This Week In The Economy: Over 30 Million Coronavirus Cases Worldwide, WeChat,TikTok Blocked In US, China Rebound Continues, Three Years Of Zero Interest Rates?
By: Brai Odion-Esene
Tags: Monetary Policy, China, Macroeconomics, Brexit, Covid 19 Crisis

This Week In The Economy: Over 30 Million Coronavirus Cases Worldwide, WeChat,TikTok Blocked In US, China Rebound Continues, Three Years Of Zero Interest Rates?

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.

Thirty Million-Plus COVID-19 Cases Globally, Over US 200,000 Deaths In The US

The number of confirmed COVID-19 cases around the world is officially more than 30 million — 30,217,420 confirmed cases, with 8,716,224 active and 946,847 deaths. The United States is now approaching 7 million — at time of writing 6,767,453 confirmed cases, 2,909,306 active and 200,643 fatalities.

So far this week (from September 13–17), there have been 182,809 new COVID-19 cases in the United States, compared to 148,407 during the same five-day period last week.

India remains in second place, with the number of confirmed cases now up to 5,228,478. Of that number, 1,018,231 are active and there have been 84,505 fatalities.

Brazil is third with 4,455,386 cases at time of writing — 567,369 active and 134,935 deaths. Russia has 1,091,186 confirmed cases, 170,784 active and 19,195 deaths.

The rest of the top ten is still predominantly Latin American countries. Peru is in fifth place with 750,098 confirmed cases, 124,439 of them are active and 31,146 fatalities. Colombia is next with 743,945 confirmed cases, of which 104,823 are active and 23,665 fatalities. Mexico has 684,113 cases — 123,518 active and 72,179 deaths. Argentina reported 601,713 cases — 141,003 active, 12,460 fatalities.

In eighth place, South Africa has 655,572 confirmed cases — 54,497 active, and 15,772 fatalities. Ninth is Spain with 625,651, of that 595,246 are active cases, and 30,405 deaths.

US Govt To Block New Downloads of TikTok, WeChat As Of Sept. 20

The techwar between China and the United States is escalating, and the U.S. Commerce Department announced restrictions prohibitions on new downloads of to two popular Chinese-owned mobile apps — WeChat and TikTok — citing a need to safeguard the national security of the United States.

“The Chinese Communist Party (CCP) has demonstrated the means and motives to use these apps to threaten the national security, foreign policy, and the economy of the U.S.,” Commerce said in a statement. “Today’s announced prohibitions, when combined, protect users in the U.S. by eliminating access to these applications and significantly reducing their functionality.”

The Commerce Department accused both apps of being an “active participant in China’s civil-military fusion,” and subject to compulsory cooperation with the China’s intelligence services. “This combination results in the use of WeChat and TikTok creating unacceptable risks to our national security,” it added.

U.S. consumers will no longer able to download either program from a U.S. app store from midnight on Sept. 20, and users who already have the apps downloaded will no longer receive updates after that cutoff point. The speed at which content is delivered will also be severely impacted.

The official said the WeChat app will begin to “degrade in functionality” as of midnight September 20, while the same will happen to TikTok starting Nov 12. This later date aligns with the deadline set by President Trump in an executive order on August 14, which gave ByteDance Ltd, TikTok’s parent company, 90-days to sell TikTok’s U.S. operations or be banned. ByteDance Ltd is in talks with Oracle to spin-off its U.S. subsidiary.

China’s V-Shaped Economic Recovery Continues

The rebound in the world’s second largest economy from the COVID-19 pandemic continues, with data released this week showing a steady expansion in manufacturing activity, while activity in the services sector turned positive.

Industrial production increased by 5.6% year-over-year in August, following a 4.8% increase in July.

Source: China National Bureau of Statistics

On the services front, activity grew by 4% y/y in August, although it is down 3.6% so far in 2020. Retail sales finally increased, up 0.5% y/y following five consecutive months of contractions. Still, from January to August, total retail sales excluding automobiles fell by 8.6% year-on-year.

US Manufacturing Activity, Retail Sales Slow In August

In contrast to China, the rebound the in the United States from the public health crisis and economic lockdown continues to be sluggish.

The Census Bureau this week reported retail sales rose by just 0.6% last month, following a 0.9% increase in July. Core retail sales — where automotive and gasoline sales are excluded — are only up 0.7% in August, compared to +1.1% in July.

Sales by grocery stores declined by 1.6% last month, department stores -2.3%, and the 4.7% jump in sales for restaurants and bars pales in comparison to the 15.4% decline reported in July. Also of note, sales by online retailers were flat last month. The slow activity for department stores and in ecommerce was likely impacted by continued school and office closings.

Meanwhile, data from the Federal Reserve this week showed that while U.S. industrial production rose 0.4% in August, the index was 7.3% below its pre-pandemic February level.

