Selection of news, studies, papers, events, and any other source of information I use as a reference to understand current and future economic scenarios. Views very obviously mine.

 


1. Europe’s Hamiltonian moment

The new Franco-German proposal for a €500 billion European recovery fund could turn out to be the most important historic consequence of the coronavirus. It is even conceivable that the deal struck between German Chancellor Angela Merkel and French President Emmanuel Macron might one day be remembered as the European Union’s “Hamiltonian moment,” comparable to the 1790 agreement between Alexander Hamilton and Thomas Jefferson on public borrowing, which helped to turn the United States, a confederation with little central government, into a genuine political federation

The plan amounts to only 3% of the EU’s GDP, compared with the 15% of GDP already committed by Germany to industrial support. Creating any EU recovery plan will require unanimous support from the EU’s 27 member countries – and this will involve unseemly late-night squabbles between the self-styled “Frugal Four” northern governments (the Netherlands, Austria, Finland, and Sweden), which have vehemently opposed funding for Mediterranean EU members which, according to Wopke Hoekstra, the Dutch Finance Minister, have mainly themselves to blame for “failing to reform.”

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Is this enough for the EU to remain united as an institution? What we’ve seen is that Germany and France stood up and put in place a financial instrument for ‘Mediterranean’ countries for accessing to credit, it is common that in multilateral organism some of its members opposed to certain measures but in the case of Europe it is not simply divergence in positions, it is a challenge for the way of life of the south.

If Spain, Greece, Italy, and Portugal, were to make deep changes in their government and social structures they will be all their political ground, opening the possibility for the extremism to overtake power. It is not only the amount of money to which they can access, it is the future of entire countries that is in play.

Is the EU capable of attenuating differences, potentiating each country’s capabilities instead of shortcomings? Time will tell.


2. Europe’s economy has ‘likely bottomed out’ and is starting to bounce back, according to a set of closely-watched business surveys

“The eurozone saw a further collapse of business activity in May but the survey data at least brought reassuring signs that the downturn likely bottomed out in April,” Chris Williamson, chief economist at IHS Markit, said in a statement.

 

 

“Although the pace of decline has eased since April’s record collapse, May saw the second largest monthly falls in output and jobs seen over the survey’s 22-year history, the rates of decline continuing to far exceed anything seen previously,”

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2008-2009 crisis can’t be seen as a reference for this period. Its causes were different, its timing and the way of ‘contagion’, starting from real-estate until reaching sovereign debt implications. Nonetheless, what we know is that markets bounce and start having a non-predictable pattern on which they go up and down in a fast fashion. Saying that the EU is back on track on its path for recovery is undoubtedly good news, the question is, is this a sign that without even being free of COVID19 is there a chance for going ever lower than in March/April period. Are institutions and authorities creating false expectations?

My interpretation is that there’s no way of knowing how the economic activity will be until we all get back on business, until the last sector starts assessing how are their capabilities after the virus shock.

Perhaps a second wave of the illness hit us back, or even the system’s workers’ absorption capacity doesn’t recover at the expected pace. Note aside, financial crisis took 12 to 14 months to fully impact the system, this time could be worse.


3. Germany’s Economy Is A Bigger Risk Than Ever For EU Stability

No country in Europe is in a better position than Germany when it comes to funding domestic economic recovery. But in Brussels, Rome and Madrid, politicians see that as a potential problem: They’re worried that less economically stable countries might be left behind by the coronavirus pandemic, and that Germany and other countries with strong economies will widen the gap between themselves and the rest of the EU.

The worry is that the crisis will only widen the gap, as richer countries such as Germany, the Netherlands and Austria can afford to pump a lot of money into their national economy to see it through the pandemic. Last year, Germany’s national debt fell below 60% of GDP, the level set out in the Maastricht Treaty, and before the crisis the social security office was sitting on reserves reaching into billions of euros.

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Germany is the leading country within the EU, is a powerhouse that owes its success to a great industrial network, productive and talented workers. That translates into growing gaps of positive trade and capital balance, that can be then reinvested, the system feeds itself.

Is Germany widening the difference between

 



4. Banks will struggle to generate profits even as the global economy recovers, IMF says

 

“Banks’ earnings have already been hit hard by the economic shock of the pandemic. JPMorgan Chase, for example, reported a 69% drop in profit for the first quarter compared with one year earlier. The KBW Bank Index, which tracks two dozen bank stocks in the U.S., has plummeted 39% year to date”.

“Banks go into this crisis with a lot of capital and liquidity,” Tobias Adrian, financial counsellor of the IMF, told CNBC. “Having said that, this is a very, very severe economic crisis.”

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How is this possible if the most significant packages stimulus of the history has been approved? In the US, Europe, and many other countries, freshly electronically created money has been injected for the economy to regain impulse. These measures use the financial system as a link between production, corporations, and small businesses and monetary authorities who print that money.

