Image copyrightGETTY IMAGESImage captionA pharmacist in France puts up a sign reading 'protective facemasks are available'
The eurozone economy shrank at the sharpest pace on record in the first quarter as the Covid-19 pandemic forced countries into lockdown.
A first estimate of GDP between January and March showed a contraction of 3.8%, worse than during the financial crisis.
Separate figures revealed a steep fall in economic activity in France and Spain over the same period.
In Germany, unemployment has increased though it remains relatively low compared with other nations.
On Wednesday, the US revealed that its economy had suffered its most severe contraction for more than a decade, after GDP shrank at an annual rate of 4.8% in the first quarter of the year.
However, this "annualised" rate implies that the US economy actually contracted by about 1.2% in the three-month period, a less severe contraction than in the eurozone.
On Thursday, figures from the US Department of Labor showed that 3.8 million more Americans filed claims for unemployment benefits last week. That is the lowest weekly rise for a month, but still very high, bringing jobs lost during the pandemic to about 30 million.
'Free-fall'
Andrew Kenningham of Capital Economics called the European news a blizzard of depressing economic data that "confirms that the eurozone economy was in free-fall".
In the case of France, the 5.8% decline in gross domestic product (GDP) was the largest the quarterly series has recorded since it began in 1949.
Two other large economies have published first estimates: Spain saw a contraction of 5.1% while Italy's economy shrank by 4.7%.
The figure for the eurozone as a whole was more moderate, but is still by any standards severe especially for a contraction over just three months.
So far most individual European countries have not published national estimates. That applies to the largest of them, Germany.
But new figures for the German labour market are beginning to show the impact of the pandemic, with the number of people out of work rising by 373,000 in April.
However, the full impact is damped by the country's system of financial help to people put onto shorter working hours, known as Kurzarbeit.
Claus Vistesen of Pantheon Macroeconomics said the news on the Geman labour market was "bad, but it would have been disastrous without Kurzarbeit".
Growth warning
European Central Bank (ECB) President Christine Lagarde said that a sharp downturn in eurozone economic activity in April "suggests that the impact [of the pandemic] is likely to be even more severe in the second quarter."
She warned that eurozone economic growth could fall between 5% and 12% this year, "depending crucially on the duration of the containment measures and the success of policies to mitigate the economic consequences for businesses and workers".
Ms Lagarde added that the ECB was fully prepared to increase emergency support measures to ease the burden of the pandemic, to "as much as necessary and for as long as needed".
Image copyrightGETTY IMAGESImage captionFederal Reserve Chairman Jerome Powell is grappling with the worst economic crisis since the 1930
As policymakers from America's central bank prepare to meet - virtually - this week, they will be looking to see if the extraordinary steps they have taken to confront the world's most severe economic crisis since the Great Depression are working.
The Fed's moves, which have increased its balance sheet by more than $2.2tn so far, have been replicated to some degree by many other central banks, including the Bank of England.
The responses, which typically complement massive new government spending packages, are an effort to keep money flowing despite the near-freeze on business activity during the pandemic.
"They've taken basically what they did in the global financial crisis and now it's on steroids," says Frederic Mishkin, a professor of banking and financial institutions at Columbia Business School.
1. The Fed rushed dollars to foreign countries and financial firms
The financial system was under strain this spring, as investors pulled funds out of a collapsing stock market, companies tapped credit lines in anticipation of lockdown losses and people in other countries looked to hold dollars for stability.
Responding to the rush, the Fed used emergency powers to advance funds to major financial institutions. It also made it easier for foreign central banks to exchange their own currencies for dollars through so-called "swap lines".
The Fed was able to respond quickly, since it had developed the programmes during the 2007-2009 financial crisis, says Alan Blinder, professor of economics and public affairs at Princeton University. But at that time, the Fed was trying to shield the wider economy from risky bank behaviour, whereas now the Fed is working to protect the financial system from the bigger economic crisis.
"That's not because they care about the bankers," Prof Blinder says. "It's because if the financial system started to implode, which it had started to do, that's going to reverberate back onto the real economy and make things that much worse."
Image copyrightGETTY IMAGESImage captionThe Fed will offer loans to companies outside of the financial sector
2. The Fed offered to buy debt from big companies
But the Fed has gone beyond simply shoring up the financial system.
Fearing a wave of bankruptcies, as shutdowns create holes in company budgets and worried banks refuse to lend, the Fed in March said it would work directly with big companies on loans and bond offerings. It pledged up to $100bn to the effort, and within weeks had expanded its potential commitment to $750bn.
