Select Page
As we are now mid-April and economic data for the first quarter of 2020 are being published, we felt it was appropriate to make a first assessment of the economic impact of the COVID -19 coronavirus at this stage and try to fathom the depth of the economic damage in various countries.As the speed of reporting differs from country to country, in this first part of the article we shall focus on the USA, China, Japan, the European and Germany, leaving the UK, Switzerland, France, Spain, and Italy in Europe and Australia, Korea, India and some emerging economies for the last week of April, when the data will be available.This assessment is by no means complete or even comprehensive but the sharp disconnect between financial markets – Equities, Corporate Bonds, Gold and currencies – that clearly anticipate a V-shape recovery in the future, and the reality of the economic damage, particularly at a time where many countries are extending their lock-down period well into May 2020.

As we predicted, globally, good news have started to flow on the Health issue side, as we see less and less fatalities across the board, but the number of contaminated people still increases almost everywhere, including in Asia where some countries are resorting to local clams downs.

Where are we on the pandemic ?

As of April 16th, based on officially-reported figures, the number of people infected with the coronavirus rose towards 2.1 million with 134’000 fatalities and 515’000 people having recovered.

Number of INFECTED PEOPLE in the 10 most-affected countries.

Number of DEATHS in the 10 most-affected countries

Clearly, with 650’000 people infected and already 28’500 casualties, America is by far the most affected country, followed by Southern Europe while Asia and Emerging Economies “seem” to be far less impacted.

As we detailed in our post titled THE END OF COVID-19, the peak of the pandemic is probably behind us and the virus should have stopped killing people by the middle of June 2020.

Treatments and Vaccines

More than 100 different programs have been launched to develop and test treatments. These include everything from anti-viral drugs and antibody-containing plasma from recovered patients to traditional Chinese herbal medicine.

World Health Organization researchers have identified as the most promising agent remdesivir, an experimental antiviral made by Gilead Sciences Inc. originally as a treatment for Ebola. A mid-April report that the drug appeared to have helped a group of patients enrolled in a study at the University of Chicago created a flurry of excitement, but the university cautioned that the information was incomplete and inconclusive. Reports from randomized, controlled trials are needed to show efficacy.

Larger trials of chloroquine and hydroxychloroquine are starting. In a study in China published March 18, AbbVie Inc.’s Kaletra, an HIV treatment combining two drugs, failed to improve the condition of coronavirus patients. Another small, preliminary trial of the flu medication favipiravir, or Avigan, made by Fujifilm Holdings Corp. produced more promising results.

More than 70 experimental vaccines against the coronavirus are in some stage of development, according to the WHO.

Moving at record speed, researchers began preliminary human testing of the first one in mid-March in the Seattle area. It was developed by the U.S. National Institute of Allergy and Infectious Diseases in collaboration with the biotechnology company Moderna Inc.

Since then, human trials have begun of vaccine candidates from CanSino Biologics Inc. and the Beijing Institute of Biotechnology and from Inovio Pharmaceuticals Inc.

Some of the world’s biggest companies are working on vaccine projects. GlaxoSmithKline has teamed up with China-based Clover Biopharmaceuticals, while Sanofi and  Johnson & Johnson are in separate collaborations with the U.S. government’s Biomedical Advanced Research and Development Authority.

Widespread testing of experimental vaccines is important to reduce the possibility that they cause harm after being rolled out, as has been the case a number of times in the past. Documented reports of unexpected side effects from new vaccines are different from the persistent and incorrect belief that vaccines against childhood diseases carry significant risks.

Origins of the Virus

Fox News published today an in-depth report on sources believing that COVID-19 originated in Wuhan P4 lab as part of China’s efforts to compete with the USA and that patient zero was a worker in this Lab.

In an article published on April 14th, The Washington Post revealed that two years before the pandemic, US embassy officials in China visited the Wuhan lab and warned about inadequate safety measures at the lab and that it was conducting dangerous studies on coronaviruses from bats.

In a radio interview published yesterday, Pr. Luc Montagnier, the French virologist who was awarded the Nobel Prize in 2008 for decoding of the HIV virus, excludes the possibility that COVID-19 is of natural origin as its genome decoding reveals that fragments of the HIV genetic code have been added to it artificially, something that cannot happen in nature.

He traces it back to China’s Wuhan P 4 laboratory as well.

As our readers will recall, as early as mid-February in our post titled North Korean Flu ? and in ou post THE END OF COVID-19 published in March, we were amongst the very first ones to question the “Natural” appearance of COVID-19.

Our long time research dating back to the 1990s on retroviruses, reverse transcriptase, HIV and the natural mutation of viruses led us to conclude that COVID-19 could NOT have appeared by natural mutation.

Global Economic Impact

The International Monetary Fund sees the world economy suffering its worst recession since the Great 1929 Depression this year, with emerging markets and low-income nations in Africa, Latin America and Asia at, particularly high risk.

The IMF forecasts that the global economy will shrink by 3% this year, far greater than the 0.1% dip that occurred in 2009 in the wake of the global financial crisis. Other estimates put the global loss of GDP at least US$ 8 trillion over the first three quarters of the year.

The pandemic that has spread from the Chinese city of Wuhan to almost every corner of the globe has led to millions of business closures and is estimated to ultimately lead to 195 million of lost jobs.

Just today, the US department of labor reported that another 5.25 million American workers lost their jobs last week, bringing the total in the month since the coronavirus pandemic throttled the U.S. economy to 22 million and effectively erasing a decade worth of job creation.

IMF Chairwomen Georgieva highlighted the hit to the retail, hospitality, transport and tourism industries and the effect on the self-employed and small- and medium-sized businesses.

One of the most striking predictions of the IMF is that the whole of Asia will grow at barely 0.1 % this year and see India experiencing an economic contraction for the first time in 40 years. Even Australia, the country that has escaped recession for an unprecedented 33 years, is expected to fall into a deep recession in 2020.

