Bankruptcy surge expected in US due to Covid-19, according to leading macroeconomic influencers

24 July 2020 (Last Updated July 24th, 2020 07:55)

Bankruptcy surge expected in US due to Covid-19, according to leading macroeconomic influencers

The US government is yet to decide on the whether to continue the federal Paycheck Protection Program. Lack of aid from the government may push companies into bankruptcy and increase unemployment rates, macroeconomic influencers share their views on the Covid -19 impact.

Prof. Steve Hanke

Prof. Steve Hanke, economist Johns Hopkins University, shared an article on an expected surge in bankruptcy cases in the US due to the Covid-19 pandemic. Decline in consumer demand, social distancing rules and lack of government support is hurting the operations of small and medium businesses.

More than 3,400 companies filed for Chapter 11 bankruptcy protection during the first half of the year with economists warning more to come once the federal Paycheck Protection Program aid ends. A Goldman Sachs survey among more than 1,100 businesses has found that 84% of them will not have sufficient cash flow to keep operations going.

Heather Long

Heather Long, economics correspondent at Washington Post, tweeted about unemployment statistics in the US. She added that 1.4 million new unemployment aid applications were filed during the last week of July, which is an increase of 109,000 from the previous week.

Long noted the surge in the number of unemployment applications filed is an indication that layoffs are on the rise. She added that more than one million unemployment applications have been filed over the 18 weeks.

Timothy McBride

Timothy McBride, Bernard Becker Professor at WUSTL, shared an article on the pricing concerns related to Covid-19 vaccine. The US government has signed an agreement to invest $2bn in Pfizer for the development of a Covid-19 vaccine. Experts raised concerns that the deal could lead to price gouging.

The agreement allows Pfizer to price the vaccine at $20 per dose, while other companies such as AstraZeneca and Johnson & Johnson expect their vaccine to be priced at $3 and $10 a dose respectively. The higher the price of the vaccine, the cost of the vaccine may or may not be transferred to consumer in the form of high insurance premiums and fees.

Kenan Fikri

Kenan Fikri, research director InnovateEconomy, shared an article on how the stimulus package announced by the US has helped in easing the impact caused by the recession compared to Europe. The article notes that although Europe has fared better in controlling the Covid-19 outbreak, the US has been able to able to manage the economic fallout in a better way.

The US announced a stimulus package corresponding to 12.3% of GDP, while the projected decline in GDP in the second half of 2020 is 10%. Countries in Europe have announced stimulus packages ranging from 9% to 3%, while their economies are projected to contract by 10% to 20% in the second half of 2020.