Hong Kong: Evidence of the devastation wreaked on the global economy by the coronavirus pandemic mounted on Tuesday as activity surveys for March from Australia and Japan showed record falls, with surveys in Europe and the US expected to be just as dire.
Entire regions have been placed on lockdown and in some places soldiers are patrolling the streets to keep consumers and workers indoors, halting services and production and breaking down global supply chains. Mirroring the emptying of supermarket shelves around the world, indebted corporates have rushed into money markets to hoard dollars, with a global shortage of greenback funding threatening to cripple firms from airlines to retailers.
“The coronavirus outbreak represents a major external shock to the macro outlook, akin to a large-scale natural disaster,” analysts at BlackRock Investment Institute said in a note.
Purchasing Managers’ Index (PMI) surveys from Japan showed the services sector shrinking at its fastest pace on record this month and factory activity contracting at its quickest in a decade. Services PMI slumped to a seasonally adjusted 32.7 from February’s 46.8 and manufacturing PMI fell to 44.8 from a final 47.8 last month. The 50 mark separates growth from contraction.
In contraction mode
The survey results were consistent with a 4 per cent contraction in the economy in 2020, Capital Economics senior economist Marcel Theliant said. The likely postponement of the Tokyo Olympics is expected to deal a heavy blow to the world’s third largest economy.
In Australia, the CBA Services PMI fell to a record low of 39.8 as restaurants, cafes and tourism were hit hard by travel bans and cancellations of events and concerts. A separate analysis of card spending data by Commonwealth Bank of Australia showed shopping outside of grocery, alcohol and healthcare was bleak.
Later on Tuesday, the euro zone composite PMI is expected to come in at 38.8, the lowest since early 2009. US manufacturing and services PMIs are also expected at multi-year lows of 42.8 and 42.0, respectively.
Keep cash pipelines open
With most asset markets tanking, global central banks have been rolling out extraordinary measures on an almost daily basis to stop the rot.
In its latest drastic step, the Federal Reserve on Monday promised bottomless dollar funding.
For the first time, the Fed will back purchases of corporate bonds, backstop direct loans to companies and “soon” will roll out a programme to get credit to small and medium-sized business.
It will also expand its asset purchases by “as much as needed”. The Fed last week slashed borrowing costs to zero and took other emergency steps to keep the commercial paper, Treasury and foreign dollar funding markets functional.
Bickering gets in the way
Still, some analysts say infinite monetary policy easing may not be enough and fiscal steps are crucial. The latest US effort on that front remains stalled in the Senate as Democrats said it contained too little money for hospitals and not enough limits on funds for big business.
Finance and monetary leaders from the world’s 20 largest economies agreed on Monday to develop an “action plan” to respond to the pandemic that the IMF now expects to trigger a global recession, but offered no specifics.
“For the US economy to be able to come out of the current crisis and the ongoing recession relatively unscathed, more radical policy interventions will be needed in the next few weeks,” Anna Stupnytska, global head of macro and investment strategy at Fidelity International said.
Speculation is mounting that data due on Thursday will show US jobless claims rose an eye-watering 1 million last week, with forecasts ranging as high as 4 million. Goldman Sachs warned the US economy could contract by an annual rate of 24 per cent in the second quarter, two-and-a-half times greater than the previous biggest contraction in the period after World War Two.
“Despite aggressive moves by central banks, investors remain unconvinced that any of these actions will be enough to stave off the ill-effects from (the virus),” ING Asia economist Prakash Sakpal said.