.2% last month as households spent more on electricity and gas, offsetting decreases in outlays on motor vehicles and parts as well as recreational goods. Last month’s increase matched the gain in January and was in line with economists’ expectations.

The United States now has the most coronavirus cases in the world, with more than 85,000. Governors in more than half of the nation’s 50 states have ordered residents to stay mostly indoors, affecting over 100 million people.

Restaurants and bars have been shuttered, and airline travel severely curtailed, which economists say will greatly offset any boost to consumer spending from grocery purchases following a wave of panic buying as Americans prepared to hunker down.

When adjusted for inflation, consumer spending edged up 0.1% for a third straight month in February.

U.S. stocks were trading lower as investors’ focus shifted from the stimulus efforts to the damaging toll the coronavirus is inflicting on the economy. The dollar .DXY fell against a basket of currencies. Prices of U.S. Treasuries were trading mostly higher.

MILLIONS UNEMPLOYED

With “social distancing” measures to contain the virus throwing millions out of work and severely curtailing discretionary spending, economists are predicting a moderate decline in consumer spending in the first quarter, which would give way to a sharper contraction in the second quarter.

“Social distancing measures taken in response to the fast-spreading coronavirus along with extreme financial market volatility will take a severe toll on the main engine of economic growth,” said Lydia Boussour, a senior U.S. economist at Oxford Economics in New York.

Consumer spending grew at an annualized rate of 1.8% in the fourth quarter, slowing from the brisk 3.2% pace logged in the July-September period.

Labor market strength, which was driving a steady pace of wage growth, was the economy’s main pillar of support. In February, personal income increased 0.6%, matching January’s rise. Income was boosted by higher wages and government payments to farmers caught in the 20-month long U.S.-China trade war.

Wages advanced 0.5% last month. Income, excluding government subsidies, will be closely watched for clues on the magnitude of the anticipated economic downturn.

Income is one of the four monthly indicators tracked by the National Bureau of Economic Research, the prestigious private research institute that is regarded as the arbiter of U.S. recessions. The NBER does not define a recession as two consecutive quarters of decline in real gross domestic product, as is the rule of thumb in many countries.

Instead, it looks for a decline in economic activity, spread across the economy and lasting more than a few months.

“The current crisis means change is afoot,” said Tim Quinlan, a senior economist at Wells Fargo Securities in Charlotte, North Carolina. “A record-shattering increase in jobless claims suggests that transfer payments will likely be the only facet of income rising in the months ahead.”

With income growth outpacing spending, savings increased to $1.38 trillion in February, the highest in a year, from $1.32 trillion in January.

Inflation remained moderate in February. Consumer prices as measured by the personal consumption expenditures (PCE) price index excluding the volatile food and energy components rose 0.2% for a third straight month in February. That lifted the annual increase in the so-called core PCE price index to 1.8% in February, the biggest gain since August, from 1.7% in January.

The core PCE index is the Fed’s preferred inflation measure. It missed the central bank’s 2% target in 2019.

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World News

US Senate unanimously passes TRILLION dollar coronavirus package

The bill passed by a vote of 96 to 0, showing unanimous bipartisan support for the bill.

The vote ends days of deadlock and debate over provisions for American people and businesses

It’s now sent to the House Of Representatives for the next stage of debate.

The emergency legislation is the largest economic relief bill in US history.

The package is expected to provide one-time direct payments to Americans of $1,200 per adult making up to $75,000 a year.

The payments extend to $2,400 to a married couple making up to $150,000, with $500 payments per child. 

The benefit is reduced by $5 for each $100 the taxpayer makes, assisting poorer workers.

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The legislation is the product of crisis compromise between a bitterly divided political system in America.

House Speaker Nancy Pelosi has said that the House of Representatives vote will be “a good debate on the floor.”

Speaking to CNN’s Wolf Blitzer on Wednesday about fears the bill doesn’t go far enough, she said: What is important is for us to recognize the good that is in the bill, appreciate it for what it does. Don’t judge it for what it doesn’t because we have more bills to come,

“At the start of all this we had two bills, which were about emergencies … and the emergency isn’t over, but the focus was on those two bills. Now we’re mitigating for the damage of it all to the health and to the livelihood of the American people,

She added: “That is in this bill. And then we will go forward for recovery. Emergency, mitigation, recovery.

