Latest coronavirus package unlikely to be the last, economists say

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The emergency coronavirus relief package, which provides an additional $484 billion to combat the effects of the COVID-19 pandemic, probably won’t be the last boost the U.S. economy will get, economists say.

The legislation would increase funding for the Paycheck Protection Program, economic injury disaster loans and emergency grants, and hospital and health care providers under the CARES Act, and also provides funding for testing.

“These subsidies to small businesses will tide over many businesses, but many will fail unless product demand recovers and resumes growing,” according to Berenberg Capital Markets Chief Economist for the U.S. Americas and Asia Mickey Levy, and U.S. Economist Roiana Reid.

Funding for the PPP is increased by $310 billion in the bill passed by the Senate and awaiting action by the House. It comes after an initial $350 billion authorized in the CARES Act.

Demand for the PPP in the first round was strongest among the construction, professional, scientific and technical services, manufacturing, and health care and social assistance sectors. Demand was lowest from the public administration, management of companies and enterprises and utilities sectors.

Mickey Levy of Berenberg Capital Markets.

“We would not be surprised if additional funding for the PPP is authorized in subsequent fiscal packages given the overall strong demand," Levy and Reid wrote in a Wednesday report. “Funding for the first round ran out in under 14 days and more than 1.6 million loans were approved.”

Funding for hospital and health care providers in the new package has been increased by $75 billion form the $100 billion in aid authorized in the CARES Act. This is to help providers increase hospital capacity, get medical equipment and staffing, and to mitigate virus-related lost revenue. The initial $70 billion in aid, however, has yet to be disbursed.

The new fiscal package brings the total amount of economic relief to about $2.8 trillion, or 12.9% of GDP, reflecting the already enacted CARES Act ($2.2 trillion), Families First Coronavirus Response Act ($100 billion), and the Coronavirus Preparedness & Response Supplemental Appropriations Act ($8 billion).

In contrast, the federal government's response to the Great Recession — the American Recovery and Reinvestment Act of 2009 — has been estimated at $831 billion.

“There is more economic relief to come. The next legislative package is expected to provide additional funding for state and local governments,” they wrote. “President Trump has indicated support for state and local governments, infrastructure investments for bridges, tunnels, broadband, tax incentives for restaurants, entertainment, sports, and payroll tax cuts.”

Globally, Fitch Ratings said on Wednesday it made further cuts to global GDP forecasts in response to coronavirus-related lockdown extensions and new economic data.

“World GDP is now expected to fall by 3.9% in 2020, a recession of unprecedented depth in the post-war period," said Brian Coulton, Fitch’s chief economist. “This is twice as large as the decline anticipated in our early April [global economic outlook] update and would be twice as severe as the 2009 recession.”

The decline in GDP equates to a $2.8 trillion fall in global income levels relative to 2019 and a loss of $4.5 trillion relative to Fitch’s pre-virus expectations for 2020 global GDP. Fitch said it expects U.S. GDP to decline by 5.6% in 2020.

Meanwhile, YPO, a group that represents more than 29,000 chief executives in 130 countries, said its latest survey shows a high percentage of CEOs — ranging from 48% in the United States to 68% in Africa — say the COVID-19 crisis is a severe threat to their business.

Almost 64% of business leaders now anticipate negative effects on revenues continuing at least one year from now while 43% expect revenue to be down more than 20% compared to March 1 levels. Only about 16% expect revenues to be higher next year.

Over half of the CEOs are forecasting the total number of their employees will remain the same or be higher one year from now while 47% say this about fixed investment.

However, one-quarter of the respondents said they expect their total number of employees to be down by more than 20% this time next year and more than one-third expect their total fixed investments to be down a similar amount in that time frame.

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Coronavirus Economy