Most economists agree on a synchronized economic recovery in 2021. However, while some like the IMF see lasting consequences and only a partial recovery in 2021, some economists are more optimistic and predict that the world GDP will reach its Dec 2019 level by the end of 2021.

Granted, COVID-19 is a unique deflationary shock that should be contained in time by nature, however, it is still extremely difficult to assess the fullness of the consequences on a number of industries that are currently at a standstill and may not have the cash to survive the lockdown.

Moreover, most of the optimistic scenarios are betting on a complete disappearing of the virus by the end of the summer, while an expert group from Harvard University believes that the nature of the virus is such that its containment will require on-and-off or stop-and-go confinement measures will into 2022.

Finally, in a wave of Monetary and Fiscal stimulus with no equivalent in history, the IMF calculates that, up till now, governments around the world have taken fiscal actions amounting to about $8 trillion and Central banks have injected almost the same amount of money through their bond-buying and blanket guarantees programs.

One of the most visible global impacts on the world economy is the sharp decrease in oil consumption as half the world population is locked down and air transportation has idled almost completely. According to Vitol, the world’s largest oil trader, Oil Consumption is expected to fall by 10 Million Barrels per Day, or a -10% decline when compared to December 2019. Oil prices have collapsed to below US$ 19 as we predicted and an agreement between Russia, Saudi Arabi ad the USA has failed to support prices.

Considering an estimated world GDP of US$ 86 Trillion in 2019, the hit to the world economy is the largest ever recorded at almost 10 % of global GDP.

Equally, unprecedented, the global stimulative fiscal measures enacted up till now will have the lasting consequence of adding new public debt of 10 % of GDP overall, in a world where global debt has already reached the amazing figure of 350 Trillion in 2019.

Regardless of how quickly the virus disappears and economic come back to normal, and considering the fat that in previous recessions, it took about 11 Quarters on average for GDP to recover its initial levels, COVID-19 cannot be considered to be an economic blip that will quickly fade away.

Nations that have poor public finances and low social protection safety nets will suffer more than the others.



The official GDP numbers ( 1st estimate ) will not be released before April 29, 2020 for the 1st quarter of 2020.

However, Bloomberg Economics uses economic models to predict the GDP in a reliable way and the last estimate as of April 16th, 2020 is for a contraction of -3.2% in the first quarter , bearing in mind that the virus has really started hitting the economy in the third week of February.

Goldman Sachs Group Inc. expects the U.S. economy to experience a far deeper slump than previously anticipated as the coronavirus pandemic hammers businesses, causing a wave of mass unemployment.

The world’s largest economy will shrink an annualized 34% in the second quarter, compared with an earlier estimate of 24%, economists led by Jan Hatzius wrote in a report. Unemployment will soar to 15% by mid-year, up from a previous forecast of 9%, they wrote.

The economists, however, now expect a stronger recovery in the third quarter, with gross domestic product expanding 19%.


The number of Americans filing for unemployment benefits was 5.245 million in the week ended April 11th, down from the previous week’s 6.615 million and compared to market expectations of 5.105 million. The latest figure brought the total reported over the past month to 22 million, as the coronavirus pandemic swept across the US. The 4-week moving average, which removes week-to-week volatility, jumped to an all-time high of 5.509 million, while continuing jobless claims hit a record 11.976 million in the week ended April 4th.

There has never been such a sharp contraction in peacetime in history and it is probably not over.
Economists estimates range from – 8 % to -22 % depending on the forecasting institutes.

Unemployment Rate

The US unemployment rate jumped to 4.4 percent in March 2020, the highest since August 2017 and well above market expectations of 3.8 percent, as the COVID-19 crisis threw millions out of work. The number of unemployed increased by 1.35 million to 7.14 million, while the number of employed declined by 2.99 million to 155.77 million. The numbers are expected to get even worse in April as the government surveyed businesses and households for the report in mid-March, before majority of people was under some form of a lockdown.

Housing Starts

Housing starts in the US plunged -22.3% month-over-month to an annualized rate of 1.216 million in March of 2020, the lowest since July of 2019 and below market expectations of 1.3 million. It was the biggest decline in housing starts since 1984 even as the impact of the coronavirus will be only fully visible in the April report. Starts for the volatile multi-family segment slumped 32.1% to 0.347 million while single-family housing which is the largest share of the housing market went down 17.5% to 0.856 million. Declines in housing starts were seen in all regions: the South (-21.3% to 0.693 million), the West (-18.2% to 0.301 million), the Midwest (-21.5% to 0.153 million) and the Northeast (-42.5% to 0.069 million). Year-on-year, housing starts rose 1.4%.

Building permits

Building permits in the United States fell 6.8 percent from a month earlier at a seasonally adjusted annual rate of 1,353 thousand in March of 2020, slightly above market expectations of 1,300 thousand. Still, it is the sharpest drop in building permits since July 2015 as the coronavirus crisis hurt the construction sector.

US Manufacturing

The Philadelphia Fed Manufacturing Index in the US dropped to -56.6 in April 2020 from -12.7 in February and compared with market expectations of -30. It is the lowest reading since July 1980, as the survey’s current indicators for general activity, new orders, and shipments once again fell sharply, coinciding with ongoing developments related to the coronavirus pandemic.

The index for new orders declined further into negative territory, from -15.5 to -70.9, its lowest on record; and the current shipments index dropped to an all-time low of -74.1.

Industrial Production

Total industrial production in the United States slumped 5.4 percent from a month earlier in March 2020, the largest drop since January 1946 and compared to market expectations of a 4 percent plunge. Manufacturing output fell 6.3 percent, the most since February 1946, as the coronavirus pandemic led many factories to suspend operations late in the month.

