Britain’s economy shrank by a record 5.8 percent in March as the Covid-19 crisis escalated and the government shut down much of the country, according to official data that point towards an even bigger hit to come.

The monthly drop in gross domestic product was felt in almost all sectors – from the country’s shuttered restaurants and bars to its building sites and factories – and was the largest since comparable records began in 1997.

“The sharp contraction in UK Q1 GDP comes as little surprise, but does clearly highlight the magnitude of the challenge facing policymakers,” JP Morgan market strategist Hugh Gimber said.

In the first three months of the year, GDP contracted by 2.0 percent from the last three months of 2019, the biggest drop since the depths of the financial crisis in late 2008, the Office for National Statistics said.

The Bank of England said last week that the contraction of the economy in the April-June period could approach 25 percent and lead to the largest annual decline in more than three centuries.

British two-year government bond yields sank to a record low of -0.045 percent after the data, reinforcing expectations that the Bank of England will ramp up its record £645 billion (€732 billion) of asset purchases next month.

Finance Minister Rishi Sunak said Britain was now in the midst of a significant recession.

“We have to support people’s jobs, their incomes, livelihoods at this time, and support businesses so we can get through this period of severe disruption and emerge stronger on the other side,” he said after the GDP data.

On Tuesday, Britain’s government extended a costly job support programme for another four months, though businesses will need to pick up more of the tab from August.

The decline in first-quarter GDP was slightly smaller than economists had forecast in a Reuters poll, and less than the 3.8 percent slump suffered by the euro zone in the first quarter.

The worst-hit country in Europe with more than 40,000 deaths from Covid-19 according to official data, Britain has been in extensive lockdown since March 23 – a later date than in many other euro zone countries.

Small steps to ease lockdown

England tentatively began easing its Covid-19 lockdown on Wednesday, with some people who cannot do their jobs at home urged to return to work, while Scotland, Wales and Northern Ireland, which have semi-autonomous governments, are sticking with a “stay at home” message for now.

UK Prime Minister Boris Johnson’s government has faced a barrage of criticism that its new guidance – stay alert, control the virus, save lives – was confusing.

Appearing on Sky News TV, Transport Minister Grant Shapps was asked why estate agents were being allowed to restart house viewings when people could not have their own relatives to visit.

“The truth of the matter is, you have to start somewhere. The lockdown message was very straightforward – it was just stay at home. Now as we start to unlock, of course, there have to be decisions made,” Shapps said.

“There is no perfect way of doing this, and we’d ask people to use their common sense … Right now, there has to be a cut-off somewhere.”

Workers were being advised to avoid public transport if at all possible, and schools remained closed, prompting questions about how parents and people who could not get to work by other means were supposed to apply the new guidance.

Employers faced the daunting task of creating safe environments for their staff, with detailed guidance on one-way systems at entry and exit points and in stairwells, spacing out workstations and other minutiae.

For those still working from home or unable to work, there was only a very slight change in the regime. People were now allowed out to exercise more than once a day, and two people from separate households were allowed to meet outdoors as long as they kept two metres apart.

Martin Hewitt, chairman of the National Police Chiefs’ Council, said officers would still be encouraging people to go home if they were out for reasons other than the authorised exercise, shopping for essentials, health or work.

Fines for transgressions have been increased.

“Everybody will carry on hopefully working in the spirit we’ve had for the last seven weeks,” he told BBC TV.

“It’s not for the police to police people being two metres apart, that’s about everyone’s individual responsibility. If there are those people who refuse to abide by the new regulations then we will move to enforcement if that’s what we have to do,” he said, describing that as a last resort.

(FRANCE 24 with REUTERS)

Chinese and US trade representatives agreed Friday to “create favourable conditions” for the phase one trade deal signed in January, Beijing officials said, despite recent tensions over the coronavirus pandemic.

China’s Vice Premier Liu He, who had led Beijing’s negotiations, held a call on Friday morning with US Trade Representative Robert Lighthizer and Treasury Secretary Steven Mnuchin, according to a notice from the Ministry of Commerce.

“Both sides said they should strengthen macroeconomic and public health cooperation, strive to create a favourable atmosphere and conditions for the implementation of the phase one US-China economic and trade agreement, promoting positive results,” the notice said.

The countries have also agreed to maintain communication and coordination.

The exchange took place after both nations recently traded barbs over the deadly virus.

