This Week In The Economy: Approaching 200,000 Dead Americans, Pandemic Unemployment, Uneven Eurozone Recovery, Choppy Canadian Rebound, Brexit Headache
By: Brai Odion-Esene
Tags: Monetary Policy, Brexit Negotiations, Macroeconomics, Covid 19 Crisis, Coronavirus Update

This Week In The Economy: Approaching 200,000 Dead Americans, Pandemic Unemployment, Uneven Eurozone Recovery, Choppy Canadian Rebound, Brexit Headache

Welcome to a regular snapshot-review of U.S. and international economic news that aims to 1) provide a window into the challenges and decisions facing businesses today, 2) determine the direction of economic policy — such as the speed at which central banks decide to raise interest rates, and 3) assess what the impact will be for consumers.

Almost Thirty Million COVID-19 Cases Globally, US On Track For 200,000 Deaths

The number of confirmed COVID-19 cases around the world is now almost at 30 million — 28,202,363 confirmed cases, with 8,269,904 active and 910,140 deaths. The United States continues to lead the table with over 6 million — at time of writing 6,494,981 confirmed cases, 2,776,444 active and 195,017 fatalities.

So far this week (from September 6–10), there have been 148,407 new COVID-19 cases in the United States, compared to 190,735 during the same five-day period last week.

India has now jumped up into second place, with the number of confirmed cases up to 4,568,770. Of that number, 947,628 are active and there have been 76,348 fatalities.

Brazil is third with 4,239,763 cases at time of writing — 612,851 active and 129,575 deaths. Russia has 1,051,874 confirmed cases, 165,402 active and 18,365 deaths.

The pandemic continues to hit Latin America hard. Peru is in fifth place with 70,067 confirmed cases, 134,978 of them are active and 30,344 fatalities. Colombia is next with 694,664 confirmed cases with 102,910 active and 22,275 fatalities. Mexico has 652,364 cases — 123,865 active and 69,649 deaths. Argentina reported 524,198 cases — 123,206 active, 10,907 fatalities.

In eighth place, South Africa has 644,438 confirmed cases — 556,170 active, and 15,265 fatalities. Ninth is Spain with 554,143, of that 524,444 are active cases, and 29,699 deaths.

The high levels, or in some cases a resurgence, of coronavirus infections around the world has led some countries to bring back partial or full restrictions on economic activity and movement.

Israel this week is set to impose a second nationwide lockdown to combat a significant surge in new cases. The shutdown would be for two weeks, followed by another two weeks of limited activity. The United Kingdom reintroduced limits on public gatherings in the hopes of beating back a worrying spike in cases. From September 14, meetings of more than six people will be illegal, banning larger groups meeting anywhere socially indoors or outdoors. Exemptions were made for schools, workplaces, weddings, funerals and organised team sports.

Large Number of Americans Still Relying on Pandemic Unemployment Aid

There was some hope for the economy when states around the U.S. began easing off lockdown restrictions in May, with businesses re-opening and bringing workers back.

However, the public health ordinances in place to prevent the spread of the virus, as well as the change in spending habits by many consumers ( driven by the desire to save more, job loss, or fears about infection) mean many businesses continue to layoff workers.

The U.S. Labor Department reported this week that were 884,000 first-time applications for state unemployment insurance last week, the same level as the prior week. As of the week ending August 29, there were 13,385,000 Americans receving unemployment benefits, an increase of 93,000 from the previous week’s level.

For the week ending September 5, there were 838,916 initial claims for Pandemic Unemployment Assistance — an increase of 90,923 from the previous week. In the penultimate week of August, there were 29,605,064 Americans receiving some form of unemployment support, compared to 1,591,456 in the same week a year ago. Of that number, 14,591,621 are receiving pandemic assistance, up by over 1 million from the prior week.

ECB Leaves Monetary Support In Place, Recovery Remains On Track But Uneven

The European Central Bank’s Governing Council met this week and announced no change in its aggressive efforts to support the Eurozone economy during the pandemic, while highlighting the mixed nature of the ongoing economic rebound.

In her press conference following the meeting, ECB President Christine Lagarde noted that manufacturing sector activity has continued to improve, but momentum in the services sector “has slowed somewhat recently.”

“The strength of the recovery remains surrounded by significant uncertainty, as it continues to be highly dependent on the future evolution of the pandemic and the success of containment policies … . Against this background, ample monetary stimulus remains necessary to support the economic recovery,” she added.