The declines were led by a 28.0 percent tumble in motor vehicles and parts output. Other industries also recorded steep contractions such as fabricated metal products, aerospace & miscellaneous transportation equipment, furniture & related products, apparel & leather, textile & product mills, and printing & support.

US Market Manufacturing PMI

The IHS Markit US Manufacturing PMI was revised down to 48.5 in March of 2020 from a preliminary of 49.2 and below 50.7 in February. The reading pointed to the worst contraction in the manufacturing sector since August of 2009 amid weak domestic and foreign demand conditions following the outbreak of coronavirus. Output contracted solidly, dropping at the sharpest pace for over a decade as factories shut down and client demand dropped sharply.

New orders fell at the joint-fastest pace since June of 2009, commonly linked to demand slumping due to the virus, with firms also registering a solid downturn in new export orders. Manufacturers cut their workforce numbers at the sharpest rate since October of 2009 and input prices rose only slightly. Finally, fears surrounding the longevity of shutdowns and the slow recovery thereafter led to the lowest degree of confidence since data collection for the series began in July of 2012.

United States Manufacturing PMI

US Business Confidence

The ISM Manufacturing PMI for the US declined to 49.1 in March of 2020 from 50.1 in February, beating market forecasts of 45. Still, the reading pointed to a contraction in the factory sector as the coronavirus pandemic and shocks in global energy markets have impacted all manufacturing sectors. Declines were seen in new orders (42.2 from 49.8), production (47.7 from 50.3), employment (43.8 from 46.9), inventories (46.9 from 46.5) and new export orders (46.6 from 51.2). Prices fell faster (37.4 from 45.9) and supplier deliveries slowed (65 from 57.3).

United States ISM Purchasing Managers Index (PMI)

US Retail Sales

Retail sales in the US plunged 8.7% month-over-month in March of 2020, following a downwardly revised 0.4% drop in February and worse than market forecasts of a 8% drop. It is the biggest decline on record, in a sign that the coronavirus impact on the economy may be harder than anticipated.

The biggest decreases were recorded for clothing (-50.5%); furniture (-26.8%); food services and drinking places (-26.5%); motor vehicles (-25.6%); sporting goods, hobby, musical instrument, book stores (-23.3%); gasoline stations (-17.2%); electronics and appliances (-15.1%) and miscellaneous (-14.3%). On the other hand, rises were seen in sales of food and beverages (25.6%) and health and personal care (4.3%). Year-on-year, retail sales fell 6.2%.

US Markit Services PMI

The IHS Markit US Services PMI was revised higher to 39.8 in March 2020 from a preliminary estimate of 39.1, still signaling the steepest decline in output since data collection began in October 2009. New business contracted at a record pace, with exports also falling sharply, as the coronavirus pandemic led to business closures and sharply reduced client demand.

In addition, the pace of job shedding was the joint-fastest since December 2009 as lower activity resulted in redundancies and enforced hiring freezes, while the depletion of backlogs of work was the quickest in the series history

United States Services PMI

US Consumer Confidence

The University of Michigan’s consumer sentiment for the US fell to 71 in April of 2020 from 89.1 in March, missing market expectations of 75. It is the lowest reading since December of 2011 and the largest monthly decline ever recorded, preliminary estimates showed. Declines were seen for current conditions (72.4 from 103.7) and expectations (70 from 79.7).

US Inflation

Annual inflation rate in the US fell to 1.5% in March of 2020 from 2.3% in February and slightly lower than market expectations of 1.6%.

It is the lowest inflation rate since February of 2019, mainly due to a 10.2% slump in gasoline costs (5.2% in February) and a 1.6% drop in apparel prices (vs -0.9%). Prices of shelter also slowed (3% vs 3.3%) while food inflation edged up (1.9% vs 1.8%).

On a monthly basis, consumer prices fell 0.4%, after a 0.1% gain in February and worse than expectations of a 0.3% decline. It is the largest monthly drop since January of 2015, mainly due to a 10.5% slump in gasoline prices while decreases in airline fares, lodging away from home, and apparel also contributing. In contrast, increases were seen in prices of food, medical care, used cars and trucks, motor vehicle insurance, and education.

Core consumer prices rose 2.1% year-on-year but fell 0.1% month-over-month, its first monthly decline since January of 2010.

Monetary Policy

The Federal Reserve announced a new stimulus package on April 9th, providing up to $2.3 trillion in loans, aimed to support households and employers of all sizes and bolster the ability of state and local governments to deliver critical services during the coronavirus pandemic.

“The Fed’s role is to provide as much relief and stability as we can during this period of constrained economic activity, and our actions today will help ensure that the eventual recovery is as vigorous as possible.” said Federal Reserve Board Chair Jerome H. Powell.

The move came as part of a Main Street Business Lending Program authorized by the CARES Act, the largest economic relief package ever passed by Congress.

In March, the Fed lowered the target range for its federal funds rate by 100bps to 0-0.25% and launched a massive $700 billion quantitative easing program.

Citigroup takes a top-down approach in arguing that more monetary stimulus is warranted, even after the Fed’s balance sheet jumped by about $2 trillion since the end of February with many more asset purchases in the offing.

The “Yellen Rule” points to a warranted policy rate of -6% this quarter – lower than in the financial crisis, while the Bullard shadow rate is just -0.7% at present, and retreated as low as -5% in 2012.

relates to The Weekly Fix: Fed’s ‘Missing Link' After Trillions of Stimulus

The above numbers depict an extremely sharp deflationary shock on the US economy that is only at its beginning considering the fact that April will really be the full month of confinement.

The sheer size of the job losses and bankruptcies means that the recovery will NOT be V-shaped. it will take months, and even porbably several quarters before unemployment rises back to levels prevailing in 2018 and 2019.