Last week, US President Donald Trump threatened new tariffs against China after claiming there was evidence linking COVID-19 to a top-security lab in the central Chinese city of Wuhan, where the pathogen first emerged late last year.

In January, Beijing agreed to import an additional $200 billion in US products over two years, above the levels purchased in 2017, marking a truce in a bruising trade war.

Source: AFP

The Executive Board of the International Monetary Fund (IMF) approved today a disbursement under the Rapid Credit Facility (RCF) equivalent to SDR 165.6 million (about US$ 226 million, 60 percent of quota) to help Cameroon meet the urgent balance of payments needs stemming from the COVID-19 pandemic. The outbreak of the COVID-19 pandemic and the terms of trade shocks from the sharp fall in oil prices are having a significant impact on Cameroon’s economy, leading to a historic fall of real GDP growth.

The authorities are taking several actions to contain the spread of the disease, boost health and social protection spending, and provide support to affected businesses and households. However, due to a significant deterioration of the macroeconomic outlook and weakening of fiscal situation, driven by the drop of revenue in combination with additional direct health and social expenditures, urgent external and fiscal financing needs have emerged. The IMF’s support will help to fill immediate external needs and preserve fiscal space for essential COVID-19-related health expenditure. It is also expected to help catalyze additional donor support.

Following the Executive Board’s discussion on Cameroon, Mr. Mitsuhiro Furusawa, Deputy Managing Director and Acting Chair, issued the following statement:

“Cameroon is facing serious challenges from the twin Covid-19 pandemic and terms of trade shocks. Weak global demand, depressed commodity prices, and domestic containment measures weigh on the outlook, and are causing significant adverse economic and social effects. The shocks have given rise to substantial fiscal pressures and an urgent balance of payments need.

“The authorities are taking decisive actions to limit the spread of the virus and its economic and social impact. They have implemented strong crisis containment and mitigation measures and are scaling up spending to bolster their health response. Additional measures currently under consideration will provide support to vulnerable households and firms.

“Given the sudden and pressing nature of the shocks, accommodative fiscal and monetary policies are warranted to mitigate the human and economic impact of the outbreak. However, the authorities remain committed to their reform agenda under the ECF arrangement. They plan to undertake adjustments to return to the fiscal consolidation path once the crisis abates to safeguard debt sustainability and ensure a strong recovery.

“IMF emergency financing under the RCF will support the government’s efforts to mitigate the impact of the twin shocks. Additional assistance from development partners will be critical to fill the remaining financing need. Strict budgetary controls and transparency will be needed to ensure that the assistance under the RCF meets its intended objectives.”

Culled from IMF

France said on Friday it was readying a “historic” package of multi-billion euro loans to help carmaker Renault and flag-carrier Air France through the crisis caused by the coronavirus.

For Air France, a seven billion euro ($7.5 billion) package is planned and for Renault five billion euro ($5.4 billion), Finance Minister Bruno Le Maire announced.

He said the package was needed to save Air France amid an unprecedented industry crisis but warned the money would come with strings attached, with the airline notably having to improve its environmental credentials.

For Air France, the loan package is made up of four billion euros in bank loans guaranteed by the state and a three billion euro loan direct from the state, he told TF1 television.

“We need to save our national company and the 350,000 direct and indirect employees affected,” he said, while describing the plan as “historic support”.

“We are behind Air France, behind the employees of Air France to guarantee our independence and save jobs,” he added, while denying that nationalisation was on the cards.

But he warned that the help was not a “blank cheque” and would come with “conditions” linked to its profitability but also environmental factors.

“Air France should become the most environmentally respectful airline in the planet. This is the most important condition for me.

“Air France needs to present a plan for reducing CO2 emissions and transforming its fleet to be less polluting,” he said.

In The Hague, Dutch Finance Minister Wopke Hoekstra announced the government plans to support KLM with an aid package worth between two to four billion euros.

“We are currently working out the exact form and details,” the finance minister said Friday.

‘Crisis will last years’

For Renault, a five billion euro ($5.4 billion) bank loan package guaranteed by the state is being worked on, Le Maire said.

“What is at stake here is our automobile industry. Renault is an industrial flagship that belongs to our culture and history,” he added.

The French state retains shareholdings in both Renault and Air France of 15 and 14.3 percent respectively.