In the end, the dynamism this new system will adopt and how the monetary base circulates will most likely end up with the banks collecting this money for diverse reasons. Either by increasing financial activity due to an economic boost (impulsing the intermediation activity nature of the financial institutions) or by keeping their vaults to the top due to low returns on bonds, corporate shares, or any other instrument, that make cash as a favorite option for parking wealth.

The only set back I might foresee is a potential slow down on money’s velocity of circulation, that even with high levels of liquidity and expansive policies may dry up the profit scheme that feeds the banking system.


5. How The Crisis Is Making Racial Inequality Worse

“Job losses are “dramatically concentrated in the low end of the wage distribution,” says Erik Hurst, an economist at the University of Chicago’s Booth School of Business. He is the co-author of a new study, “The U.S. Labor Market during the Beginning of the Pandemic Recession,” which analyzes payroll data from millions of American workers between early March and mid-April”.

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This is a repeated phenomenon, those who end up carrying the worst part of a crisis are those who were already in bad situation before the virus. Minorities are prone to live in the outskirts, to have difficult access to services and food supply, depend on daily basis jobs with no fixed contract, and no possibility of remote work.


6. Tanzania’s President Insists COVID-19 Was Defeated With Prayer Amid Concerns Scale of Outbreak Being Hidden

On just one day this month, 50 Tanzanian truck drivers tested positive for the coronavirus after crossing into neighboring Kenya. Back home, their president insists that Tanzania has defeated the disease through prayer.

The president has argued that if restrictive measures are adopted, Tanzanians may have nothing to eat.

“Make all kinds of noise as a sign of thanksgiving to show our God has won against disease and worries of death that were making us suffer,” Paul Makonda, the regional commissioner of commercial hub Dar es Salaam, said at a news briefing. In March, Magufuli ordered three days of national prayers against COVID-19 and has since said they have been answered.

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7. Latam Airlines seeks bankruptcy protection as travel slumps

 

“We are looking ahead to a post-COVID-19 future and are focused on transforming our group to adapt to a new and evolving way of flying, with the health and safety of our passengers and employees being paramount,” he said in a statement announcing the bankruptcy filing.

Latam’s move comes little more than two weeks after another major Latin American airline, Avianca Holdings, filed for bankruptcy protection in New York. Australia’s second-largest carrier, Virgin Australia, sought bankruptcy in its home market last month.

Latam’s bankruptcy filing includes parent company Latam Airlines Group S.A. and its affiliated airlines in Colombia, Peru, and Ecuador, as well as its businesses in the U.S.

The company is not including its affiliates in Argentina, Brazil, and Paraguay in the turnaround effort. It says it is talking with the Brazilian government about how to proceed with its operations there.

Latam is South America’s largest carrier by passenger traffic. It operated more than 1,300 flights a day and transported 74 million passengers last year.

The airline had more than 340 planes in its fleet and nearly 42,000 employees on its payroll, according to its more recent annual report. It reported a profit of $190 million in 2019.

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8. World Bank: 48 Countries Hold 15.6 TW of Offshore Wind Technical Potential

 

“To date, relatively little research has been undertaken on the potential for offshore wind in emerging markets. Any assessment of this kind must start with an estimate of technical potential, that is, the maximum possible installed capacity with current technology, as determined by wind speed and water depth. Subsequent steps in analyzing a country or region’s offshore wind potential will add further detail to the assessment, including environmental, social, technical and economic constraints”, the World Bank states.

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Is COVID19 outbreak reshaping the way we source energy? Is this really a feasible scenario, moving more aggressively into renewable sources while the world needs cheap oils and raw materials and for recovering its industrial activity levels?

That’s something I’ve been mentioned, environmentalists


9. Oil prices climb on prediction of swift demand rebalance

Oil has surged more than 80% this month as demand returned following the easing of lockdown restrictions in some countries, while output cuts have started to chip away at the oversupply. The International Energy Agency sees oil consumption eventually rebounding past pre-virus levels, even as some argue that the coronavirus outbreak will fundamentally shift patterns of consumption.

“Global supply is still heading lower while demand is rising,” said Bjarne Schieldrop, chief commodities analyst at SEB AB. “This all lays the ground for higher prices down the road.”

Prices:

  • West Texas Intermediate crude for July delivery rose $0.84 from Friday to $34.09 a barrel as of 10:26 a.m. London time
  • Brent for July settlement added 1.8% to $36.17 a barrel

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10. Pandemic could cost global economy $82 trillion in depression scenario

$26.8 trillion, or 5.3% of five-year GDP, to be lost.

For the U.S., the potential five-year loss ranges from $550 billion to $19.9 trillion.

It’s safe to say financial markets are not pricing in a global depression. The S&P 500 SPX, 1.69% has climbed over 30% from the lows of March.

If the numbers sound too outlandish, consider that growth and returns on assets can be depressed up to 40 years after the pandemic has passed, according to Keith Wade, chief economist at U.K. fund manager Schroders.

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11. Josep Oliu: “With each passing day it seems that the recovery will be faster”