It has also said it would buy up to $100bn of other kinds of debt, including credit card debt, car financing loans, student loans, commercial mortgages and "leveraged" loans. The list is so extensive, some financial industry commentators on Twitter joked the bank would be buying baseball cards next.
The US Treasury is backing the programmes with $85bn - a sign that unlike most of its actions in 2008, the Fed is worried about losses.
Others have warned the bank's actions could encourage future risky borrowing. "Markets work best when participants have a healthy fear of loss," Oaktree Capital Management co-founder Howard Marks wrote. "It shouldn't be the role of the Fed or the government to eradicate it."
Many economists say those kinds of fears are overblown, given the unique nature of the current coronavirus-triggered crisis - which has created cash-flow problems even for firms on a solid financial footing.
"I think this is such a large external shock, that I think it is appropriate for the central bank to come in to provide liquidity and try to prevent some of the costs [to society]," says economist Nellie Liang, a senior fellow at the Brookings Institution and a former director of financial stability at the Fed.
Image copyrightGETTY IMAGESImage captionBusinesses have overwhelmed America's rescue programme
3. The Fed is also lending to small businesses directly
The Fed has announced it would launch its own "Main Street" lending operation, dedicating up to $600bn to fund low-cost four-year loans worth $1m-$25m for mid-sized firms - something it has never done before. The Treasury Department has put $75bn to the plans, which were announced after the government's small business aid programme was overwhelmed by demand.
"It's a big step for the Fed, but I think this crisis is unusual," says Ms Liang. "The issues are not just market liquidity they're also liquidity for smaller firms that don't often have access to the market so to the extent that the Fed can provide some support here, it seems important."
But, she adds: "The Fed has to think really carefully about how to design the Main Street programme to help borrowers and not just increase their debt load."
Indeed, many of the current economic problems can't be solved by lending, Prof Blinder warns, pointing to the need for the government to increase spending on items like healthcare and unemployment benefits.
"Will these activities help the economy weather the storm? The answer is yes, but the operative word in that sentence is help - the Fed cannot do this by itself," he says.
Image copyrightEPAImage captionA police officer hands out unemployment benefit applications in a car park in Florida
4. The Fed is also helping local governments.
The increased costs of healthcare and social programmes, combined with plunging tax revenue, have created huge problems for local governments. Ordinarily, they could borrow money by issuing bonds. But that market seized up earlier this year, as the enormity of the crisis made investors wary about repayment.
So, the Fed said it would buy up to $500bn in new bonds issued by states, cities and counties of a certain size - something else it has never done before. The Treasury Department is backing the effort with $35bn.
The Fed's promise alone has appeared to re-set demand and help bring down the cost of borrowing, says Michael Belsky, executive director of the Center for Municipal Finance at Chicago University's Harris School of Public Policy. "This is a godsend," he says. "For the most part, I think it's a very creative and appropriate thing to be doing."
But the Fed must guard against creating the expectation that it will be there to backstop cash-strapped local governments in the future, encouraging imbalanced budgets even in ordinary times, says Frederic Mishkin, professor of banking and financial institutions at Columbia Business School.
"Although providing fiscal stimulus was the right thing to do, they've got to make very clear how unusual this is," he says.
After all, the Fed has had difficulty dialling back its activity after the 2008 financial crisis. While many hope the current economic shock will be short-lived, the powers the Fed has assumed may well prove long-lasting.
(Reuters) - The United States said on Monday it will impose new restrictions on exports to China to keep semiconductor production equipment and other technology away from Beijing’s military.
The new rules will require licenses for U.S. companies to sell certain items to companies in China that support the military, even if the products are for civilian use. They also do away with a civilian exception that allows certain U.S. technology to be exported without a license, if the use is not connected to the military.
The rules, which were posted for public inspection and will be published in the Federal Register on Tuesday, could hurt the semiconductor industry and sales of civil aviation equipment to China, if the U.S. presumes they are for military applications.
The changes, which include requiring licenses for more items, also expand the rules for Russia and Venezuela, but the biggest impact will be on trade with China.
“It is important to consider the ramifications of doing business with countries that have histories of diverting goods purchased from U.S. companies for military applications,” Commerce Secretary Wilbur Ross said in a statement.
Washington trade lawyer Kevin Wolf said the rule changes for China are in response to its policy of military-civil fusion: finding military applications for civilian items.
He said the regulatory definitions of military use and user are broad and go beyond purchases by entities such as the People’s Liberation Army.
For example, Wolf said, if a car company in China repairs a military vehicle, that car company may now be a military end user, even if the item being exported is for another part of the business.
“A military end user is not limited to military organizations,” Wolf said. “A military end user is also a civilian company whose actions are intended to support the operation of a military item.”
