Virus surge makes US weak link in global economic recovery
Frankfurt (Germany): People in China are back to buying German luxury cars. Europe’s assembly lines are accelerating. Now the global economy is waiting for the United States to get its coronavirus outbreak under control and boost the recovery, but there’s little sign of that.
The United States’ fumbling response to the pandemic is casting doubt on its economic prospects and making it one of the chief risks to a global rebound.
After springtime restrictions, many U.S. states prematurely declared victory over the virus and began to reopen their economies, leading to a resurgence in COVID-19 cases.
Confirmed infections are rising in most states, and many businesses have had to scale back or even cancel plans to reopen.
And while it does not dominate global commerce like it did 20 years ago, America is still by far the biggest economy – accounting for 22 per cent of total economic output, versus 14 per cent for No. 2 China, according to the World Bank.
That makes its handling of the pandemic and its economy crucial for companies like Officina del Poggio, a producer of luxury handbags in Bologna, Italy, that sells 60 per cent its vintage motorcycle-inspired satchels to U.S. customers.
Company owner Allison Hoeltzel Savini said retail sales dried up during the spring. She had already suffered a blow when Barneys, her main client, went bankrupt and didn’t pay for the spring-summer collection that had shipped.
Hoeltzel Savini said she has had to hold off on new hires, and hasn’t been able to do her usual sales trip to the United States.
She got some orders by trying to find consumers directly through newsletters and social media, but remains cautious about the future, as she sees the U.S. market for her goods continuing to slow down.
“I am really concerned for the next season, if wholesale clients will be placing orders,” she said.
Same for of Shenzhen Aung Crown Industrial Ltd., which makes baseball hats. The company usually sells about 60% of its output to the United States.
“We can’t afford to lose the U.S. market,” said general manager Kailyn Weng. “It is difficult to find other markets that could digest such a great amount of high-quality hats…We have no alternative but to focus on the U.S. market.”
The United States is unlikely to pull the world economy out of its rut as it did in past downturns such as after the Asian financial crisis of the late 1990s.
“The U.S. won’t be the locomotive,” said Nariman Behravesh, chief economist at IHS Markit.
The American economy shrank at an annual pace of 32.9 per cent from April through June, by far the worst quarter on record.
The numbers are expected to bounce back strongly in the second half but to leave the U.S. economy well short of where it stood at the beginning of 2020.
The European Union, which has reduced the number of contagions more effectively than the U.S., shrank at a similar pace but is forecast to grow more quickly next year and government support for workers has contained the rise in unemployment for now.
China, meanwhile, was the first major economy to resume growth since the pandemic struck, recording a 3.2 per cent expansion during the April-June period from the quarter before.
If the U.S had done a better job managing the outbreak, “the rebound would have been stronger,” Behravesh said. “There’s no doubt in my mind about that.” Hopes for a strong and quick recovery have largely been dashed by the country’s inability to bring the virus under control.
The United States’ diminished ability to drive global growth isn’t just related to its coronavirus response. Its share of global economic output – and growth – has been eroding.
China’s economy has consistently grown faster than America’s and has steadily narrowed the gap between them. From 2009 through 2019, China accounted for almost 28 per cent of global economic growth; the United States, just 17 per cent.
“We’re in a multi-polar world in which there are multiple locomotives — China, Europe” as well as the United States, Behravesh said.