BBC News - Eurozone suffers deepest contraction on record

Image copyrightREUTERS

Image captionSpain's economy has been ravaged by the virus

Spain has been plunged into its deepest recession in modern times by the coronavirus pandemic.

Its economy shrank by 18.5% in the April-to-June period, having already fallen by 5.2% in the first three months of the year.

The country was the worst performer in the eurozone, which saw its overall GDP decline by a record 12.1%.

France's economy has also been badly hit, with GDP there falling by 13.8% in the second quarter.

The French statistics agency said the low point had come in April, with a gradual recovery in May and June as lockdown restrictions eased, but economic activity was still well below normal.

Italy, which was among the first European countries to be hit by the pandemic, has reported a similar drop, with the economy contracting by 12.4%. However, the fall was less steep than expected.

Across the EU, the economic contraction was 11.9%.

The official Eurostat agency said the falls were the largest since it began recording the figures in 1995.

The figures are dreadful, but not a surprise. The eurozone includes some of the countries most severely affected by deaths from coronavirus.

Lockdowns earlier in the pandemic were draconian and in any case, many people have been wary of exposing themselves to the risk of infection. The result was some extraordinary declines in economic activity.

In the case of Spain, a group of service industries which includes transport, restaurants and accommodation suffered a decline of more than 50% in the first half of 2020.

Even Germany was hit hard, in spite of a less severe health situation and being less exposed to the damage done to the tourist industry. German consumers cut back. It is also a big goods exporter and global trade has been severely disrupted by the pandemic.

The US and Germany both announced huge falls in national output on Thursday, showing the global economic impact of Covid-19.

The US saw its sharpest contraction in decades, with the economy shrinking at an annual rate of 32.9% between April and June.

Germany reported its deepest quarterly decline on record, as total production of goods and services fell by 10.1%.

The Spanish figures, which were worse than forecast, have wiped out the growth of the past six years.

Economic activity in Spain has declined by a total of more than a fifth so far this year. Service industries including transport, restaurants and accommodation have been hardest hit, as they have been most affected by the restrictions on movement imposed to fight the pandemic.

Spain has suffered a large number of deaths in the course of the health crisis, and a correspondingly dramatic impact on the economy was seen as inevitable, says BBC World Service economics correspondent Andrew Walker.

Our correspondent adds that although many of the restrictions on commercial activity in Spain have now been eased, any rebound is sure to be impaired by the recent resurgence of coronavirus infections in some areas.

Reuters News - China needs 'explosive' buying to meet U.S. farm import target

BEIJING/CHICAGO (Reuters) - With nearly seven months gone, an ambitious $36.5 billion target for Chinese imports of U.S. farm goods this year may not be quite out of reach, but it’s looking like a big, big stretch.

By end-May, imports were running behind 2017 levels - rather than 50% ahead as needed - and while orders for China’s main farm import, soybeans, have started to pick up, scorching levels of buying would be needed to hit the mark.

Add in a rapid deterioration in U.S.-China relations, an upcoming U.S. election, a global pandemic and questions over just how much soybeans China actually needs, and farmers and analysts say it may be a stretch too far.

“It just doesn’t seem likely to me,” said John Payne, senior futures & options broker with Daniels Trading in Chicago. “If the global economy was more normal then maybe, but you have this whole COVID problem.”

Beijing and Washington sealed their Phase 1 trade deal in January after two years of acrimony and a steep slump in imports by one of the biggest buyers of U.S. agricultural goods.

Analysts at the time expressed reservations about the farm goods target, which is a quarter above 2013’s all-time high of $29 billion.

Still, Chinese buyers stepped up purchases this year of a range of farm imports, sealing record deals in corn and meat imports, prompting some optimism.

“If I were to grade them today, we went from a C- to a B, and if it continues maybe we can start to see higher levels. But it needs to be a continual, ongoing affair,” said Dan Basse, president of AgResource Co in Chicago.

EYES ON SOY

The chances of meeting the target will be clear in the next few months. Soybeans typically account for about half of China’s U.S. farm imports and the vast bulk of buying comes in the last three months of the year when supplies from top grower Brazil dry up.

After a slow start, Chinese importers booked more than $2.5 billion in U.S. soy purchases in just the past eight weeks.

“We may be on the verge of really beginning to ramp up sales to China. I think you’re going to start seeing these chunks of soybean sales happening pretty soon because Brazil’s getting close to sold out,” said John Baize, president of consultancy John C. Baize & Associates.

It’s unclear, however, whether China will sustain its appetite over the next five months after its crushers earlier snapped up record volumes from Brazil.