Another rule change involves eliminating civilian license exceptions for Chinese importers and Chinese nationals for certain integrated circuits. Other telecommunications equipment, radar and high-end computers will be caught as well.
The administration also posted a third proposed rule change that would force foreign companies shipping certain American goods to China to seek approval not only from their own governments but from the United States as well.
The actions come as relations between the United States and China have deteriorated amid the new coronavirus outbreak.
Reporting by Karen Freifeld; Editing by Chizu Nomiyama, Jonathan Oatis and Dan Grebler
WASHINGTON (Reuters) - The U.S. House of Representatives overwhelmingly approved a $484 billion coronavirus relief bill on Thursday, funding small businesses and hospitals and pushing the total spending response to the crisis to an unprecedented near $3 trillion.
The measure passed the Democratic-led House by a vote of 388-5, with one member voting present. House members were meeting for the first time in weeks because of the coronavirus pandemic.
Lawmakers, many wearing masks, approved the bill during an extended period of voting intended to allow them to remain at a distance from one another in line with public health recommendations.
The House action sent the latest of four relief bills to the White House. Republican President Donald Trump, who backs the measure, said he would probably sign it into law on Thursday evening.
The Republican-led Senate had passed the legislation on a voice vote on Tuesday. But threats of opposition by some members of both parties prompted congressional leaders to call the full chamber back to Washington for the House vote despite state stay-at-home orders meant to control the spread of the virus.
The House also approved a select committee, with subpoena power, to probe the U.S. response to the coronavirus. It will have broad powers to investigate how federal dollars are being spent, U.S. preparedness and Trump administration deliberations.
Democratic House Speaker Nancy Pelosi said the panel was essential to ensure funds go to those who need them and to prevent scams. Republicans said the committee was not needed, citing existing oversight bodies, and called the panel’s creation another expensive Democratic slap at Trump. The committee was approved on a vote of 212-182, along party lines.
The $484 billion aid bill was the fourth passed to address the coronavirus crisis. It provides funds to small businesses and hospitals struggling with the economic toll of a pandemic that has killed almost 50,000 people in the United States and thrown 26 million out of work, wiping out all the jobs created during the longest employment boom in U.S. history.
A handful of lawmakers opposed the legislation, including Democrat Alexandria Ocasio-Cortez, who represents a severely affected area of New York and believes Congress should do even more - and Republican Thomas Massie, known as “Mr. No” for his frequent opposition to spending bills.
“This is really a very, very, very sad day. We come to the floor with nearly 50,000 dead, a huge number of people, and the uncertainty of it all,” Pelosi said during debate on the bill.
Congress passed the last coronavirus relief measure, worth more than $2 trillion, in March, also with overwhelming support from both parties. It was the largest such funding bill ever passed.
The UK's budget deficit is set to see "an absolutely colossal increase to a level not seen in peacetime", the director of the Institute for Fiscal Studies has said.
The economic impact of coronavirus was likely to push the deficit to as high as £260bn, Paul Johnson told the BBC.
He was speaking after latest figures showed that the deficit hit £48.7bn in the 2019-20 financial year.
But Mr Johnson said those figures were "the numbers before the storm".
And, separately, one of the Bank of England's top policymakers has warned that the UK faces its worst economic shock in several hundred years.
Jan Vlieghe, a member of the BoE's interest-rate setting committee, said that "early indicators" suggest the UK was "experiencing an economic contraction that is faster and deeper than anything we have seen in the past century, or possibly several centuries".
He did, though, say there was "in principle" a good chance that the UK would return to its "pre-virus trajectory once the pandemic is over".
The UK's deficit last year - the gap between the government's income and its expenditure - was £9.3bn higher than in the 2018-19 financial year and equivalent to 2.2% of GDP.
The Office for National Statistics, which released those figures, said they did not capture the big spending announced by the government to cope with the virus.
"The coronavirus (Covid-19) pandemic is expected to have a significant impact on the UK public sector finances," it added.
"These effects will arise from both the introduction of public health measures and from new government policies to support businesses and individuals."
Tax rises
The ONS said the full effects of coronavirus on the public finances would become clearer in the coming months.
Mr Johnson told the BBC's Today programme that there was still "a huge amount of uncertainty" surrounding the economic impact of the virus.
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However, the government had announced tax cuts and spending increases worth £100bn, so the effect was "likely to dwarf the record that we saw during the financial crisis".
Mr Johnson said the economy was unlikely to recover quickly afterwards and would remain "smaller than it otherwise would have been". He added that tax rises and a growing deficit were the likely outcome.
