World on lockdown: Business activity collapses at record pace

Business activity has collapsed from Australia and Japan to Western Europe at a record pace, as measures to contain the coronavirus hammer the world economy, with data for the United States later on Tuesday expected to be just as dire.

“The coronavirus outbreak represents a major external shock to the macro outlook, akin to a large-scale natural disaster,” analysts at BlackRock Investment Institute said in a note.

Activity in the 19 countries that use the euro has crumbled as nations lock down to curb the spread of the disease, shuttering shops, restaurants and offices.

IHS Markit’s flash composite Purchasing Managers’ Index (PMI) for the eurozone, seen as a good gauge of economic health, plummeted to a record low of 31.4 in March.

That was by far the biggest one-month fall since the survey began in mid-1998 and below all forecasts in a Reuters News Agency poll which gave a median prediction of 38.8.

In France, services activity fell to a record low and manufacturing saw its steepest drop since the global financial crisis more than 10 years ago.

“Taken together, these declines suggest GDP is collapsing at an annual rate approaching double digits,” IHS Markit economist Eliot Kerr said.

A PMI for the services sector in Germany, Europe’s largest economy, showed a record contraction in activity, while sister surveys showed the United Kingdom’s economy shrinking at a record pace.

IHS Markit said the March figures suggested the eurozone economy was shrinking at a quarterly rate of about 2 percent, and the escalation of measures to contain the virus could steepen the downturn.

US manufacturing and services PMI surveys are also expected to come in at multi-year lows.

After an initial outbreak in China brought the world’s second-largest economy to a virtual halt last month, an ever-growing number of countries and territories have reported a spike in infections and deaths.

Entire regions have been placed on lockdown and in some places soldiers are patrolling the streets to keep consumers and workers indoors, halting services and production and breaking global supply chains.

Mirroring the emptying of supermarket shelves around the world, indebted corporates have rushed into money markets to hoard dollars, with a global shortage of dollar funding threatening to cripple firms from airlines to retailers.

PMI surveys from Japan showed the services sector shrinking at its fastest pace on record this month and factory activity contracting at its quickest in a decade.

This was consistent with a 4 percent contraction in 2020, Capital Economics senior economist Marcel Theliant said. The likely postponement of the Tokyo Olympic Games is expected to deal a heavy blow to the world’s third-largest economy.

Infinite Stimulus

With most asset markets tanking, global central banks have been rolling out extraordinary measures on an almost daily basis to stop the rot.

In its latest drastic step, the US Federal Reserve on Monday promised bottomless dollar funding and .

For the first time, the Fed will back purchases of corporate bonds, backstop direct loans to companies and “soon” will roll out a programme to get credit to small and medium-sized businesses. It will also expand its asset purchases by “as much as needed”.

The Fed last week slashed borrowing costs to zero and took other emergency steps to keep the commercial paper, US Treasury debt and foreign dollar funding markets functional.

But some analysts say infinite monetary policy easing may not be enough and fiscal steps are crucial. The latest US effort on that front remains stalled in the Senate as Democrats said it contained too little money for hospitals and not enough limits on funds for big business.

Negotiators made great progress on the bipartisan $2 trillion stimulus measure on Monday, but without striking a final pact as they had hoped, Treasury Secretary Steven Mnuchin and Senate Democratic Leader Chuck Schumer told reporters.

Mnuchin will chair a conference of G7 finance ministers and central bankers early on Tuesday, according to a source familiar with the plans.

Eurozone finance ministers will meanwhile discuss proposals by the European Commission to deploy the bloc’s bailout fund, which has 410 billion euros ($442bn) of unused lending power.

With the International Monetary Fund predicting a global recession, the world’s 20 largest economies agreed on Monday to develop an “action plan”, but without specifics.

“For the US economy to be able to come out of the current crisis and the ongoing recession relatively unscathed, more radical policy interventions will be needed in the next few weeks,” said Anna Stupnytska, global head of macro and investment strategy at Fidelity International.

Speculation is mounting data on Thursday will show US jobless claims rose an eye-watering one million or more last week.

Goldman Sachs warned the US economy could contract by an annual rate of 24 percent in the second quarter, two and a half times greater than the previous biggest contraction, after World War II.