The rebound of the world economy from the depths of the coronavirus crisis is fading. Thus, it sets up an uncertain finish to the year.
There are multiple concerns. The wait for a vaccine continues. Thus, the coming northern winter can trigger another wave of the virus. Government support for bank moratoriums and furloughed workers on loan repayments will expire. Strains between China and the United States may get worse in the run-up to November’s presidential election. Moreover, it can undermine business confidence.
Joachim Fels works at Pacific Investment Management Co. He is a global economic adviser there. Fels told Bloomberg Television that they have seen peak rebound. Moreover, he added that from now on, the momentum is fading a little bit.
That is setting up a delicate balancing act for governments. Furthermore, they have injected approximately $20 trillion in monetary and fiscal support. It is an effort to get the economy as far back to normal as it is feasible in a pandemic. Thus, it can point to plenty of successes.
In August, the United States unemployment fell sharply. Nevertheless, the housing market has been a bright spot. The steady recovery of China is a guide to where the rest of the world is headed. Moreover, Germany posts some decent industrial data as well. From the decline of the dollar, emerging markets are getting a breather.
Nevertheless, keeping up the momentum on all these fronts would not be easy. At a point when some are looking to cut back instead, it will require policy markets to top up their stimulus efforts. Looking at all the scientific progress with vaccines, they will not be available anytime soon on the scale needed to bring the coronavirus under tight control. In other words, it is a critical condition for business-as-usual.
There are headwinds, meanwhile. For example, in labor markets, government aid helped to drive an initial rebound. This may have been the easy part. Next up is the long slog of retraining workers, retooling businesses, and reallocating resources in industries that are no longer viable. This kind of restructuring will need time.
Some of the best-known industrial brands of the world have signaled that job cuts are on the way, already this month.
A.P. Moller-Maersk A/S plans a major overhaul. It is set to affect thousands of workers for one of the biggest container shipping companies in the world. For example, Ford Motor Co. cuts around 5% of its United States salaried workers. Moreover, United Airlines Holdings Inc. will eliminate sixteen-thousand jobs next month.
There are other worrying sings as well.
China contained the virus months ago. Nevertheless, the nation’s biggest banks just posted their worst profit declines in more than a decade as bad debt ballooned consumers are remaining reluctant to spend.
United States lawmakers continue haggling over more fiscal stimulus. It may be needed to sustain the recovery in the largest economy of the world.
Ryan Sweet works at Moody’s Analytics. He is the head of monetary policy research there. Sweet said that adding 1.4 million jobs in August was a big step in the right direction