Consumption is the engine of growth of the US economy, and consumption will all but be affected significantly.



The Chinese economy shrank 6.8 percent year-on-year in the March quarter of 2020, after a 6 percent growth in the previous period and compared with market consensus of a 6.5 percent decline. This was the first contraction since 1992, reflecting severe damage caused by the COVID19 outbreak and raising pressure on authorities to shore up growth amid mounting job losses and concerns over social stability, while also keeping debts and financial risks under control.

Bloomberg’s Economic Model predict a full year growth of 3 % in 2020.

China’s Industrial Production

China’s industrial production dropped 1.1 percent year-on-year in March 2020, after a 13.5 percent plunge in January-February and compared with market expectations of a 7.3 percent fall, amid a partial recovery in the economy following restrictions of business activities and of travel movement due to the COVID-19 outbreak.

Manufacturing output fell much less (-1.8% vs -15.7%), while there was a rebound in both mining production (4.2% vs 6.5%) and electricity, heat, gas and water production and supply (8.9% vs -14.4%).

Among industry, output dropped for automotive (-22.4%), rubber and plastics (-5.5%), general equipment manufacturing (-5.4%), agriculture (-4.8%), non-metallic mineral products (-4.5%), metal products (-1.6%), power equipment (-1.7%), and electrical machinery (-0.4%). In contrast, production grew for food manufacturing (5.7%), chemical raw materials and products (0.7%), pharmaceuticals (10.4%), and ferrous metal smelting (4.1%).

China’s Capacity Utilisation

Industrial capacity utilization rate in China slumped to a record low of 67.3 percent in the first quarter of 2020 from 77.5 percent in the prior quarter, as the world’s second-largest economy battled with the coronavirus outbreak. The utilization rate declined for all categories: manufacturing (67.2 percent vs 78 percent in Q1), mining (67.1 percent vs 75.1 percent), and electricity, heat, and gas, water production (67.8 percent vs 73.6 percent).

Vehicles Sales

Vehicles sales in China declined 43.3 percent year-on-year to 1.428 million in March of 2020, following a 79 percent plunge in the previous month, which was the steepest yearly decline on record, as the coronavirus outbreak hurt demand.

Still, March marked the 21st month of decline in vehicle sales.

Sales of new energy vehicles (NEVs), including plug-in hybrids, battery-only electric vehicles and those powered by hydrogen fuel cells fell for a ninth straight month to 53,000 units.

The China Association of Automobile Manufacturers (CAAM) expects that vehicles sales will decrease by more than 10 percent in the first half of the year, and around 5 percent in 2020 full year, if the outbreak is effectively contained before April.

China’s Retail Sales

China’s retail trade declined – 15.8 percent year-on-year in March 2020, following a 20.5 percent slump in January-February. The latest reading was worse than market forecasts of a 10% fall, amid ongoing coronavirus outbreak, with people remaining afraid to go to crowded places like shopping malls, restaurants and movie theaters.

Sales declined further for most categories: garments (-34.8% vs -30.9 in January-February), cosmetics (-11.6 percent), jewelry (-30.1% vs -14.1%), home appliances (-29% vs -30%), furniture (-22.7% vs -33.5%), telecoms (6.5% vs-8.8%); oil, oil products (-18.8% vs -26.2%), automobiles (-18.1% vs -37%), and building materials (-13.9% vs -30.5%). In contrast, sales rebounded for both personal care (0.3% vs -6.6%), and office supplies (6.1% vs -8.9%).


China’s fixed-asset investment dropped 16.1 percent year-on-year to CNY 0.84 trillion in the first three months of 2020, compared to a 24.5 percent plunge in January-February and worse than market consensus of a 15.1 percent fall, amid the coronavirus pandemic.

Private investment contracted 18.8 percent (vs -26.4 percent in January-February) and public investment shrank 12.8 percent (vs -23.1 percent). In breakdown, the investment in the primary industry declined 13.8 percent (vs -25.6 percent), dragged by agriculture.

The investment in the secondary industry slumped 21.9 percent (-28.2 percent) on the back of manufacturing, while the investment in the tertiary industry contracted 13.5 percent (vs -23 percent) due to transport, storage & postal industry, water conservancy, environment & public facilities, education, health & social services, and recreation & culture activities.

Foreign Direct Investment

Foreign direct investment into China tumbled 10.8 percent year-on-year to CNY 216.19 billion, or USD 31.2 billion, in the first quarter of 2020 due to the COVID-19 outbreak.

Still, investment in the high-tech service industry rose by 15.5 percent, accounting for 29.9 percent of the service industry. Among them, information services, e-commerce services, and professional technical services increased by 28.5 percent, 62.4 percent, and 95 percent respectively.

In March only, the FDI plunged 14.1 percent from a year earlier.

New home prices

The average prices of new homes in 70 Chinese cities rose by 5.3 percent year-on-year in March 2020, the slowest pace since June 2018, as the COVID-19 outbreak scared potential buyers who avoided going outside and make any transaction.

Among China’s biggest cities, Chongqing reported the largest increase (6.2 percent vs 6.5 percent in February), followed by Shenzhen (5.2 percent vs 4.3 percent), Beijing (4.1 percent vs 4.4 percent), Shanghai (2.4 percent vs 2.3 percent), Guangzhou (1.7 percent vs 3 percent), and Tianjin (0.1 percent vs 0.5 percent).

On a monthly basis, new home prices advanced 0.1 percent in March, after being unchanged for the first time in five years during February.


Imports to China declined 0.9 percent year-on-year to USD 165.25 billion in March 2020, compared with market expectations of a 9.5 percent drop and after a 4 percent decline in January-February combined, amid signs of improving domestic demand after lockdown restrictions were gradually lifted.