Manufacturing output continued to improve in August, rising 1%, but the central bank noted that “gains for most manufacturing industries have gradually slowed since June.” Mining production fell 2.5% in August, as Tropical Storm Marco and Hurricane Laura caused sharp but temporary drops in oil and gas extraction and well drilling.

Central Bank Roundup: Close-To Zero Interest Rates In US Could Be Around For A While

THE FEDERAL RESERVE’S FEDERAL OPEN MARKET COMMITTEE met this week, while it announced a continuation of its low interest rate policy, as expected, the central bank also unveiled a tweak in its forward guidance on future monetary policy. The FOMC released its usual statement following the two-day policy meeting, along with its quarterly economic forecasts and projections for the future path of interest rates.

Main takeaway — at least three more years of zero interest rates, COVID-19 will remain a massive wildcard, and the economic/jobs recovery could take a long while.

Some highlights:

Unanimous decision to leave short-term interest rates unchanged, as expected. A majority of Fed officials don’t expect to hike rates through 2023.

The FOMC now projects real GDP will increase by 4% next year and by 3% in 2022, a downgrade from forecasts in June of +5% and +3.5%, respectively.

The FOMC does expect the unemployment rate to decline at a slight faster rate compared to its June predictions, but still estimates 4% unemployment by 2023 (the official BLS rate was 3.5% in February 2020). It does not expect inflation to hit its 2% until 2023.

From the statement — “The Committee decided to keep the target range for the federal funds rate at 0 to 1/4 percent and expects it will be appropriate to maintain this target range until labor market conditions have reached levels consistent with the Committee’s assessments of maximum employment and inflation has risen to 2 percent and is on track to moderately exceed 2 percent for some time.”

The Dallas and Minneapolis Fed presidents dissented (for different reasons) over the wording of the forward guidance regarding when the Fed might raise rates.

THE BANK OF ENGLAND’S MONETARY POLICY COMMITTEE also met this week and made no change to its target interest rate, but noted that recent spikes in Covid-19 cases “had the potential to weigh further on economic activity, albeit probably on a lesser scale than seen earlier in the year.”

The MPC also said it is exploring the effectiveness and feasibility of negative interest rates as part of its toolkit, “should the outlook for inflation and output warrant it at some point during this period of low equilibrium rates.”

The central bank also noted “renewed concerns” over recent developments in trade negotiations between the EU and UK. The UK government last 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. This goes against the Withdrawal agreement negotiated with the EU in 2019, and threatens to derail talks.

Downing Street sought to de-escalate tensions this week, saying in a statement that Parliament would only be asked to approve unilateral action by UK government ministers if the EU is engaged “in a material breach of its duties of good faith or other obligations, and thereby undermining the fundamental purpose of the Northern Ireland Protocol.” Such as in the event of a hard Brexit.

THE BANK OF JAPAN at its meeting warned that despite the pickup in economy activity, it still remains in a “severe situation.”

“Exports and industrial production have turned to a pick-up. On the other hand, corporate profits and business sentiment have deteriorated, and business fixed investment has been on a declining trend. With the continuing impact of COVID-19, the employment and income situation has been weak,” it said.

In addition to the “extremely high uncertainties” over the consequences of the COVID-19 on the economy, the BoJ is concerned about how and the the pandemic might influence businesses and households’ medium- to long-term growth expectations. A downturn in sentiment could dry up demand for loans, negatively impacting “the smooth functioning” of the financial system.

“For the time being, the Bank will closely monitor the impact of COVID-19 and will not hesitate to take additional easing measures if necessary,” the central bank said.

CENTRAL BANKS FOR BRAZIL, RUSSIA, AND SOUTH AFRICA held monetary policy meetings this week. Brazil left its key interest rate unchanged, noting that “uncertainty about economic growth remains larger than usual.” It went on to caution that while current economic conditions continue to warrant an aggressive response from the central bank, “due to prudential and financial stability reasons, the remaining space for monetary policy stimulus, if it exists, should be small.”

Russia also chose to leave its key interest rate alone, while voicing its concern about disinflation risks caused by the pandemic. “Persistent changes in consumer preferences and behaviour including a persistent higher propensity to save might exert a constraining influence on inflation,” it said. Adding, “If the situation develops in line with the baseline forecast, the Bank of Russia will consider the necessity of further key rate reduction at its upcoming meetings.”

Finally, the South Africa Reserve Bank also left rates unchanged — although the decision was far from unanimous. Two members of the Monetary Policy Committee preferred a 25 basis point cut and three preferred to hold rates at the current level. The central bank said it now forecasts a GDP contraction of 8.2% in 2020, compared to the 7.3% contraction estimated in July.