V-shaped recovery for US economy doubtful as unemployment claims continue to rise – leading macroeconomic influencers

19 October 2020 (Last Updated October 19th, 2020 07:34)

V-shaped recovery for US economy doubtful as unemployment claims continue to rise – leading macroeconomic influencers
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Experts and economists initially forecast the US economy to recover by the end of the year. The growth posted in the second quarter was also encouraging. However, the slowdown in the third quarter raises questions about the forecasted recovery, macroeconomic influencers share their views on the Covid-19 impact.

Prof. Steve Hanke

Prof. Steve Hanke, economist at Johns Hopkins University, shared an article on how the number of unemployment claims increased to the highest levels last week since August. The four-week average of the claims increased to more than 860,000, indicating that a greater number of people are losing their jobs.

Further, several companies have announced layoffs pointing towards a slower than expected economic recovery. According to a survey conducted by the Wall Street Journal, more than half of experts and economists surveyed noted that they did not expect the labour market to return to pre-pandemic levels until 2023. The results of the survey indicate a slower recovery than that predicted six months ago.

Christophe Barraud

Christophe Barraud, an economist, shared an article on a draft budget approved by Italy’s government that aims to support the economy amid the rising coronavirus cases. The budget will focus on the healthcare sector and provide support to families in the form of loans and mortgage payments.

The government projects a contraction of 10.5% in GDP in 2020. Approximately €4bn ($4.7bn) has been allocated for sectors that have been most impacted by the pandemic. Further, the furlough programme has been extended by 18 weeks and €13bn ($15.2bn) has been allocated for providing tax breaks to underdeveloped regions of the country.

The government has also made temporary tax breaks for the middle class permanent and set aside €8bn ($9.37bn) for improving the taxation system.

Daniel Lacalle

Daniel Lacalle, chief economist at Tressis SV, shared an article on the US budget deficit in 2020 totalling $3.13tn, which is three times higher than the previous year deficit of $1.4tn. The deficit was majorly caused by the $2.2tn CARES Act, which was aimed at providing additional unemployment benefits to those affected by the pandemic.

Contributions from tax collections totalled $1.61tn, which is $203bn less than that estimated in the budget. Corporate tax collections were also lower than the budget estimate by $51.8bn in addition to social insurance and retirement collections, which were $2.1bn less than estimated.

Celestine Chukumba

Celestine Chukumba, economist and founder of Tory Capital, shared statistics from the US Department of Health & Human Services (CDC) on the prevalence of obesity being at 42.4% in 2017-2018 in the US. The data showed that obesity also led to various other conditions such as heart disease, diabetes, and cancer. Further, the annual medical cost of obesity was $1,429 higher than those with normal weight at $147bn in 2008.

Chukumba noted that the US was already an unhealthy nation before the arrival of the Covid-19 disease due to the obesity rates, and that this was a factor in the US having the highest number of Covid-19 cases in the world.

Howard Archer

Howard Archer, chief economic advisor to EY ITEM Club, shared an article on the comments made by the Bank of England Governor Andrew Bailey on the uncertainty facing the UK economy as coronavirus cases continue to rise. Bailey noted that the UK economy is expected to contract to a level 10% below 2019 levels.

The UK is experiencing a second wave of coronavirus infections forcing the government to impose restrictions on bars and restaurants. Bailey noted that the right economic policies are needed to be chosen based on the condition of the economy.