Purchases were down for refined products (-27.5 percent), soybeans (-13.1 percent) and edible vegetable oil (-19.3 percent). Meanwhile, China’s pork imports almost tripled to a record highafter African swine fever reduced the country’s pig herd. Imports also increased for crude oil (4.5 percent), unwrought copper (13 percent), coal (18.5 percent) and steel products (26.3 percent). Among the biggest trade partners, imports declined from the US (-12.6 percent), South Korea (-1.7 percent) and Australia (-1.6 percent), but were up from ASEAN (163.5 percent), Taiwan (11.4 percent) and Japan (4.8 percent). For the first three months of the year, imports dropped 2.9 percent.


Exports from China dropped 6.6 percent year-on-year to USD 185.15 billion in March 2020, compared with market estimates of a 14.0 percent fall and after a 17.2 percent plunge in January-February combined, amid the coronavirus pandemic.

Sales of unwrought aluminum and products fell 5 percent, but were still at their highest since May 2019. Meanwhile, exports of steel products increased 2.3 percent and those of rare earth jumped 19.2 percent, the largest annual advance since 2014, as the industry appeared to recover from the coronavirus outbreak.

Among the biggest trade partners, exports fell to the US (-20.8 percent), Australia (-8.6 percent) and Japan (-1.4 percent), but rose to ASEAN (7.7 percent), Taiwan (4.0 percent) and South Korea (1.2 percent).

Considering the first quarter of 2020, exports declined 13.3 percent from a year earlier.

Trade Surplus

China’s trade surplus narrowed sharply to USD 19.9 billion in March 2020 from USD 31.5 billion in the same month of the previous year, but slightly above market expectations of USD 18.55 billion.

It moved back from a deficit in February and January 2020 following the resumption of exports

Exports and imports fell less than anticipated as factories resumed production. China’s politically sensitive trade surplus with the United States was USD 15.3 billion, accounting for three-quarters of its March surplus. For the first three months of the year, China’s trade surplus totaled USD 12.8 billion

Monetary policy

The People’s Bank of China lowered the interest rate on its medium-term lending facility to 2.95% from 3.15% on April 15th 2020. It is the lowest rate since the liquidity tool was introduced in September of 2014, aiming to continue to provide funding to the economy in an attempt to curb the effects of the coronavirus. The PBoC also injected CNY 100 billion via the liquidity tool.

Bank’s Reserve Requirement Ratios

The People’s Bank of China announced it will cut the reserve requirement ratio for mid-sized and small banks by 100bps, in two phases, releasing around CNY 400 billion to support the economy hurt by the COVID-19 pandemic.

The first cut of 50bps will be effective as of April 15th, and the second cut of another 50bps will be effective as of May 15th. In addition, financial institutions’ excess reserve requirement ratio with the central bank would be reduced to 0.35 percent from 0.72 percent, effective April 7th.

Meanwhile, the reserve requirement ratio (RRR) for large banks was kept at 12.5 percent.

Bank Lending

New bank lending in China surged to CNY 2.85 trillion ($405 Billion) in March of 2020, higher than CNY 0.91 trillion in February and market forecasts of CNY 1.8 trillion as the central bank injected more money into the financial system and cut borrowing costs aiming to offset the impact of the coronavirus pandemic.

Household loans, mostly mortgages, rose to CNY 0.98 trillion after falling by CNY 0.41 trillion in February and corporate loans jumped to CNY 2.05 trillion from CNY 1.13 trillion.

Total social financing which includes off-balance sheet forms of financing like initial public offerings, loans from trust companies and bond sales rose to a record of CNY 5.15 trillion from just CNY 0.86 trillion.

Considering Q1, total bank lending hit CNY 7.1 trillion, a quarter record high.

China’s economic number show without a doubt that the second-largest economy of the world is pulling out of the downdraft ahead of the rest of the world, and should be the only country to deliver positive economic growth in 2020.

Overall, the March indicators are worst than expected but still better than February’s data.


As is the case in Europe, Japan is slower than the USA for the reporting of their official economic data so most numbers relate to February, a month where only the second half was affected by COVID-19. However, a number of surveys and Business confidence give an idea of the impact of the Virus.

Moreover, the second wave of virus cases driven by rising infections in Tokyo and Osaka has triggered a major shift in economic behavior. And while new cases in the two lynchpins of the Japanese economy have stabilized in recent days, yesterday’s declaration of a nationwide state of emergency until 6th May suggests economic activity will remain extremely subdued over the coming weeks.

Outside the seven prefectures previously under a state of emergency, many were already self-isolating at home and many retail businesses had closed or cut their operating hours. The state of emergency gives local authorities the power to request businesses to close and to urge citizens to work from home.

The experience from Tokyo – where commuters were down 60% this week relative to January – is that most will heed such a request. Based on assumptions of spending on retail and transport collapsing, and activity in the tourism sector slowing to a trickle, we are forecasting a -12% fall in GDP in Q2 quarter on quarter


Japan’s first official estimate for March 2020 will be released on April 30 2020. However, Bloomberg Economics models point to a contraction of -2.5 % of GDP in April after a -1 % contraction Year on year in March, for the time being.


The unemployment rate in Japan stood at 2.4 percent in February 2020 to match consensus, as the number of unemployed increased by 1.2 percent to 1.66 million while employment was unchanged at 67.43 million.

The jobs-to-applications ratio declined sharply to 1.45, the lowest in three years. Unemployment has stoically resisted fourteen straight months of falling Japanese exports in the midst of trade disputes and a downturn in the global manufacturing cycle led by the automotive and semiconductors industries.

The metric is expected to jump to 2.74 % in April according to Bloomberg economics Models.

Japan’s Services PMI

The au Jibun Bank Japan Services PMI was revised higher to 33.8 in March 2020 from a preliminary estimate of 32.7, pointing to the steepest contraction in the sector since February 2009 as the rapid spread of COVID-19 led to a plummeting in tourism and to cancellation of major events globally.