”And again all along the way still addressing the emergency and mitigation needs by focusing on how we build the economy in a positive way as we meet the health needs of the American people.”

She has said she’s “very pleased (…) congressional Democrats were able to turn upside down the bill that was presented at the beginning of the weekend.

“It was a trickle-down, corporate bill. It is now a bubble-up, workers bill and we’re very proud of that.”

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The package is intended as relief for an economy falling fast into recession.

This comes along with America facing a devastating toll from an infection that’s killed nearly 20,000 people worldwide.

Treasury Secretary Steven Mnuchin is reticent to allow the unprecedented aid to continue for too long, as the bill costs half the annual federal budget.

He said: “We’ve anticipated three months. Hopefully, we won’t need this for three months.”

The US currently has 64’180 cases of Coronavirus based on available testing.

As of Thursday, 897 have died after contracting the virus.

New York remains the most afflicted state, with its dense population leading to over 30’000 cases.

Michigan, California and Washington are all around the 2’500 mark, as the pandemic rages across the US.

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Business

Mexican referendum rejects U.S. Modelo brewer in new investment blow

MEXICO CITY (Reuters) – Residents of a Mexican city on the U.S. border voted against completing a billion-dollar brewery being built by Constellation Brands Inc, the government said Monday, dealing a fresh blow to investor confidence under President Andres Manuel Lopez Obrador.

Lopez Obrador, a leftist, backed the weekend vote in the city of Mexicali on the brewery, which opponents said poses a threat to the local water supply in the desert region. The New York state-based company has repeatedly denied that is the case.

The rejection of the plant, started under the previous government as one of the biggest foreign investments of recent years, has raised more questions about how reliable contractual agreements in Mexico have become under Lopez Obrador.

“They have to respect the decision of the people. I think (the company) will understand when there’s a result like this one,” Lopez Obrador told a regular morning news conference.

The vote follows the demise of a $13 billion Mexico City airport, a partly built project that Lopez Obrador scrapped in October 2018 a few weeks before taking office.

Both cancellations were the result of referendums he had pitched as exercises in local control. Both had low turnouts.

Constellation did not reply to a request for comment. The U.S.-based company previously said it would consider other locations if Mexico became problematic.

Constellation’s shares tumbled 12% on Monday to close just above $105, down from a previous high of $208 on Feb. 20.

Only 36,520 people in Mexicali, a city of 1 million, cast valid votes. Over three-quarters rejected the brewery because they did not want water used for “these types of industries.”

That meant only about 4.6% of Mexicali’s electorate participated, according to employers’ confederation Coparmex, which slammed the process.

“President Lopez Obrador is destroying Mexico,” Coparmex said in a tweet.

Lopez Obrador said his support for the result of the local referendum did not mean his government opposed foreign private investment. He said he planned to discuss an alternative site for the brewery with Constellation (STZ.N).

The results came as the Mexican peso hit a new low, trading at 25 pesos per dollar for the first time ever.

“That may be due to a larger perception of risk in Mexico” connected to the referendum, said Gabriela Siller, head of economic analysis for Mexico City-based Banco Base.

Several Mexican business lobbies blasted the vote, saying it would generate uncertainty and hurt investment at a time when Mexico’s economy is weak and at risk from the coronavirus pandemic.

Only about 1% of Mexico’s electorate participated in the public consultation on the fate of the Mexico City airport.

Constellation, which brews Modelo, Corona and other Mexican beers for export to mostly American drinkers, has countered that the brewery would affect less than 1% of local water supplies, and that the plant had all the requisite permits.

A Mexican government official said under Chapter 14 of the newly ratified United States-Mexico-Canada Agreement, the cancellation could be considered an indirect expropriation if the U.S. government wanted to pursue the matter.