Le Maire had previously warned that he expects GDP in France to contract 8 percent this year due to the effects of the lockdown against the coronavirus, which is due to last in France until May 11.

“This crisis is historic. It will last years. It will be long. It will be difficult. I want every businessperson to know that… the state will be beside them,” he added.

He said France would do everything “to save its companies and start again with an economy that is more respectful for the environment.”

Source: AFP

European Union leaders agreed on Thursday to build a trillion euro emergency fund to help recover from the coronavirus pandemic, avoiding another all-night bust-up but leaving divisive details until the summer.

With the EU’s Brussels headquarters under lockdown – along with most of Europe – the 27 leaders held a four-hour video conference to consider proposals, rallying around a bigger common budget for 2021-27 with a recovery programme.

At around 1% of the EU’s economic output, the multi-year common budget has long been one of the most contentious subjects of debate for its members. Expanding it will not be easy, even if Italy’s Prime Minister Giuseppe Conte hailed “great progress” after the summit ended.

French President Emmanuel Macron said differences continued between EU governments over whether the fund should be transferring grant money, or simply making loans.

“Divisions remain,” Macron told reporters in Paris.

“I’m saying this sincerely: if Europe raises debt to loan to others, that won’t live up to the response we need,” he said, adding that it would saddle already heavily-indebted countries, such as Italy, Belgium and Greece, with yet more debt.

Europe is facing a severe economic shock from the spread of COVID-19, the respiratory disease caused by the novel coronavirus, which has also led to border closures across the bloc and left member states fighting over medical supplies.

European Central Bank Governor Christine Lagarde told the leaders the pandemic could cut between 5% and up to 15% of euro zone economic output, officials and diplomats said.

The euro zone’s economic growth for 2020 is forecast to contract 5.4%, which would make it the worst year since the common currency was introduced in 1999, according to a Reuters poll. That is still better than the International Monetary Fund’s latest forecast for a decline of 7.5%.

‘Political emergency’

After weeks of squabbling, the leaders approved half-a-trillion euros worth of an immediate rescue scheme to protect jobs, businesses and offer cheap credit to governments.

But with Italy and Spain hit far harder than Germany by the crisis, old enmities have surfaced across the bloc. Reaching agreement among euro zone finance ministers two weeks ago on the smaller euro rescue scheme was torturous, as the Netherlands refused an Italian demand to issue common debt.

Conte told leaders that a recovery fund should be 1.5 trillion euros in size and provide grants to EU governments to stop countries heading towards economic collapse and thereby threatening the viability of the bloc’s internal market.

“Grants are essential,” Conte said, according to diplomats who were on the video conference. “The sanitary emergency has quickly become a social emergency. But now we are facing a political emergency as well.”

Austria’s Chancellor Sebastian Kurz took the opposite view, saying on Twitter that, while Vienna was ready to show solidarity, “we should do this through loans”.

Kurz said he would coordinate with “like-minded countries”, a reference to wealthy but cautious northern countries such as Denmark, Sweden, Finland and the Netherlands, who resent having to pay for poorer southern countries they see as fiscally irresponsible.

Spain, one of the world’s worst hit countries, backs Italy’s view that a fund must issue grants, rather than loans, while France has argued for a fund that could issue common EU debt, hoping its temporary nature will calm passions.

German Chancellor Angela Merkel took a conciliatory stance as she publicly called for a major recovery fund after the summit. “Things can only go well for Germany if they go well for Europe,” she said.

Leaders tasked the European Commission, the EU executive, to present detailed proposals by May 6, diplomats said.

Commission President Ursula von der Leyen said EU countries had so far handed out state aid worth 1.8 trillion euros to cushion the economic hit and that the new recovery fund would be in the order of magnitude of a trillion euros.

She said the solution was to increase the amount that each EU government would be liable to pay into a recovery fund if needed, raising it to 2% of gross national income (GNI), from 1.2% today. GNI is the EU’s preferred measure of economic output.

Most significantly, that means an implicit guarantee needed from EU governments for the Commission to issue bonds, a kind of “contingent liability”.

The Commission has a triple-A credit rating, issuing against the security of the next EU long-term budget.

“We are slowly heading towards some form of joint debt. We’ll never call it ‘coronabonds’ or ‘eurobonds’ and it will be raised by the Commission, rather than member states together,” said a senior EU diplomat involved in the summit.

Source: REUTERS