Economic Outlook – 29 March 2020

GENERAL: most of the data releases last week can be ignored as they are from before the spreading of the coronavirus. The data releases are in fact outdated since the economy is another place now.


  • In the US, beginning to be released are data incorporating the near-global shutdown of economic activity in recent weeks. Unsurprisingly, what the data show is horrific. On Thursday, the US released weekly jobless claims figures showing a historic 3.3 million–person jump in the number of people applying for first-time unemployment benefits. Prior to the crisis, jobless claims where averaging around 220,000 a week while the previous record high of 645,000 was set during the deep 1982 recession.
  • The United States Congress is set to send President Donald Trump an emergency appropriations bill with a price tag of approximately $2.2 trillion. For context, the package is equal to roughly 10% of gross domestic product and about half of expected federal outlays for 2020 prior to the crisis. The European Union suspended the Stability and Growth Pact, which was meant to limit fiscal deficits to 3% and total debt to 60% of GDP, allowing highly indebted countries such as Italy to increase spending in order to address the crisis
  • The Coronavirus Aid, Relief, and Economic Security (CARES) Act, waive the 10% early withdrawal penalty from 401(k) plans or IRAs of those impacted by the coronavirus. Those who make hardship withdrawals will be eligible to spread the resulting tax burden over the coming three years. The law also waives required minimum distributions for calendar year 2020, allowing individuals to keep funds in their retirement plans.
  • The key feature in terms of near-term support is the more than $500 billion in funding to individuals, made up of a combination of one-time checks and more generous unemployment ben­efits. Congress has done a good job making cash payments progressive and generous for workers who lose their jobs, many of whom come from lower-wage industries.
  • The Federal Reserve expanded its own stimulus measures, boosting both equity and fixed income markets. On Monday morning, the Fed announced that it was setting no limit on its purchases of Treasuries and agency mortgage-backed securities while also beginning to purchase investment-grade corporate bonds. In addition, the Fed revived the Term Asset-Backed Securities Loan Facility (TALF)—originally launched in 2008—which is designed to support bonds backed by student and auto loans as well as other types of asset-backed securities. The central bank also said that it was taking steps to assure the flow of credit to municipalities and announced plans for a lending program for small businesses.
  • Stocks rebounded from three-year lows, as investors appeared encouraged by further aggressive monetary policy actions and the passage of an unprecedented level of fiscal stimulus. On Tuesday, the Dow Jones Industrial Average had its best day since 1933, and the S&P 500 Index experienced its largest daily rally since October 2008, with all the major U.S. equity indexes surging by around 9% to 11%. By the close of business on Thursday, the Dow had marked its best three-day stretch since 1931, although the major indexes surrendered a portion of their gains to close out the week.
  • U.S. Treasury yields decreased as the Fed’s purchases of Treasuries and expanded funding, credit, and liquidity facilities aided market functioning. The Fed’s announcement that it will begin purchasing corporate debt in both the primary and secondary markets, as well as progress by lawmakers in approving an economic stimulus plan, supported the performance of investment-grade corporate bonds. The improved sentiment prompted many issuers to come to the market, and the volume of new deals reached the highest weekly total on record. The issuance was met with solid demand from domestic and overseas investors.
  • In terms of data release, Tuesday brings the US consumer confidence for March and the US ISM manufacturing for March. On Friday, the US Non-farm payroll and ISM non-manufacturing will be out.


  • The Eurozone Flash Composite PMI was 31.4 in March compared to 51.6 the previous month. Meanwhile, the Manufacturing PMI was 44.8 compared to 49.2 the month before, and the Services PMI was 28.4 compared to 52.6. All indices except manufacturing were below expectations. The fall in the eurozone’s private sector activity was unprecedented, as many of the member states are undergoing a veritable economic sudden stop in light of strict measures taken to reduce the spread of the coronavirus. At the moment, the headline manufacturing PMI series likely gives an overly rosy image of the sector due to how the index quantifies supply-chain disruptions, which are currently boosting the headline number. Across the board there are record declines, but the largest month-on-month falls are those relating to future output and new orders in the manufacturing sector, and incoming new business as well as future business expectations in the service sector. The region further experienced very large employment declines relative to the historical distribution.
  • The German Flash Composite PMI was 37.2 in March compared to 50.7 in February, the Manufacturing PMI was 45.7 compared to 48 and the Services PMI was 34.5 compared to 52.5, with all indices but manufacturing below expectations. The composite index plummeted to the lowest level since 2009, driven by the service sector and the measures taken against the coronavirus. Employment across both manufacturing and services returned to contraction, and it was also the largest decline observed since 2009.
  • The French Flash Composite PMI was 30.2 in March compared to 52 in February, the Manufacturing PMI was 42.9 compared to 49.8, and the Services PMI was 29 compared to 52.5 a month earlier. The French contraction induced by the coronavirus-driven shutdowns in the private sector amounted to the largest in more than two decades, and it was even more severe in the services sector. Employment also fell significantly in the private sector, reaching levels not seen since 2012.
  • European Union (EU) finance ministers suspended the bloc’s deficit rules so that governments could increase spending to protect their economies. The ministers also discussed a plan for using the European Stability Mechanism, the EU’s bailout fund, to provide a “pandemic crisis support safeguard.” However, during a videoconference summit, EU leaders failed to agree on a collective strategy to combat a deep EU recession, with Germany and the Netherlands rejecting a proposal to issue joint bonds. The leaders mandated the Eurogroup of finance ministers to report back in two weeks with proposals for a joint response.Meanwhile,the European Central Bank said it would remove some of the self-imposed limits on its €750 billion of asset purchases to support the economy, triggering a rally in peripheral bonds.
  • Some analysts noted eurozone restrictions to combat the coronavirus are likely to cause the sharpest recession since World War II. According to this view,  the economy could shrink more than 6% in the first half of the year if the restrictions last until the beginning of May and more than 9% if they last until the end of June. Even so, this deep recession will be followed by a V-shaped economic recovery in the second half of the year, aided by aggressive monetary, fiscal, and employment policy. Consumers went into this recession with lean balance sheets after a decade of deleveraging.
  • In terms of data release, On Tuesday the EU economic sentiment indicator Euro flash will be released.