“Surely the U.S. government is directly talking to the Mexican foreign ministry about this,” the person said, speaking on condition of anonymity due to the sensitivity of the matter.

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World News

Donald Trump hints US economy may reopen despite deadly Coronavirus spread

The President wants the stock markets to start trading again after he was said to be privately concerned about the effects the pandemic will have.

In a series of tweets, he announced his intentions to urge markets to resume business as usual.

He posted on Sunday night: “We cannot let the cure be worse than the problem itself.

“At the end of the 15 day period, we will make a decision as to which way we want to go.”

The Washington Post claims that Trump has been seeking advice on whether the restrictions put in place because of the virus should be scaled back.

The effects of the closures has led to unemployment rates skyrocketing in the states.

Presidential advisers are starting to push Trump to bring back normality and send workers back to their jobs after the 15 day period.

The President wants the stock markets to start trading again after he was said to be privately concerned about the effects the pandemic will have.

In a series of tweets, he announced his intentions to urge markets to resume business as usual.

He posted on Sunday night: “We cannot let the cure be worse than the problem itself.

“At the end of the 15 day period, we will make a decision as to which way we want to go.”

The Washington Post claims that Trump has been seeking advice on whether the restrictions put in place because of the virus should be scaled back.

The effects of the closures has led to unemployment rates skyrocketing in the states.

Presidential advisers are starting to push Trump to bring back normality and send workers back to their jobs after the 15 day period.

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Stocks have plummeted since the outbreak of Coronavirus in the United States.

The Dow Jones Industrial Average dropped 38 percent after hitting an all time high last month.

The index lost 538 points on Monday over a lack of knowledge over Trump’s coronavirus bill.

This has wiped out any gains that the President made since he was elected in 2016.

Trump’s urges to the market contradict the US Surgeon General’s warnings of the pandemic escalating.

Dr Jerome Adams said on Monday morning: “I want America to understand – this week, it’s going to get bad,

This is how the spread is occurring. So we really, really need everyone to stay at home,

“I think that there are a lot of people who are doing the right things, but I think that unfortunately we’re finding out a lot of people think this can’t happen to them.”

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Senator Lindsey Graham has gone against the President’s stance in public.

He tweeted: “When it comes to how to fight #CoronavirusPandemic, I’m making my decisions based on healthcare professionals like Dr. Fauci and others, not political punditry.

“There is no functioning economy unless we control the virus.”

The senator was elected Chair of the Senate Judiciary Committee on January 3rd 2019.

US Economists warn the pandemic could lead to economic devastation worse than any for decades.

Jason Furman, economic adviser to President Obama, said: “There is a real danger that the economic crisis that comes out of this health crisis is worse than what we expected in 2008.”

The US currently has 43,651 cases of Coronavirus based on available testing.

At least 545 have died after contracting the virus, while only 295 recovered.

READ MORE

  • Trump row ERUPTS as senate fails to move forward with coronavirus bill

Stocks have plummeted since the outbreak of Coronavirus in the United States.

The Dow Jones Industrial Average dropped 38 percent after hitting an all time high last month.

The index lost 538 points on Monday over a lack of knowledge over Trump’s coronavirus bill.

This has wiped out any gains that the President made since he was elected in 2016.

Trump’s urges to the market contradict the US Surgeon General’s warnings of the pandemic escalating.

Dr Jerome Adams said on Monday morning: “I want America to understand – this week, it’s going to get bad,

This is how the spread is occurring. So we really, really need everyone to stay at home,

“I think that there are a lot of people who are doing the right things, but I think that unfortunately we’re finding out a lot of people think this can’t happen to them.”

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READ MORE

  • Merkel nightmare as economist says coronavirus will cost BILLIONS

Senator Lindsey Graham has gone against the President’s stance in public.

He tweeted: “When it comes to how to fight #CoronavirusPandemic, I’m making my decisions based on healthcare professionals like Dr. Fauci and others, not political punditry.

“There is no functioning economy unless we control the virus.”

The senator was elected Chair of the Senate Judiciary Committee on January 3rd 2019.

US Economists warn the pandemic could lead to economic devastation worse than any for decades.

