US economy will remain at a standstill
President of the United States Donald Trump extended mitigation measures until April 30th, after being advised to do so by his council of experts. According to the president, resuming economic activities would risk increasing the number of deaths. It`s expected the US will record a decrease in new cases to their lowest levels in June, with a probability of this occurring before or after depending on the effectiveness of mitigation measures. The President`s council has requested states to increase measures to restrict movement within the country. For as long as these measures are carried out, it`s expected economic impacts will be greater and longer lasting. This has begun to raise questions regarding the sufficiency of fiscal and monetary stimuli in the country: Corporate debt issued alone amounts to $9.5 trillion dollars, with large risks of insolvency as businesses and entire industries suffer the virus`s effects. The FED has already announced measures to back this debt, however it`s limited by regulations that prevent it from purchasing too much credit risk. In the UK, its government has warned a return back to normality will occur in 6 months as letting people go back to carrying out activities as usual must be done carefully; if this is not done with care, a second wave of the virus`s outbreak could take place. A longer lasting outlook regarding the virus`s spread will require greater government intervention in order to deter insolvency and bankruptcy scenarios in economies all around the world. With the development of a vaccine still in process that could take months, the best control strategy will continue to be social distancing, with considerable economic consequences.
Confidence levels drop in Europe
Consumer confidence, as well as confidence in the industry, services and the general economy fell to their lowest levels since 2013-2014, according to the European Commission. This fall in consumer confidence was reinforced by the German council of economic advisors, who estimate a (-) 5.4% contraction regarding Europe`s economy in 2020, if mitigation measures are not lifted in May. At an enterprise level, it`s expected Volkswagen`s factory closures in the US and Europe will cost the company $2 billion dollars a week. European governments have already announced aggressive fiscal stimulus packages that will counter the halt in economic activity and have requested the European Union for more funds. Different economic agents` confidence could drop even more as time moves forward, and the need for fiscal and monetary stimuli could increase in the following months as the expectation of the contingency`s duration keeps growing.