  • Preliminary numbers for the UK PMI surveys in March signal the fastest downturn in private sector business activity since the series began in January 1998. The Services PMI fell to 35.7 in March, from 53.2 in February, while the manufacturing PMI fell to 48.0 in March, from 51.7 in February. The composite fell to 37.1 in March, from 53.0 in February. Things are set to get worse as the latest PMI figures were compiled in advance of the UK government’s decision to order pubs, restaurants and other leisure businesses to close by midnight on March 20.
  • The services sector reportedly received the largest blow as citizens reduced their social activity and leisure activities were abandoned. The steepest downturns in activity were signalled by hotels and restaurants, hair salons and other leisure activities. In the manufacturing sector, the fall in the PMI index was softened by a slower decline in stock purchases and a survey-record lengthening of suppliers’ delivery times. Still, output dropped at the sharpest pace since July 2012, with the transport goods sector registering the largest slump in output. Only producers in the food/drink and chemicals/plastics sectors reported positive growth. The former reflected higher demand due to stockpiling by households, while the latter was driven by a surge in production within the pharmaceuticals sector. The PMI surveys in March signalled a fall in employment across the manufacturing and services to an extent not seen since July 2009.
  • The British pound fell to a record low against a basket of currencies of the UK’s major trading partners on a stronger U.S. dollar and rising expectations of more stimulus to prop up the economy. The pound’s broad effective exchange rate slid to 72.92 by the market’s close Tuesday, although it then climbed to 75.54 by the end of the week, according to a daily reading made by the central bank. In the rush to buy U.S. dollars last week, the pound fell heavily to $1.14 from $1.31 at the beginning of March. It retraced some losses climbing to $1.19. The Bank of England held its key bank rate at 0.1% but said it was ready to increase its £645 billion bond-buying program, if needed.
  • Britain will ramp up its bid to slow a surge in unemployment during the coronavirus crisis by pledging public money to cover national insurance and pension contributions for companies that temporarily ask employees not to work, as well their pay. Britain’s government has ordered the shutdown of much of the economy in an attempt to slow the spread of the virus, raising the prospect of mass job losses. Finance minister Rishi Sunak last week took the historic step of saying the British state would pay 80% of the wages of private sector workers – capped at 2,500 pounds ($3,052) a month – for at least three months.


  • The coronavirus deep freeze in China is beginning to thaw, and signs of spring are appearing with increasing frequency. Schools in areas deemed free of the coronavirus have begun to reopen, though they will remain under close supervision, beginning with Qinghai, Guizhou, and Xinjiang. The economically important coastal province of Jiangsu is aiming for the full opening of all schools and colleges by April 13. Museums and some national restaurant chains that have been closed since late January are also beginning to reopen.
  • The release of China’s industrial profits data brought the economic costs of containing the coronavirus outbreak into sharper focus. The National Bureau of Statistics announced that proceeds from industrial enterprises designated as having achieved national scale declined 38.3% YoY during the January–February period. That was the sharpest decline in at least a decade, according to Reuters. The electronic equipment and motor vehicle divisions ranked among the hardest hit subgroups during the period. 
  • So far, China has not delivered on major fiscal relief, though some additional stimulus is expected. New domestic projects intended to boost economic activity will be implemented at the local government level. Press reports say that after two years of fiscal deleveraging, local government infrastructure project needs have grown significantly. However, China’s public sector finances are under growing pressure from the national lockdown. Tax receipts in January and February fell 9.9% from the previous 12-month period, to RMB 3.52 trillion. Total central government revenues declined 11.2%, and those of local governments fell 8.6%, according to new data from China’s Ministry of Finance.
  • The major indices rose until midweek before flattening off. From Monday to Friday, the Shanghai Composite rose 4.2%, and the CSI 300 large-cap index gained 5.2% China was the first country to get hit by the coronavirus and is the first country to bring the outbreak under control. Only two new local cases were reported between March 17 and March 24. A small number of new imported cases continue to be reported (around 40 daily) as Chinese citizens return from overseas. However, China’s tightened immigration controls are proving effective at screening and detecting these imported cases.
  • Looking at data, on Monday and Tuesday the Chinese PMI numbers will be released where a rebound is expected given that production is progressively normalising.

Sources: T. Rowe Price, Reuters, MFS Investment Management, Danske Bank, TD Economics, Handelsbanken Capital Markets.