Jason Furman, economic adviser to President Obama, said: “There is a real danger that the economic crisis that comes out of this health crisis is worse than what we expected in 2008.”

The US currently has 43,651 cases of Coronavirus based on available testing.

At least 545 have died after contracting the virus, while only 295 recovered.

Source: Read Full Article

Categories
World News

Merkel nightmare as economist warns coronavirus will cost Germany BILLIONS

Clement Fuest, President of the world-renowned Munich based think tank the Ifo Institute for Economic Research, offered his gloomy prognosis the day after Mrs Merkel introduced tough new lockdown restrictions, including a ban on meetings of more than two people except for families. Out of more than 330,000 COVID-19 cases worldwide, Germany currently has 24,774 according to the latest World Health Organization figures published today, a rise of 3,311 on the day before, with 94 deaths. In a report published on Monday, the Ifo said the pandemic would inflict hundreds of billions of euros’ worth of damage in the form of lost productivity, resulting in skyrocketing unemployment, and imposing massive strains on the state budget.

The costs are expected to exceed everything known in Germany from economic crises or natural disasters in recent decades

Clement Fuest

He said: “The costs are expected to exceed everything known in Germany from economic crises or natural disasters in recent decades.”

Mr Fuest added: “It is therefore worthwhile to use almost every conceivable amount for health policy measures.

“The goal must be to shorten the partial closure of the economy without compromising the fight against the epidemic.

“Strategies are needed that can link production resumption with further containment of the epidemic.”

He explained: “If the economy comes to a standstill for two months, costs can range from €255 to €495billion depending on the scenario.

“Economic output then shrinks by 7.2 to 11.2 percentage points in the year.”

The best case scenario assumed economic output would decline to 59.6 percent for two months, recover to 79.8 percent in the third month and finally reach 100 percent in the fourth month, the report argues.

Mr Fuest said: “With three months of partial closure, the costs already reach €354 to €729billion, which is a 10.0 to 20.6 percentage point loss in growth.”

Ifo calculations suggest a single week’s extension of the lockdown will cause additional costs of between €25 and €57 billion and therefore a decrease in growth of 0.7 to 1.6 percentage points.

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Therefore an extension from one to two months pushes costs up by up to to 230 billion euros, or 6.5 percentage points of growth.

Mr Fuest added: “The crisis also leads to massive upheavals on the job market.

“These dwarf the situation at the height of the financial crisis.”

In the various scenarios considered by the Ifo, up to 1.4 million full-time jobs could be lost.

Without taking into account extensive planned guarantees and potential Europe-wide rescue packages, public budgets will be burdened by an additional 200 billion euros.

Mr Fuest said: “For overall economic stabilisation, however, the reduced income from taxes and additional expenditure, especially for transfers, are desirable and necessary.”

Speaking last week Mrs Merkel, who it was today confirmed had tested negative for COVID-19, said during a live broadcast to the nation: “The situation is serious. Take it seriously.

“Since German unification, no, since the Second World War, there has been no challenge to our nation that has demanded such a degree of common and united action.

“I truly believe that we will succeed in the task before us, so long as all the citizens of this country understand that it is also THEIR task.

“I also want to tell you why we also need YOUR contribution and what each and every person can do to help.”

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World News

Coronavirus EU: Italy’s plight shows bloc can’t cope, says expert ‘Good times only system’

Barney Reynolds, a partner at Shearman and Sterling LLP, was talking after Italy’s Prime Minister welcomed the European Central Bank’s announcement of a £680billion (750billion euros) bond buying stimulus package intended to help economies struggling to cope in the face of the outbreak, which has hit his country harder than anywhere in Europe. The scheme will inject cash into the system by buying extra government and corporate bonds until the end of the year at the earliest. However, Mr Reynolds, co-author of a paper published last month, Managing Euro Risk, told Express.co.uk he saw huge drawbacks.

None of the EU27 had agreed politically to integrate the eurozone, with the massive resultant risk to both themselves and the rest of the world, as outlined in his paper, Mr Reynolds explained.