Data released this week showed economic activity in the bloc contracted by 11.8% in the second quarter, the largest since 1995, following a 3.7% drop in Q1. Employment shrank by 2.9% in Q2.

The ECB also published updated economic projections for the euro area, in which it said “a strong yet incomplete rebound” in economic actvity is likely underway, with real GDP projected to grow by 8.4% in the third quarter.

However, the ECB’s staff expect that some resurgence in COVID-19 infections over the coming quarters will mean continued containment measures, although not full lockdowns, until a medical solution becomes available by mid-2021. “These containment measures, together with elevated uncertainty and worsened labour market conditions, are expected to continue to weigh on supply and demand,” the report predicted.

ECB Chief Economist Phillip Lane, in a blog post accompanying the release, predicted that many households are likely to continue to be cautious, especially given “elevated uncertainty about future employment and wage dynamics.” As for business spending, “firms are likely to postpone or cancel some of their capital expenditure plans against a background of heightened uncertainty about future demand for their products, spare capacity and weakened balance sheets,” he warned.

Canada’s Central Bank Warns of ‘Protracted and Uneven’ Recovery

The Bank of Canada this week maintained its low interest rate policy as well as its government bond-buying program to keep borrowing costs low during the pandemic.

Casting an eye over current economic conditions, and what it means for the future, the BoC said it expects “this strong reopening phase to be followed by a protracted and uneven recuperation phase, which will be heavily reliant on policy support.”

It described the rebound in Q3 economic activity as looking “faster than anticipated” in July. Household spending rebounded sharply over the summer, with a large but uneven recovery in employment. The uptick in foreign demand is boosting exports, it added, but nowehere near pre-pandemic levels. Meanwhile, business sentiment and investment remain subdued.

As a result, “while recent data during the reopening phase is encouraging, the Bank continues to expect the recuperation phase to be slow and choppy as the economy copes with ongoing uncertainty and structural challenges,” the BoC said.

Brexit Dumpster Fire Update: UK Threatens To Breach Withdrawal Agreement

When the European Union and United Kingdom were locked in tense negotiatons last year over the latter’s planned exit from the bloc, the main sticking point was how to do so without throwing up a hard border — i.e. custom checks — between Northern Ireland (UK) and the Republic of Ireland (EU). Eliminating border controls was a cornerstone of the Good Friday peace agreement.

As a result, the 2019 Withdrawal Agreement included the Northern Ireland protocol, under which they agreed that goods will not need to be checked along the Irish border when Brexit is official on January 1, 2021. Instead, Northern Ireland will continue to enforce the EU’s customs rules and follow its rules on product standards, making customs checks on goods moving from Northern Ireland into the Republic of Ireland unnecessary.

As for goods going from the rest of Great Britain into Northern Ireland, a joint committee — made up of UK and EU government officials — would determine which goods are at risk of onward movement to the EU, and therefore subject to tariffs and EU standards.

But with subsequent negotiations over a trade deal not going well at all, the UK government this week introduced the Internal Market Bill, which would allow U.K. ministers to unilaterally determine which goods should be subject to EU checks and tariffs when passing from the rest of the UK to Northern Ireland.

The backlash has been swift, with many viewing this move as ramping up the odds of a hard Brexit i.e. no trade deal between the EU and UK come Jan 1.

U.S. House Speaker Nancy Pelosi warned in a statement that “Brexit cannot be allowed to imperil the Good Friday Agreement … . The U.K. must respect the Northern Ireland Protocol as signed with the EU to ensure the free flow of goods across the border.”

“If the U.K. violates that international treaty and Brexit undermines the Good Friday accord, there will be absolutely no chance of a U.S.-U.K. trade agreement passing the Congress,” she declared.

The UK government in a statement said it remains committed to the Northern Ireland Protocol as well as the Good Friday agreement, but that there should be there will be “unfettered access” for goods moving between Northern Ireland and the rest of the United Kingdom. The legislative timetable for the bill “would continue as planned,” it added.

The EU Commission countered in its own statement that it “does not accept the argument that the aim of the draft Bill is to protect the Good Friday (Belfast) Agreement. In fact, it is of the view that it does the opposite.”

It warned that adopting the bill would be a serious violation of the Withdrawal agreement and international law. “The Withdrawal Agreement contains a number of mechanisms and legal remedies to address violations of the legal obligations contained in the text — which the European Union will not be shy in using,” the EU Commission warned.