While the economic damage is mounting, predictions for economic recovery after coronavirus-linked lockdowns vary from 6% contraction to 0.7% growth.
The average stands at 1.2% contraction. But as the Coronacrisis is entering a new era the results of any reopening of the economy cannot be predicted. More and more of the world’s biggest economies take steps to restart vital industries and allow some people back to business.
Last week, Wall Street logged its second-straight week of gains. Investors appeared optimistic about a potential coronavirus treatment and discussions about reopening parts of the US economy. The coming week will bring further information on how major US corporations have been affected by the coronavirus pandemic.
The trauma caused by the pandemic in developed economies has been well documented. Now, the International Monetary Fund is warning about the impact on poorer countries. More than 100 countries so far have asked for emergency assistance.
The IMF expects global GDP will contract by 3% in 2020. This is a far worse recession than the one that followed the global financial crisis of 2008.
China’s economy shrank 6.8% in the first quarter of 2020 compared to a year earlier, compared to a gain of 6.0% in Q4. China’s economy encountered its first contraction in 28 years in as the coronavirus shut down factories and put millions out of work. Even the world’s second biggest economy, on a growth streak lasting four decades, was no match for the coronavirus pandemic.
Inflation remains low in the Eurozone, as CPI came in at 0.7%, while the core reading showed a gain of 1.0%.
In the U.S., consumer spending plunged in March. Retail sales declined by an astonishing 8.7%.
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Investors braced for more indications of economic damage from the coronavirus pandemic. Plans to gradually reopen economies hit by the coronavirus outbreak bolstered risk appetite.
EUR/USD recorded slight losses last week. So far in April, the dollar index has wandered between 98.813 and 100.940 and EUR/USD is down 1.4%. Economic numbers may worsen in April, as this month’s data will reflect the Covid-19 outbreak, which hit Europe in March.
GBP/USD showed little movement last week, closing the week at the 1.25 level. In the UK, there were no major events last week. The U.S. economy is showing serious signs of strain, but the British economy is in even worse shape. The dollar remains the currency of choice in the current crisis. Also, the pound will be hard-pressed to hold its own against the greenback.
The Japanese yen posted slight gains last week, pushing Dollar/yen below the 108 line. The U.S. dollar has emerged as the primary safe-haven asset in the current crisis, outshining the yen. The greenback has held its own against the yen in March and April, despite dismal economic data in the U.S.
After weeks of volatility, AUD/USD was almost unchanged last week. The COVID-19 outbreak has dampened risk appetite, meaning that minor currencies such as the Aussie will likely remain under pressure.
USD/CAD recorded small gains last week, as the pair closed just shy of the 1.40 line. The Bank of Canada maintained the benchmark rate at 0.25%, as expected. Weak oil prices are also weighing on the Canadian dollar.
The week ahead – Coronavirus-linked lockdowns to ease
The coronavirus pandemic pushes the economy into a deep recession. A busy week of corporate earnings reports and economic data may drive home the damage done by the global virus lockdown.
- On Tuesday (21.04) the RBA will release its Monetary Policy Meeting Minutes providing details of the March policy meeting. On the same day investors will focus on UK Employment reports. The Covid-19 outbreak has paralyzed the UK economy and therefore wage growth is about to fall and unemployment claims to rise.
- On Wednesday (22.04) investors await the most significant data of the week: UK inflation, Canadian Inflation, U.S. Unemployment Claims and US Manufacturing PMI.
With economic activity sharply lower, UK inflation levels are expected to fall. The estimate for March stands at 1.5% from 1.7%.
Regarding Canada, consumer inflation rose 0.4% in February, up from 0.3% marking its highest level since July. The core figure improved to 0.7%, up from 0.4% a month earlier.
US Jobless claims have crossed above the 5-million level for three straight weeks. The forecast remains gloomy, as the coronavirus pandemic has put millions of Americans out of work.
Awaiting the initial reading for April, the US Manufacturing PMI in March slowed to 49.1. Falling below the 50-level separates contraction from expansion.
- Readings on April manufacturing globally are due on Thursday (23.04) and are expected to hit recession-era lows.
Follow this week’s economic calendar.
PLEASE NOTE The information above is not investment advice.
Sources: Reuters, CNBC, FX street