By Howard Schneider
WASHINGTON (Reuters) – During a blue sky moment in 2018 near the end of a decade-long economic expansion, it was the United States that helped propel the world as additional cash from tax cuts and spending by the government flowed through national funds and global markets
But if it was US policy that propelled the world higher then, it is US policy that threatens to sink the world now, as the country’s troublesome response to the coronavirus pandemic arises as a primary risk to any sustained global recovery.
Officials from Mexico to Japan are already at the limit. Exports have been hit in Germany, and Canada looks south cautiously, knowing that any further impact on US growth will undoubtedly spread.
“Globally there will be difficult months and years ahead and it is especially worrying that the number of COVID-19 cases continues to rise,” the International Monetary Fund said in a review of the US economy that cited “social unrest” due to the increase Poverty as one of the risks to economic growth.
“The risk ahead is that a large portion of the US population will have to contend with a significant deterioration in living standards and significant economic hardship for several years. This, in turn, may further weaken the demand and exacerbate long-term headwinds for growth. ” “
It was a clinical description of a grim set of facts: after the United States government pledged approximately $ 3 trillion to support the economy through a round of restrictions on activity imposed to curb the virus in April and May, the disease is increasing in the United States. record levels just like those support programs expire. More than 3.6 million people have been infected and 140,000 killed. Daily growth in cases has tripled to more than 70,000 since mid-May, and the 7-day moving average of deaths, after steadily falling from April to July, has increased.
Meanwhile, the country has fractured over issues such as wearing masks that were easily adopted in other parts of the world as a matter of common courtesy. With some key states like Texas and California re-imposing restrictions, analysts have already noted a possible plateau for the US’s recovery, with the country still 13.3 million jobs below the number in February.
A GLOBAL DISAPPOINTMENT
For other great economic powers, that is an added weight to their own struggles with the virus and the economic consequences.
The United States economy represents approximately a quarter of the world gross domestic product. While much of that is service-related, and much of the virus’s direct impact is tied to industries like restaurants with weak links to the global economy, the connections are still there. Lost work leads to less consumer spending leads to less imports; Weak business conditions lead to less investment in equipment or supplies that are often produced elsewhere.
To date, US imports through May have fallen more than 13%, or roughly $ 176 billion.
In Germany, whose measures to contain the pandemic are among the most effective, exports to the United States fell 36% yoy in May. Analysts see little room for improvement as car sales in the US through June have fallen nearly 24% from a year earlier.
“That is really a disappointment,” said Gabriel Felbermayr, president of the Kiel Institute for the World Economy, in a recent interview with the Deutschlandfunk radio network. The increase in infections in the United States, he said, could not be expected.
In Japan, the speed of recovery is directly linked to the success of the United States in stopping the virus.
“Japan’s recovery will really be delayed if the spread of the coronavirus in the United States is not stopped and exports to the United States from various Asian countries do not grow,” said Hideo Kumano, a former Bank of Japan official who is now He is chief economist at the Dai-ichi Life Research Institute.
PESIMISM ON BOTH BORDERS
GDP projected by the IMF in the United States will decrease this year by 6.6%, in line with the projections of many analysts.
The Bank of Canada is more pessimistic and forecasts that US GDP will drop 8.1% on the year. That has already been reduced once as the health situation declined.
A further downward stage would directly affect Canada, with perhaps three-fourths of the country’s exports going to the United States border.
“We removed our projection from the United States … I would stress that there is a lot of uncertainty, and the main source of uncertainty is the evolution of the coronavirus itself,” said BOC Governor Tiff Macklem.
On the southern border, Mexico also publishes daily record numbers of new cases, but President Andrés Manuel López Obrador sometimes deflected criticism of his government’s efforts by pointing to the U.S. numbers.
López Obrador made a risky visit with President Donald Trump in early July, expressing his trip to Washington as an economic necessity, as Mexico tries to revive an economy that could shrink by 10% or more this year, according to forecasts.
The Mexican president hopes that the new trade agreement between the United States-Mexico-Canada Agreement (USMCA), which entered into force on July 1, will stimulate business and investment, but pessimism about the prospects has been increasing.
“To the point that people in the United States are losing jobs or income, it is a downside weight … and it will have ramifications on the ability to consume globally,” said Elizabeth Crofoot, a senior economist at the Conference Board, which documented a record drop in global consumer confidence in a recent survey.
“We take one step forward and two steps back.”
(Report by Howard Schneider in Washington; Additional report by Reinhard Becker and Christian Kraemer in Berlin, Leika Kihara in Tokyo, Steve Scherer in Ottawa and Dave Graham in Mexico City; Edition by Dan Burns and Matthew Lewis)