Output fell at a near-record pace and new orders shrank the most since April 2011 which was the immediate aftermath of the tsunami, with exports falling at the strongest rate since the series started in September 2014.

In addition, employment declined the most since July 2016, while backlogs of work dropped at the fastest rate in nearly nine years.

Japan Services PMI

Consumer Confidence

The Consumer Confidence Index in Japan plunged to 30.9 in March of 2020 from 38.4 in the previous month, reaching the lowest level since March of 2009 due to the coronavirus outbreak.

A deterioration was seen in all sub-indices: overall livelihood (down 7.5 points to 30); income growth assessment (down 4.9 points to 34.8); employment perceptions (down 11.6 points to 27.9); and willingness to buy durable goods (down 5.4 points to 31).

Industrial production

Industrial production in Japan unexpectedly declined 0.3 percent month-over-month in February 2020, compared with the preliminary reading of a 0.4 percent rise and after an upwardly revised 1.9 percent gain in the previous month, defying market consensus of a 0.4 percent increase.

It was the first contraction in production since last November, as international activity decelerates and the coronavirus pandemic affects supply chains. Production shrank for motor vehicles (-4.4% vs 5.5% in January), transport equipment (-9.4% vs 15.6%) and machinery (-5.0% vs 2.8%). By contrast, output grew for production electronic parts and devices (8.3% vs 1.2%), iron, steel and non-ferrous metals (2.5% vs 4.3%). On the other hand, output rebounded sharply for inorganic and organic chemicals (6.2% vs -3.4%).

On an annual basis, industrial output contracted 5.7 percent in February, the fifth straight month of decline, after an upwardly revised 2.4 percent fall in January.

Japan Manufacturing PMI

The au Jibun Bank Japan Manufacturing PMI was revised lower to 44.2 in March 2020 from a preliminary estimate of 44.8 and below February’s final 47.8.

However, the latest reading for April points to the steepest month of contraction at 36.2, the lowest reading ever, amid a deepening virus crisis that stoke fears over a recession.

Output fell the most since the aftermath of the tsunami in April 2011 and new orders fell sharply amid reduced client demand across both domestic and external markets. Also, employment fell for the first time since September 2015 and vendor performance deteriorated at the quickest rate since May 2011.

Japan’s Producer Prices

Producer prices in Japan declined 0.4 percent year-on-year in March 2020 after rising 0.8 percent in the previous month and compared to market expectations of a 0.1 percent decline.

The decline was mainly explained by a 10.3 percent plunge in prices for petroleum & coal products following a 1.7 percent climb in the previous month. Also, prices for nonferrous metals fell 7.6 percent following a 2 percent decline. In contrast, prices for food & beverages increased by 0.9 percent (vs 1.3 percent in February). On a monthly basis, producer prices declined 0.9 percent, following a 0.4 percent drop in the prior month.

Business Confidence

The Bank of Japan’s Tankan index for big manufacturers’ sentiment fell to a seven-year low of -8 in the first quarter of 2020 from 0 in the prior period but still came above market expectations of -10.

Sentiment deteriorated particularly among firms in shipbuilding (-29 vs -7 in Q4), non-ferrous metals (-26 vs -15), and petroleum & coal products (-18 vs -12). In contrast, sentiment in food & beverages remained positive but declined to 5 nonetheless (vs 10 in Q4). Big firms plan to raise their capital spending by 1.8 percent, down from 6.8 percent in the previous quarter but above a 1.1 percent expected to decline by consensus. Among non-manufacturing large firms, sentiment eased sharply to 8 from 20 in Q4, also above market expectations of 6.

Monetary policy

The Bank of Japan left its key short-term interest rate unchanged at -0.1% in an emergency meeting on 16th March but increased the annual pace of ETF buying to JPY 12 trillion from JPY 6 trillion and other risky assets including equities to contain the economic fallout from the COVID-19 pandemic.

Policymakers also introduced a new operation to provide loans against corporate debt (of about JPY 8 trillion as of end February) as collateral at the interest rate of 0% with maturity up to 1 year.

This operation will be conducted until the end of September 2020. The central bank also increased the upper limit to purchase CP and corporate bonds by JPY 2 trillion in total and conduct with the upper limit of their amounts outstanding of about JPY 3.2 trillion and JPY 4.2 trillion respectively. The additional purchase will continue until the end of September.
Monday’s meeting replaced a regular rate review that was initially scheduled for 18-19 March.

Central Bank Balance Sheet

Central Bank Balance Sheet in Japan increased to 604432.50 JPY Billion in March from 584920.80 JPY Billion in February of 2020.

Japans’ economic outlook will be worsening significantly in March and April, particularly with the resurgence of the Virus and the decisions to re-instate lockdowns in parts of the country.

On the other hand, Japan’s fiscal and monetary efforts to keep the momentum going have no equivalent in the world with 20 % of GDP in fiscal stimulus and the largest asset-buying program ever.

Contrary to other nations apart from Switzerland, Japan’s central bank has the power to buy equities on its balance sheet and has been using it



With its 342 Million people and 14 Trillion of GDP , the world’s third-largest economic zone is also one of the most affected with Spain, Italy and France experiencing three times the number of US fatalities. The Southern countries have been more affected and have imposed much stricter lockdowns measures for much longer than anywhere else, while the North has been less impacted.

Talks of an early exit of confinement in Italy, Germany and Switzerland have been matched by decisions to extend lockdown in France, Spain and Portugal.

Europe was already in an economic slowdown since the launch of Donald Trump’s Trade War in February 2018 with growth rates barely reaching 1 %.

