Coronavirus recovery: US economy’s plunge and waning sentiment put investors on edge

Name: Six months after WHO declared Covid-19 a public health emergency, what more do we know now?
Uploaded: 2020-07-31T13:15:14.000Z
Duration: 7 min 54 s
Description: Six months after WHO declared Covid-19 a public health emergency, what more do we know now?

Investor sentiment before this week was already deflating against the backdrop of a continued pandemic and a pricey stock market, but mixed news this week and continued grim virus milestones make the market rally look increasingly fragile

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The Federal Reserve Board building in Washington on July 1. The US economy received its most dire assessment in decades on Thursday after figures showed a 32.9 per cent annualised decline in real GDP for the second quarter. Photo: AFP

Chaoping Zhu

Published: 9:15pm, 31 Jul 2020Updated: 9:08pm, 13 Oct 2020

The past few days have been packed with market-moving news. The latest US GDP data lent some clues about the health of the economy, the Federal Reserve held a closely watched meeting and there was fierce debate in Washington over a widely anticipated US virus stimulus package. In addition, the week was by far the most intensive period of earnings updates from listed companies.

Thursday’s GDP report confirmed that the United States is in the deepest recession since World War II. There was an annualised decline in real GDP of 32.9 per cent in the second quarter, reflecting the economic damage inflicted by the broad shutdown and subsequent partial reopening.

As the virus continues to rage in the US, the economy will fall short of a full V-shaped recovery. More fundamentally, recession psychology will drag on investment and budget realities will reduce state and local government spending.

The pandemic might also slow the reopening of businesses across the travel, entertainment, restaurant and retail sectors. With cases climbing in recent weeks, the recovery in hotel occupancy, airline travel and a wide swathe of credit card spending appears to have stalled.

On the policy front, the economic slowdown is adding urgency to stimulus talks in Washington. Having enacted nearly US$3 trillion in pandemic-related stimulus in the spring, Congress is deeply divided between the need to support the economy and objections to additional deficit spending.

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Six months after WHO declared Covid-19 a public health emergency, what more do we know now?

Although the outcome was uncertain at the time of writing, neither side can afford to be accused of abandoning negotiations in a time of such obvious economic stress, let alone during an election year.