UK mask shopper Oxford Street
Shoppers wearing masks walk along Oxford Street in London. As early signs of the coronavirus contagion being contained begin to wane, economic data indicates that global recovery is slowing down. Image Credit: AP

Dubai: As early signs of the coronavirus contagion being contained begin to wane, economic data indicates that global recovery is slowing down as many nations continue to battle a raging pandemic.

“Economic activity rose sharply in most economies as lockdowns eased during May and June, but, outside China, GDP is still some way below pre-COVID levels and there are signs that renewed virus fears are already prompting a slowdown,” cautioned Jennifer McKeown, an economist at Capital Economics.

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“Gains in industrial production were generally weaker in July than in June. And, if the high-frequency mobility data are anything to go by, the previously impressive rebound in consumer spending appeared to stall in August,” McKeown added. “While we expect the global recovery to continue, it seems to have entered a slower phase and is unlikely to resemble a V-shape.”

The global economy had begun to bounce back strongly from the collapse it suffered earlier this year, but latest data suggest the early gains from the lifting of coronavirus lockdowns have been exhausted, compounding evidence that economies could take longer to restore back to pre-pandemic levels.

Top economy sees more trouble

Analysts currently view that economic rebound in the US, the world’s largest economy, to get a lot tougher after an initial series of gains from the depths of the pandemic. Applications for regular state unemployment benefits continue to number more than 800,000 each week.

Moreover, chances in Congress diminished for additional support for the jobless and businesses on Thursday and funding for the temporary supplemental jobless benefit payments authorized by President Donald Trump in early August is evidently running out.

With the help of fiscal stimulus - from aid for small businesses to an extra $600 a week in jobless benefits - the US economy has rebounded faster than many economists expected.

Sustaining a robust pace, however, could prove challenging given the elevated unemployment rate, absence of additional government support and persistent spread of the coronavirus. The recovery right now is widely seen as fragile, and barring additional stimulus, the recovery will be more susceptible to downside risks.

UK, Russia econ view dims

The UK economy grew 6.6 per cent in July from June, having expanded by 8.7 per cent in the preceding month, which puts the economy – the largest country to release month-to-month figures for economic growth, among only a few others – on track for a 15 per cent gain in output in the third quarter.

The output follows a 20.4 per cent drop in the second and remained 11.7 per cent lower than it was in February, the last month before the pandemic began to disrupt the economy. Output in the services sector was down 12.6 per cent from February, while industrial output was down 7 per cent.

The breakdown of Russian second-quarter GDP released this week showed that the economy’s sectoral structure helped to cushion the fall in output from the pandemic, noted Liam Peach, an emerging markets economist at Capital Economics.

“More recently, there have been encouraging signs that activity as a whole is rebounding quickly. Despite this, the central bank looks set to cut interest rates further when it meets next week,” Peach added.

Eyes on Czech Republic, South Africa

“On the coronavirus front, the recent rise in cases in Russia is not a major threat to the recovery, but the increase in the Czech Republic is a bigger concern and presents a downside risk to our relatively upbeat forecast.”

The second-quarter GDP figures released in South Africa this week weren’t as bad as what most analysts had feared, which prompted Capital Economics to revise up their full year growth forecast, to a contraction of 8.5 per cent from down 11 per cent.

Even so, the country still suffered one of the largest contractions in second-quarter output of any major economy and more timely data suggest that the recovery has since slowed, which analysts at Capital Economics noted that is likely to prompt an interest rate cut at the Reserve Bank’s meeting next week.

Elsewhere, the renewed fall in oil prices is putting pressure on African producers’ finances, pushing Angola a step closer to default.

Asia still a global virus hotspot

Meanwhile in Asia, the recent jump in coronavirus cases in Korea, Hong Kong and Vietnam had a negative impact on each economy, with hospitality sectors bearing the brunt of the damage.

But with infection numbers now falling and restrictions being lifted, recoveries are slowly getting back on track. On the other hand, India this week overtook Brazil to become the second-worst affected country by the COVID-19 pandemic.

“It is only a matter of time before its total virus cases surpasses those in the US,” analysts at the London-based economic research consultancy wrote in a note.

“This grim milestone shouldn’t come as a huge surprise given India’s enormous population, but it’s still a major concern and the authorities have little choice but to keep restrictions in place for a prolonged period,” the analysts added. “This underpins our view that the economy will suffer a much larger drop in output this year than many of its emerging market peers, particularly those in Asia.”