Demand will also depend on China’s recovery from a disease that killed hundreds of millions of pigs, reducing the need for feed.

For soybeans to make up half of the $36.5 billion target, buyers would have to take some $2.8 billion a month from July to December, according to Reuters calculations.

This pace of monthly buying has never been sustained for more than two straight months and only then during the fourth quarter of the year, most recently in 2016.

Falling commodity prices due to the coronavirus pandemic present an added difficulty, with the deal tied squarely to the value of imports. Soybean prices this year have averaged around 10% less than in 2016.

OTHER IMPORTS

Trade in other products, meanwhile, may find it hard to hold their early trajectory.

Chinese buyers bought more than $500 million of corn in the first half of July, but importers are thought to have nearly filled their import quotas and the country’s own crop will be ready for harvest from September.

China also spent record amounts on meat through May, including over $1.2 billion on pork, according to USDA data, but overall spending on meat is relatively small.

In total, China’s American farm purchases amounted to $6 billion through May - the latest data available - up just 9.1% from the same period in 2019 and 31% below 2017’s level.

The sales have disappointed U.S. farmers hoping for a Chinese buying bonanza.

“It’s been rocky, to say the least,” said North Dakota farmer Paul Sproule. “They have been making some buys lately, which we appreciate. But with closing down the consulates and the issues with Hong Kong, relations are only getting worse.”

In all, a daunting figure of roughly $25 billion of purchases will be needed for the second six months of the year, according to Reuters calculations.

The U.S. Department of Agriculture and office of the U.S. Trade Representative did not respond to requests for comment. China’s Ministry of Commerce also did not respond to a faxed request for comment.

POLITICAL WILL

China may not violate the deal if it misses the target due to the impact of coronavirus. The deal grants flexibility in the event of “a natural disaster or other unforeseeable event.”

At the same time, politics will come into play.

With bilateral relations in turmoil, China may want to avoid making itself a bigger target for criticism from U.S. President Donald Trump during the U.S. election campaign by failing to make big agricultural purchases.

The final volumes of China’s soybean purchases will likely depend on whether or not Beijing chooses to replenish government stockpiles.

Overall, China normally requires 7-8 million tonnes a month of soybeans, noted a soy crusher in northeastern China.

“It would be a separate story if the beans go into state reserves,” he said.

China-based sources said China will want to avoid the reputational damage of not meeting its commitments if possible.

“We will bite our teeth and implement the trade deal. Otherwise, we don’t look good on the international stage,” said a trading manager with a state-run firm.

“But we would need to buy in an explosive way.”

Reporting By Hallie Gu in Beijing and Karl Plume in Chicago; Writing by Gavin Maguire; editing by Simon Webb and Richard Pullin

Our Standards:The Thomson Reuters Trust Principles.

BBC News - Republicans introduce $1tn pandemic recovery plan

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Image captionDonald Trump talks while Mitch McConnell (left) looks on

US Senate Republicans have proposed spending an additional $1tn (£776bn) to address the economic damage caused by the coronavirus pandemic.

The plan includes $100bn for schools and issuing stimulus payments of up to $1,200 to most Americans.

But it would reduce a $600 boost to unemployment benefits introduced during the pandemic.

The proposal sets the stage for negotiations with Democrats who have called it "totally inadequate".

The US has already spent more than $2.4tn on virus relief measures, sending billions of dollars in aid to businesses and individual households. But economists have warned since the spring that more would be necessary.

Senator Mitch McConnell said Republicans wanted to see how existing programmes were working, but had now produced a "tailored and targeted draft" to address the economic fallout of the pandemic.

The proposal would reduce the $600 weekly unemployment benefit supplement to $200 until states can set up a more targeted system that replaces 70% of a person's previous wage.

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The reduction reflects worries that the current benefits discourage workers from returning to work, since an estimated two thirds of recipients are getting more from unemployment than they did working.

Mr McConnell said Republicans "want to continue" the unemployment supplement, which expires this week. "But we have to do it in a way that does not slow down reopening."

As well as money for direct payments to families and to help schools, Republicans said they want to put in place legislation to shield businesses from workers' coronavirus health claims.

What else do Democrats want?

Senator Chuck Schumer, who leads Democrats in the Senate, said the proposal was "too little, too late".

The US has lost roughly 15 million jobs since February and the recovery remains on shaky ground as virus cases rise and some places reimpose restrictions.

Nearly one in five US workers is collecting unemployment benefits and more than half of adults live in households that have seen a drop in income, according to a survey by the US census.

