The global economy’s fragile recovery is facing a fresh hurdle as a surge in coronavirus cases threatens to keep businesses closed and consumers on edge.
Cases of the deadly virus rose by a record for a single day on June 21, according to the World Health Organization, with flare-ups across the U.S. and new scares in Germany and Australia. While China said the latest outbreak in Beijing is under control, other large emerging economies including Brazil, India and Indonesia continue to see cases soar.
"The fight is nowhere close to being over,” said Tuuli McCully, the Singapore-based head of Asia Pacific economics at Scotiabank. "A second significant wave of infections in advanced economies is a huge risk for the global economy that is still in very early stages of recovery.”
The concern comes as high frequency data tracked by Bloomberg Economics had been showing an improving picture for sectors such as transport and dining out as lockdown restrictions are eased. A sustained pickup in virus cases threatens to undermine or even reverse those trends.
The International Monetary Fund this week is set to unveil new forecasts for a world already facing its worst outlook since the Great Depression. While the easing of lockdown restrictions in parts of Europe and the U.S. had led some economists to envisage a V-shaped recovery for the world, the re-acceleration in the virus argues against any swift revival.
"The flare-up tilts the risks from a V-shaped recovery to a U-shaped recovery,” said Deutsche Bank AG Chief Economist Torsten Slok.
European stocks fell early on Monday, but later pared losses as investors bet that the economic recovery will keep going. Gold continued its march toward a 2012 high.
An improvement in consumer confidence will be at the core of the recovery sequence if business investment and employment is to heal, according to Catherine Mann, Citigroup Inc. chief economist and former chief economist for the Organization for Economic Cooperation and Development. The latest outbreak won’t help that outlook.
"This is not a picture of recovery that is satisfactory in any way, shape or form,” she told the Australian National University’s Crawford Leadership Forum Monday.
In recent weeks, an easing of lockdowns had allowed activity to recover. Bright spots in China include new house prices, which rose at the fastest pace in seven months in May as the coronavirus shutdowns were unwound. Consumer demand, industrial output and investment also showed improvement.
Early South Korea export figures — typically held up as a gauge of global demand — show shipment declines easing in June amid resilient semiconductor demand and more purchases from China. Average daily shipments fell 16% in the first 20 days of the month compared with the prior year, improving from a decline that exceeded 20% in May.
In the U.S., unemployment has hinted at bottoming out and retail sales surged by a record in May from the prior month, offering some hope of a quicker recovery from the pandemic-induced recession.
In the euro area, measures of activity have slowly improved from their trough in April. Business confidence in Germany is on the mend, and figures in France show the economy there is now running about 12% below normal levels, compared with 29% at the peak of the lockdown. The purchasing managers indexes for the region have risen, though continue to signal contractions in manufacturing and services.
Still, until there’s a vaccine, there won’t be a full recovery.
Policymakers will need to remain alert to the need for more support, Warwick McKibbin of the Brookings Institution and Australia National University, who has modeled the macro-economic impact of the virus, told the Crawford Leadership Forum Monday.
Almost $11 trillion of fiscal resources has been approved globally since the crisis began, with an extra $5 trillion still in the pipeline, according to the Institute of International Finance.
"We are nowhere near the end of this pandemic,” McKibbin said.