"I would be astonished if in a couple of years the economy was back where it would have been if it [the virus] had never happened," he said.
Meanwhile, a closely watched survey of UK businesses has indicated that the economic impact has been even worse than feared.
The IHS Markit/CIPS flash UK composite purchasing managers' index (PMI), which measures activity in the services and manufacturing sectors, fell to a new record low of 12.9 in April, down from 36 in March.
Any reading below 50 indicates contraction. Economists polled by Reuters had expected a figure of 31.4.
"The dire survey readings will inevitably raise questions about the cost of the lockdown and how long current containment measures will last," said Chris Williamson, chief business economist at IHS Markit, adding that the figures pointed to a quarter-on-quarter economic contraction of at least 7%.
Raising money
In another development, the Treasury has announced that it is speeding up its plans to raise money in order to cover the cost of its coronavirus measures.
It will now be issuing £180bn worth of government bonds, known as gilts, in the May-to-July period, more than originally intended in those months.
We already knew the government was likely to have to borrow huge sums of money to support the economy. But now it's not a "scenario" from the Office of Budget Responsibility, but concrete reality.
This morning, the Debt Management Office, the arm of the Treasury that borrows on international money markets on behalf of the government, announced how much the government is actually planning to borrow. That's £45bn in April alone and a further £180bn from the start of May to the end of July - a total of £225bn in just four months.
One reason is the huge cost of programmes such as furloughing, now expected to cost well north of £50bn. The other reason is that the government's revenues - the tax it collects through income tax, VAT and national insurance - are collapsing. If you shut down much of the economy, you also turn off the tap on much of the government's tax income.
The OBR's scenario was that the government might need to borrow £382bn for the year - about seven times what was expected pre-Covid. That depends, though, on the shutdown being lifted sooner rather than later.
The Resolution Foundation estimates that if the shutdown continues for six months, borrowing will be even higher for the year - a truly mind-boggling £500bn. That's about a quarter of the size of the entire economy.
"The temporary and immediate nature of the unprecedented support announced for people and businesses means the government expects that a significantly higher proportion of total gilt sales in 2020-21 will take place in the first four months of the financial year, in order to meet the immediate financing needs resulting from Covid-19," the Treasury said.
"This higher volume of issuance is not expected to be required across the remainder of the financial year."
Clothing stores had offered more discounts as shoppers began staying at home, it said. Falling oil prices also resulted in cheaper petrol prices.
Economists warn inflation could slide to 0.5% in 2020 as the economy shrinks.
The ONS's latest data was collected on 17 March, just before lockdown started on 23 March. But its head of inflation, Mike Hardie, said there were already signs people were spending less in shops and more on necessities such as food.
The agency said the average price of clothes and shoes fell 1.2% in the year to March 2020.
It also said average petrol prices stood at 119.4 pence per litre during the month - the lowest seen since February 2019, while diesel stood at 123.8p
Sarah Hewin, senior economist at Standard Chartered bank, told the BBC's Today programme: "Normally low inflation would be welcomed as it means people have effectively more to spend in the shop but these are not normal circumstances.
"The fall in inflation, in addition to low energy prices, is an indication of the steep recession we will see in the coming months."
Meanwhile, Andrew Wishart at Capital Economics said: "We suspect a larger fall in CPI inflation, from 1.5% to 0.9%, is in store for April as Ofgem [the regulator] lowers the cap on utility bills to reflect past falls in wholesale energy prices."
He added that falling employment, consumer caution and lower energy prices could pull inflation "down to just 0.5% in the second half of this year".
'More help needed'
CPI remains below the Bank of England's 2% target for inflation.
Inflation is one of the main factors that the Bank of England's Monetary Policy Committee (MPC) considers when setting the "base rate". That influences what interest rate banks can charge people to borrow money, or what they pay on their savings.
In an emergency move last month, Last month it cut rates from 0.25% to 0.1% to support the economy in the face of the coronavirus pandemic. They are now at the lowest level in the Bank's 325-year history.
Image copyrightGETTY IMAGESImage captionNew boss of the Bank of England Andrew Bailey has slashed interest rates to a new low
It also said it would increase its holdings of UK government and corporate bonds by £200bn in an effort to lower the cost of borrowing.
But Melissa Davies, chief economist at Redburn, said the Bank needs to go further: "It will be a volatile ride for inflation over the next year, with negative numbers a possibility followed by a sharp reversal."
She added: "More stimulus is needed, with only limited quantitative easing help from the Bank of England and the Treasury's lending guarantee scheme falling short. Even the furlough scheme is only delaying an inevitable and large spike in unemployment."
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