"This is a serious, serious crisis," Mr Schumer said. "We're running out of time."

He said the Republican plan amounted to a "30% pay cut" at a time when most workers do not have jobs to return to and switching to a new system will be near "impossible" for states to execute. He pointed to problems that have plagued the programme so far.

"It will delay benefits for weeks, if not months, as we slide into a greater degree of recession," he said.

Image copyrightGETTY IMAGES

Image captionAs the US economy reopens, some lawmakers say it's time to cut back the pandemic relief

Democrats, who have put forward their own $3tn plan, want funding for local governments, which are facing budget shortfalls due to the decline in economic activity. Many object to the unemployment benefit cut, which they want to see extended through to the end of the year.

They have also rejected the proposal to shield businesses from liability.

"What we will not support is what they're saying to essential workers: 'You have to go to work because you're essential, we place no responsibility on your employer to make that workplace safe and if you get sick you have no recourse because we've given your employer protection,'" Congresswoman Nancy Pelosi, the top Democrat in the House of Representatives, said in a recent television interview.

What happens now?

Some Republicans had proposed fast-tracking some pieces of the legislation - an idea rejected by Democrats, who see that strategy as an effort to avoid including their priorities.

Mr McConnell said on Friday he expected the negotiations to take "a few weeks". The senator will also need to persuade members of his own party, who are worried about rising levels of government debt and opposed to further spending.

"The answer to these challenges will not simply be shovelling cash out of Washington. The answer to these challenges will be getting people back to work," Republican Senator Ted Cruz said.

Reuters News - U.S. Republicans, Democrats square off on coronavirus relief as deadline looms

WASHINGTON (Reuters) - U.S. Republicans and Democrats faced difficult talks on Tuesday on how best to recover from the coronavirus pandemic, after Republicans unveiled a relief proposal days before millions of Americans lose federal unemployment benefits.

Senate Republicans announced on Monday a $1 trillion coronavirus aid package hammered out with the White House, which would slash the current expanded unemployment benefit from the $600 per week in addition to state unemployment, which expires on Friday, to $200.

Senate Majority Leader Mitch McConnell touted the proposal as a “tailored and targeted” plan to reopen schools and businesses, while protecting companies from lawsuits.

The plan sparked immediate opposition from both Democrats and Republicans. Democrats decried it as too limited, and too late, compared with their $3 trillion proposal that passed the House of Representatives in May.

Some Republicans called it too expensive.

The Republican proposal would give many Americans direct payments of $1,200 each, provide billions in loans to small businesses and help schools reopen.

The federal supplemental unemployment benefit has been a financial lifeline for laid-off workers and a key support for consumer spending. Democrats quickly denounced the cuts as draconian when millions of Americans cannot return to shuttered workplaces.

Many Republicans insist the high unemployment payout encourages Americans to stay home rather than go back to work. Their proposal would put the $200 weekly supplemental payment in place until states create a system to provide a 70% wage replacement for laid-off workers.

Democrats said the $200 suggestion is insufficient and would damage the economy, and scoffed at suggestions that people would rather stay home.

“People want to work, Republican friends. They just don’t have jobs to do it. We’re not going to let them starve while that happens,” Senate Democratic leader Chuck Schumer said in a Senate speech criticizing Republicans.

“Let’s get something done. America desperately needs our help,” he said.

Schumer and Democratic House Speaker Nancy Pelosi are due to meet later on Tuesday with Treasury Secretary Steven Mnuchin, after a session on Monday evening.

The partisan dispute comes as U.S. coronavirus cases have passed 4.3 million, with nearly 150,000 people killed in the country, and tens of millions out of work.

The Democratic-led House in May passed its $3 trillion coronavirus relief bill known as the “HEROES Act,” but the Republican-led Senate refused to consider it.

McConnell acknowledged that the Republican “HEALS Act” was just a starting point for negotiations that would need bipartisan support to become law.

In his remarks opening the Senate on Tuesday, McConnell accused Democrats of risking Americans’ well-being amid the health and economic crisis by playing politics.

“The HEALS Act is full of provisions that I would frankly dare my Democratic colleagues to actually say they oppose,” McConnell said.

Reporting by David Morgan, Patricia Zengerle and Susan Cornwell in Washington; Additional reporting by Lisa Lambert in Washington; Writing by Patricia Zengerle; Editing by Bernadette Baum and Matthew Lewis

Our Standards:The Thomson Reuters Trust Principles.

BBC News - Retail sales near pre-lockdown levels in June

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UK retail sales were near pre-lockdown levels in June, as the reopening of shops released pent-up demand.