He added: “Italy has a huge problem with non-performing loans (NPLs) and the lack of a market and appetite for its government bonds, the latter being key to it raising money to cover the costs of its state.

“There’s no eurozone or EU funding.”

As a result, Italy wanted the ECB to buy up its NPLs, Mr Reynolds said, which in itself would mean the ECB exchanging them for cash.

The consequence of such a move would be vast amount euros ploughed into the country’s financial system, adding up to hyperinflation when the market starts to recover, unless there was a way to get the cash out of the system again at that point.

Additionally, the banks were likely to be highly reluctant to buy back NPLs, meaning the ECB would not be able to offload them back again and would lack an obvious route to retrieve the money from the system.

Mr Reynolds said Italy was also wanting the ECB to buy its government bonds in order to enable it to issue debt into the eurosystem.

He added: “As a result of this the eurosystem is mutualising the risk exposure of each member state to the others, and achieving the mutualisation of debts covertly.

“I wonder whether Italian citizens know they’re so exposed to German government debt, or vice versa, and whether they’d sign up to this.”

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As for Schengen, which has been rendered all but unworkable in recent days with numerous countries imposing bans on visitors from outside the country, Mr Reynolds added: “The temporary dissolution of Schengen shows that when the chips are down national barriers go back up.

“So it’s a “good times only” system.

“That’s sort of okay for free movement, but in the context of money it isn’t at all okay.

“What it means is we can’t work out exactly when the breakpoint is in the system at which member states look after themselves and the Eurozone falls over.

“The Schengen precedent shows there is a pain point at which member states become member states again and protect themselves first, others second.”

Speaking to the Financial Times about the ECB’s intervention in accordance with the European Stability Mechanism (ESM), Mr Conte said: “The ESM was crafted with a different type of crisis in mind, so it must be adapted to the new circumstances so that we can make use of its full firepower.

“The route to follow is to open ESM credit lines to all member states to help them fight the consequences of the COVID-19 epidemic, under the condition of full accountability by each member state on the way resources are spent.”

So far, COVID-19 has claimed the lives of 41,035 cases of COVID-19 and 3,405 deaths – more even than China, where the outbreak started towards the end of last year.

Mr Conte said: “We are confronted with an exogenous, global shock that has no precedents in modern history.”

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Credit Suisse sharply cuts Mexico's 2020 GDP, sees economy shrinking by 4%

MEXICO CITY (Reuters) – Credit Suisse sharply lowered its forecast for Mexico’s economic performance this year and now expects a 4.0% contraction, according to a note sent to the bank’s clients on Tuesday, adding to a series of downgrades since the coronavirus spread.

Previously, the bank estimated that Mexico’s real gross domestic product (GDP) would grow by a modest 0.7% in 2020.

Credit Suisse said the Mexican government could end up lowering a budget surplus target for this year in order to accommodate more spending to address disruptions arising from the coronavirus outbreak.

Latin America’s No. 2 economy had already been stung by weak investment since last year due in part to uncertainty over the policies of President Andres Manuel Lopez Obrador.

Mexican GDP shrank by 0.1% last year, the first annual contraction in a decade, and Lopez Obrador’s first full year in office.

Late last week, Barclays investment bank said that the economy in 2020 will likely be weaker than last year, also citing expected coronavirus disruptions. Barclays cut its GDP forecast for Mexico to a contraction of 2% from a prior estimate for 0.5% growth.

Others, including Moody’s Analytics, Capital Economics and Goldman Sachs, have also issued negative forecasts.

Credit Suisse flagged falling industrial and service output, in addition to an expected fall in crude production from state oil company Pemex triggered by slumping prices, as the main drivers for the downwardly revised estimate.

“We had warned that the previous 0.7% growth forecast was subject to significant downside risks, which appear to be materializing,” the bank said.

It added that it sees real GDP declines in Mexico of 1.9% and 3.6% in the first and second quarters of this year, respectively, while also anticipating that the central bank will slash its benchmark interest rate from the current 7.0% to a rate “closer to 5.0%” possibly prior to the monetary policy meeting scheduled for March 26.

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