COVID-19 has hit them badly, particularly Italy, Spain, and France and it will take until the end of April before we get the full picture for the first quarter, so we shall review these countries at a later stage


The preliminary flash estimates of the Eurozone and EU GDP in the first quarter of 2020 will be published on April 30th but the Bloomberg Economics model forecasts a contraction of – 5 % as of April 16th, 2020. This is by far the sharpest contraction in peacetime.


The Euro Area seasonally-adjusted unemployment rate fell to 7.3 percent in February 2020, its lowest level since March 2008 and slightly below market expectations of 7.4 percent, as the number of unemployed decreased by 8,000 from the previous month to 12.047 million.

Among the bloc’s largest economies, the lowest unemployment rate was recorded in Germany (3.2 percent), while higher rates were observed in France (8.1 percent), Italy (9.7 percent) and Spain (13.6 percent). These statistics only refer to February and in Europe, claims are made on a monthly, and not weekly, basis

However, Bloomberg’s Economic Model predicts a jump to 9 % in March as of April 17. a significant increase in unemployment. The official unemployment rate for March will be published on April 30.

Household Consumption

Eurozone Household consumption is expected to decline by -4.75 % in April 2020 according to Bloomberg’s economic model.

Industrial Production

Not surprisingly, Industrial production is taking a much bigger hit with a decline of -8 % in April for now according to Bloomberg’s Economic Model

Monetary Policy

At their last meeting, ECB policymakers agreed that bold and decisive action was needed to counter the serious risks posed by the rapidly spreading coronavirus for the monetary policy transmission mechanism, the outlook for the Eurozone economy and, hence, ultimately the ECB’s price stability objective, the accounts of the March 18th emergency meeting showed.

Officials worried about the extreme volatility of financial markets, the likely deterioration in the outlook for economic activity and inflation as well as the accompanying drop in inflation expectations. The March’s decision to launch a massive asset purchase programme came in just six days after the ECB agreed on a small increase in asset buys and after ECB President Christine Lagarde said it was not the ECB’s job to help “close spreads”. The ECB held its benchmark interest rate at 0 percent on March 12th.

The 430 million people, 14 Trillion Eurozone economy stands to lose 665 Billion US dollars equivalent of GDP in the second quarter of 2020.

It is more than doubtful that consumption and production can jump back to normality before the end of the year, especially considering the 3 million jobs lost over the period.



Germany’s economy is seen contracting 9.8 percent in the second quarter of this year, the most since records began in 1970, as efforts to contain the rapid spread of Covid-19 weigh on activity and demand, the country’s top economic research institutes said on April 8th.

The think tanks also said the GDP is likely to shrink by 4.2 percent this year and grow by 5.8 percent next year while the unemployment rate is expected to peak at 5.9 percent.

Bloomberg economic models point to a -4.75 % contraction of Germany’s GDP in April 2020 at a time where the Government is studying measures to exit the lockdown situation.

The Ifo institute believes that Germany’s economy could contract by between 5 percent and 20 percent this year depending on the length of the shutdown caused by the pandemic.


The seasonally adjusted number of unemployed people in Germany increased by 1 thousand to 2.267 million in March 2020, following a revised 8 thousand drop in February and compared to market expectations of a 29 thousand jump. In unadjusted terms, unemployment fell by 60.2 thousand to 2.335 million. The jobless rate was unchanged at 5 percent, remaining close to the lowest since German reunification in 1990. The Federal Labour Office warned that these figures did not reflect the escalation of coronavirus crisis since only figures up to March 12th were included.

Bloomberg’s Economic Model predicts a jump in unemployment to -5.6 % in April 2020.

Consumer confidence

The GfK consumer sentiment indicator for Germany plunged 5.6 points to 2.7 heading into April 2020, the lowest reading since May 2009 and well below market consensus of 7.1.

There was a sharp deterioration in consumers’ expectations regarding their personal income (-13.4 points to 27.8, the lowest since March 2013) as well as the overall economic development (-20.4 points to -19.2, the lowest since August 2012) amid fears over a recession due to the COVID-19 pandemic. The gauge measuring propensity to buy was also down sharply, falling 22.2 points to 31.4, the lowest since June 2013.


The IHS Markit Germany Composite PMI was revised lower to 35 in March of 2020 from a preliminary of 37.2 and 50.7 in February. The reading pointed to a record contraction in private sector activity, as services also shrank at a record pace (31.7 from 52.5) while manufacturing fell at a faster pace (45.4 from 48). Reflecting the global nature of the COVID-19 crisis, the level of new export business received by firms in Germany dropped at a record rate and with domestic demand also hit hard by shutdowns and heightened uncertainty, inflows of total new business likewise posted a record fall. The decline in employment was the second-fastest in the survey’s history and sentiment towards future activity turned negative in March, slumping to its lowest since the start of comparable data.


The IHS Markit/BME Germany Manufacturing PMI was revised lower to 45.4 in March of 2020 from an initial estimate of 45.7. The reading pointed to the 15th straight month of contraction in factory activity amid progression of the coronavirus disease outbreak into a pandemic.

Both output and new orders fell the most since April of 2009, driven by growing weakness in international demand and increased supply-chain disruption.

Employment capacity was meanwhile scaled back. There was some relief on the supply-side from a further drop in input costs, linked to lower demand for raw materials and the recent slump in oil prices. The decline in output prices accelerated to the quickest since September of 2009.

Germany Manufacturing PMI

Factory Orders

Germany’s industrial orders dropped by 1.4 percent month-over-month in February 2020, compared with market expectations o a 2.4 percent fall and after a downwardly revised 4.8 percent growth in the previous month.

Foreign orders fell by 3.6 percent, due to lower demand from both the Euro Area (-5 percent) and other countries (-2.7 percent). In contrast, domestic orders grew by 1.7 percent. By category, demand contracted for capital goods (-3.4 percent), while increased for both consumer (1.7 percent) and intermediate goods (0.9 percent).