The amount of goods sold last month increased by 13.9% compared to May, according to the Office for National Statistics (ONS).

Separately, a closely watched survey showed that activity in the UK's services and manufacturing sectors returned to growth last month.

However, economists warned that the country's recovery would take time.

June's rise in retail sales followed record falls in April and a partial recovery in May as the coronavirus pandemic led to widespread shop closures.

But it masked "big changes" in retail, with food and online sales up, while clothing was still "struggling", the ONS said.

Online sales continued to go "from strength to strength", the ONS added, accounting for £3 out of every £10 spent by consumers.

Demand at food stores remained strong, hitting new highs for the lockdown period.

Compared with February, the volume of food sales was 5.3% higher while non-store retailing grew by 53.6%.

The ONS said the rebound had brought overall retail sales back to a similar level to where they were pre-lockdown, but there was a "mixed picture" in different store types.

In June, non-food stores, including department stores and clothes shops, partially recovered from strong falls during the lockdown but were still 15% lower than in February.

Non-essential shops in England were not allowed to reopen until 15 June, so they were only trading for half the month.

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Jonathan Athow, ONS deputy national statistician, told the BBC that there had been "some really big changes under the surface" of the retail landscape since lockdown began.

"Food shops continue to do quite well, as we're eating at home more," he said.

"But the real growth has been in online sales. Online sales continue to go from strength to strength."

Britain's nation of shoppers has come to the fore.

The amount of what we buy is virtually back to pre-crisis levels - but that doesn't signal a wider full bounce-back in our economic fortunes.

This is for a couple of reasons. Firstly, what we buy has changed: more online, more staples, fewer impulse forays onto the High Street.

While there was an initial flurry in sales of clothing and household goods immediately after non-essential shops opened in June, more timely data on payments suggested that tailed off in July.

The fallout can be seen in the mounting job losses announced by stalwarts, from John Lewis to M&S.

Secondly, retail sales are only part of the recovery jigsaw, totalling about a fifth of the economy.

Factories and building sites are coming back to life. But the big unknown is spending on services such as restaurants, bars and hotels - so-called "social spending".

Even with eating out vouchers and VAT cuts, a full and rapid recovery there seems unlikely.

And it is these sectors that have suffered most and have furloughed the vast majority of their staff. Their future will hinge on how spending convalesces there.

High Street suffers

Mr Athow said some sectors were "struggling".

"Some of that is due to the restrictions, which were only relaxed part-way through June in England. Clothing is down by about a third.

"And if you look at the High Street more generally, sales in the High Street, or physical shops, are also down by about a third."

Clothing sales did rise 70% month-on-month in June, but from a very low base, meaning that they are still well below pre-lockdown levels.

Mr Athow said they had fallen so far that "virtually any pick-up will look like a big number".

The proportion of online spending reduced to 31.8% in June from the record 33.3% reported in May, but was well up on the 20% reported in February, said the ONS.

Meanwhile, a survey measuring new orders, employment and business sentiment in the services and manufacturing sectors indicated a return to growth during June.

The "flash" - or preliminary - Purchasing Managers' Index (PMI), compiled by IHS Markit and CIPS, rose to 57.1 in July, up sharply from 47.7 last month.

It was the first time since February that it was above 50, indicating expansion.

However, Markit's chief business economist, Chris Williamson, cautioned: "While the recession looks to have been brief, the scars are likely to be deep."

'Online is how I have been able to survive'

Image copyrightHELLEN STIRLING-BAKER

One businesswoman who has taken advantage of the move to online shopping is Hellen Stirling-Baker of Small Stuff, a Sheffield-based independent retailer.

She sells sustainably made toys, gifts and homewares for young children.

"Driving my store online is how I have been able to survive," she said.

"Offering face-to-face video calling for customers to recreate the in-store experience has been crucial and sales are picking up.

"I've also added new services such as local delivery by hand, which really boost engagement."

'Hope on the horizon'

Jeremy Thomson-Cook, chief economist at Equals Money, said the retail sector had seen a "V-shaped recovery", echoing remarks by the Bank of England's chief economist, Andy Haldane.

"The motto of the British consumer has long been 'When the going gets tough, the tough go shopping' and it seems like June encapsulated that well," he added.

Silvia Rindone, retail partner at EY, said the latest figures showed there was "some hope on the horizon", with consumers beginning to show "a cautious optimism".

But she added: "We're still not past the pandemic and getting back to 'normal' will still take time.

"With face coverings now compulsory in England's shops, physical retailers need to continue to focus on reassuring customers."