Tags: Coronavirus | mistrust | government | uneven | economic | recovery

Mistrust in Government May Lead to Uneven Economic Recovery

Mistrust in Government May Lead to Uneven Economic Recovery

By Tuesday, 26 May 2020 10:26 AM Current | Bio | Archive

Markets are focusing on the pace of economic reopening. There is nothing especially unexpected about this fact, so economies continue to open up and this is being taken as a positive sign.

In the United States, all 50 states have now started to reopen and easing, at least in part, restrictions on businesses. We’ll see what will happen further down the road now that Memorial Day is behind us.

The NPR (National Public Radio) wrote that the national shutdown that began two months ago, since then, 36.5 million people have filed for unemployment, as state and local leaders weigh how to minimize the economic damage while also protecting lives. The situation creates a quandary for many residents who must decide the level of exposure they're comfortable with — either to return to the workplace or to visit other businesses.

Over in Europe, Spain is allowing foreign tourists in from the start of July. Tourism represents about 12 percent of the country’s GDP, so this is very important to the Spanish economy.

Also considered as important, the Spanish football (soccer) league will be allowed to resume from June 8, together with other professional sports competitions, providing the country keeps its coronavirus outbreak in check, the Associated Press informs.

The Spanish football (soccer) league has said the total losses for not finishing the Spanish football (soccer) season because of the pandemic could reach nearly 1 billion euros or about USD $1.1 billion.

The United Kingdom from its side will be easing lockdown restrictions on shop openings within 3 weeks, although the impact of that may be somewhat blunted by the high share of retail sales that already takes place online, the BBC reports.

What is critical in any country re-opening is the extent to which consumers have conquered:

  • Their fear of the virus and
  • Their fears of job security.

With middle- and higher income groups having saved money during the lockdowns, there is a potential pool of “cash” to be spent, but only if there is trust in government policies.

This means that the “economic bounce back” may not be even across every country on itself, but also as well as in the global economy where the poor countries face huge/enormous problems.

It’s also a fact is that some consumers will have more trust in their governments’ policies than others.

Besides all that, there has been more rhetoric in recent days between the United States and China. So far, markets seem to be willing to “overlook” the noise, just as investors have learned to ignore a good part of what comes out on the Trump Twitter feed, and so they may be starting to learn to ignore the language around U.S. – China relations unless it is backed by action.

Up to now, China did not “retaliate” as the U.S. placed 33 Chinese entities on a trade blacklist for example, the South China Morning Post reported.

From its side, Singapore’s GDP for the first quarter did better than consensus expectations during the first quarter while obviously still falling, but consensus expectations are so “wide” these days that beating consensus doesn’t really tells investors as well as economists a great deal.

However, for a globally connected economy like Singapore, the fact that the decline in GDP was relatively modest, is perhaps a more positive signal overall. Industrial production was also positive in Singapore in April.

Finally, the Chicago Fed National Activity Index (CFNAI) for April fell to –16.74 in April from –4.97 in March led by declines in production- and employment-related indicators.

The index’s three-month moving average, CFNAI-MA3, decreased to –7.22 in April from –1.69 in March. Following a period of economic expansion, an increasing likelihood of a recession has historically been associated with a CFNAI-MA3 value below –0.70.

Etienne "Hans" Parisis is a bank economist who has advised investors on financial markets and international investments.

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This means that the “economic bounce back” may not be even across every country on itself, but also as well as in the global economy where the poor countries face huge/enormous problems.
mistrust, government, uneven, economic, recovery
Tuesday, 26 May 2020 10:26 AM
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