Economic activity in the U.S., Europe, and Japan simultaneously crumbled at a rate never before seen.
The rate of businesses going dark and workers losing their jobs has led JPMorgan Chase to forecast the U.S. economy contracting in this year’s second quarter at an annualized rate of 40 percent, Japan’s by 35 percent, the Eurozone’s by 45 percent, and the U.K.’s by 59 percent.
In the U.S., IHS Markit’s monthly Purchasing Managers Index (PMI) dropped from a grim 40.9 in March to a dismal 27.4 in April, the lowest mark since October 2009.
Readings below 50 indicate a business contraction.
The speed of the plunge indicates “that the second quarter will see an historically dramatic contraction of the economy,” said Chris Williamson, IHS Markit’s chief business economist.
The Eurozone’s PMI for April shows that Europe’s economy has suffered an “unprecedented” collapse, IHS Markit said.
The 19-nation index fell from March’s record low of 29.7 to 13.5, far lower than economists had expected.
“The ferocity of the slump… greatly exceeds anything ever seen before in over 20 years of data collection,” Williamson said, and “has also surpassed what was… imaginable by most economists.”
Before the global economic lockdown, the 20-year-old index’s record low reading was 36.2 in February 2009.
Japan’s index also struck a record low of 27.8.
The indices’ scores were worse than analysts had expected – “staggering,” one economist said – indicating that the second quarter’s economic performance might also be worse than already feared.
The service sector including hotels and restaurants plunged furthest, but manufacturing also dropped by a record margin because of the disruption in supply chains as well as the shutdown of customers’ businesses.
Manufacturing jobs disappeared faster than at any time since April 2009. U.S. factories making big-ticket items such as cars and machine tools received 14.4 percent fewer orders in April than in March, a worse decline than analysts had expected. Orders for transportation-related products, such as trucks and airplanes, were down 41 percent.
The rate of the service sector’s job loss was unprecedented.
The overall PMI rating in Germany, Europe’s biggest economy, was 17.1. France, the region’s second-place economy, rated 11.2, reflecting France’s far stricter social and economic lockdown. For Germany’s service sector alone, the score was 15.9, down from 31.9 in March; France’s was 10.4, falling from 27.4 a month earlier.
Prices for goods also shrank, indicating that “… this crisis is deflationary in the short-run,” said analysts at ING Economics.
France’s office of national statistics said that economic activity across the nation had decreased 41 percent and had been reduced to “vital functions.”
Weighed down by the array of negative news, U.S. consumer sentiment in April was 26 percent less positive than in April 2019 and 19 percent lower than last month, according to a University of Michigan survey.
Remittances to Fall 20 Percent
The money that immigrants working in one country send to their relatives in other nations is projected to drop by about 20 percent because of the virus-inspired economic crisis.
From $714 billion last year, the figure will be closer to $514 billion this year, the steepest slide in at least 20 years, the World Bank predicted.
India, the largest recipient nation, took in $83 billion in 2019 but that figure is expected to shrink by 23 percent in 2020. Many Indians work in Arabian Gulf nations, where oil and hospitality industries are mainstays. Both were decimated when the world’s economy closed down.
Transfers to developing countries in Europe and central Asia will contract most, plunging more than 27 percent.
In part, the figure will fall so sharply because migrants often work in the shadow economy and either do not qualify for government rescue payments or choose not to expose themselves to government record systems.
For many families in developing countries, these payments from distant relatives are often the largest and most reliable source of income.
In 2019, foreign remittances exceeded direct foreign investment in low- and modest-income countries, the World Bank reported.
The payments have been key in keeping many families financially afloat and their loss could drop 500 million people into poverty this year, according to Oxfam, a global charity.
TREND FORECAST: As economic conditions decline across the globe, riots and demonstrations that were raging before the COVID crisis in protest of lack of basic living standards, government corruption, crime, and violence – that have been now tamped down under government controlled lockdowns – will dramatically escalate as the poor get poorer.
Civil wars will rage and violence will spill across borders in many of the poorest nations and masses will flee for safer grounds, thus reigniting the anti-immigration trends that have been quelled with COVID-closed borders.
Again, history is repeating itself: currency wars, trade wars, Great Depression, World War II; currency wars, trade wars, “Greatest Depression,” World War III.
