Over the course of the last 24 hours, a number of reports were released that provide some news on the global economic impact of the COVID 19 crisis.
First, the ECB made the announcement to buy 900bn euros of extra bonds in an attempt to stave of the debt crisis. This means that EU government debt will almost certainly reach 100% of EU zone GDP - above the sovereign debt crisis. If you take a look at the IMF fiscal monitor, you will see that this will push Greece, Spain and Italy above 100% of GDP. In short, the countries to south of the EU zone will be most exposed and impacted, which will prolong their recovery.
The Federal reserve Industry production recorded factories, mines and utilities production dropping 5.4% from feb to march – this is the worst decline since 1946. Retail sales were also down. This tells us that the world’s largest economy is suffering from a broad shutdown. In contrast, a traditional recession starts with a hard pull back in manufacturing, followed by a softer one in retail, so we are seeing simultaneous ‘hard pull backs’ at the same time. The Federal Reserve also produces a beige book of anecdotes, which shows that all districts in the report reported uncertain outlooks and expect a more protracted recession.
The US Banks completed their first quarter reporting and collectively provisioned total $25bn in loan loss provisions - forecasting recession status for 2020 and into 2021.
Finally and into tomorrow, China will report their first decline in GDP since 1976.