Construction Activity

The IHS/Markit Germany Construction PMI fell to 42 in March of 2020 from 55.8 in February. The reading pointed to the steepest contraction in the construction sector in seven years, as the coronavirus outbreak caused building site closures and led to a widespread postponement of client orders.

Constructors scaled down their workforce numbers for the first time in almost five years.

There was also a sharp decrease in purchases of raw materials and other building products by constructors, alongside a reduction in the use of subcontractors. However, amid disruption to supply chains and reports of transport issues (including border checks), constructors faced a marked increase in input lead times. Delivery delays were the worst since October 2017.

Business Confidence

The Ifo Business Climate indicator for Germany was revised lower to 86.1 in March 2020, the lowest since July 2009, from a preliminary estimate of 87.7. It was also the steepest monthly fall since German reunification as the COVID-19 outbreak hurts businesses, jobs, and overall activity.

Sentiment across service providers posted the biggest fall on record (-7.6 vs 17.4 in February) and that among traders also declined sharply (-21.4 vs 1.0). In addition, manufacturing confidence dropped to -18.2 (vs -1.6 in February), the lowest since August 2009, while morale among constructors was down to 5.0 (vs 12.9 in February).


The annual inflation rate in Germany was confirmed at 1.4 percent in March 2020, down from the previous month’s 1.7 percent and the lowest since November last year. Services inflation eased (1.4 percent vs 1.6 percent) despite a slightly faster increase in rents cost (1.5 percent vs 1.4 percent), while energy prices dropped (-0.9 percent vs 2 percent). Conversely, food inflation accelerated to 3.7 percent from 3.3 percent. On a monthly basis, consumer prices edged up 0.1 percent in March, after a 0.4 percent rise in February.

Wholesale Prices

Wholesale prices in Germany dropped by 1.5 percent year-on-year in March 2020, following a 0.9 percent fall in the previous month. There were decreases in the cost of petroleum products (-10.4 percent), used and residual materials (-27.1 percent), grain, raw tobacco, seeds and animal feed (-6.6 percent) and information, communication equipment (-6.2 percent). In contrast, prices rose for live animals (31.8 percent) and meat and meat products (9.3 percent).

Budgetary Policy

Germany has been extremely criticized for ts fiscal orthodoxy and the Government’s ability to sustain budget surpluses every year since it pulled out of the economic downturn in 2013. Germany is the only country in the world with Singapore that runs budget surpluses.

However, faced with the extremely sharp downturn caused by COVID-19, the country’s debt-to-GDP ratio is expected to jump from 60 % to 70 %, on the back of an unprecedented stimulus package of €750 billion approved by the government.

Despite being the most solid and best-managed economy in Europe, the impact of COVID-19 on the German economy is bound to be worse than the impact of the 2008 financial crisis.

German exports had already been affected by the 2018 Trade War bringing the German economy to a standstill in 2019 and its momentum is weak. As it will probably take time for corporations around the world to get back to normality, new investments, and therefore exports of German machinery should be the latest part to recover in the cycle.

Pending a more exhaustive analysis at the end of April, we show below the Bloomberg Economic Models forecasts for GDP and Unemployment in various economies as of April 17th.


GDP – 4.6 %

Unemployment 5.8. % + 43 %


GDP -3.1 %

Unemployment 2.7 % +12 %


GDP -4.5 %

Unemployment 9.3 % +10 %


GDP -7.1 % US$ -140 Bln.

Unemployment 11.5 % +11 %


GDP -5.0 %

Unemployment 13.8 % +2 %


GDP -1.3 %

Unemployment 6.7 % +27 %


GDP -1.60 %

Unemployment 11.05 % + 10.5 %


The latest economic data available for March 2020, the first month of the real impact of the virus in Europe and America, paints the picture of THE WORST AND SHARPEST ECONOMIC CONTRACTION of the past century.

Contrary to the 1929 depression which was a US event that spread somehow to the rest of the world, COVID-19 has locked down almost half the world population for weeks now, and there is probably more to come.

In terms of the lasting effects of COVID-19, the real issue is not the virus itself but the capacity or incapacity of individuals, corporations, and countries to weather a temporary shut down for whatever reason.


The true economic problem is that individuals, corporations, and Governments are addicted to debt and tight cash-flows.

The world is now at its fourth debt accumulation binge since the 1980s and is now sitting on 350 Trillion of debt.

Every economic crisis of the past 50 years – 1990’s emerging debt, 2000 dotcom, 2008 financial crisis – ws triggered by unexpected “black swan” events that triggered a domino effect of de-leveraging and bankruptcies.

COVID -19 is no different, just another black swan event that is popping the “mother of all debt bubbles”.

Every past crisis has saddled Governments with more debt and, since 2008, saw the balance sheets of the main Central Banks with an accumulation of assets that they cannot keep on their books forever.

The four major Central Banks of the world have now accumulated more than 22 Trillion of assets, mainly in bonds, and another 3 to 4 trillion have juts been announced in the past few weeks.

Central banks print money to buy these assets!

At some point, investors will lose faith in the currencies printed by these Central banks and will find refuge in Gold, real assets and Crypto-currencies.

Monetary policy is no longer effective with interest rates at zero or negative and bond yields no longer reflect the risks associated with debt.

As such, analysts making valuation comparisons based on equity P/Es and bond yields are using the wrong metrics, in exactly the same way algorithmic trading is using patterns of a different normality to drive asset prices today.

Politically, Wealth inequalities have risen considerably creating a very unstable social and political terrain, boosting nationalisms and populisms, as was the case in the 1920s.

Anyone hoping, as is the US stock market today, that COVID-19 will disappear in a few weeks time and that things will get back to normal, 2020 being written off is living in fantasy land…





The two charts below summarize the situation that will prevail in 2021