BBC News - US economic decline not as bad as feared

 The US economy shrank by 3.5% last year faring better than many other countries despite the heavy economic toll caused by the pandemic.

However growth slowed in the last three months of the year, as a resurgence of virus cases prompted a fresh pullback in activity.

Output increased at an annual rate of 4% in the last three months of 2020.

That was slower than many analysts had expected - and down sharply from the rebound seen in the prior quarter.

The overall fall in 2020 reported by the US Commerce Department was the sharpest decline since 1946, when the US was demobilising after World War II. Compared to the fourth quarter of 2019, output was down 2.5%.

But the contraction was not as bad as many had feared in the depths of the lockdowns last spring, when spending on activity like dining and travel plummeted.

And despite soaring unemployment numbers and a sharp increase in poverty, the US was not hit as badly as many other parts of the world.

The International Monetary Fund estimates that the UK economy, for example, shrank by 10% last year, while Canada, Japan and Germany all dropped by more than 5%.

China is the only major economy that has reported growth, with gross domestic product (GDP) up 2.3%.

US economic growth "was still down by 2.5% on a year earlier, but that still represents a much faster recovery than we would initially have expected given how grim things looked in mid-2020," said Paul Ashworth, chief US economist at Capital Economics.

"With effective vaccines offering the possibility of a return to normalcy later this year and the Biden administration intent on more fiscal stimulus, we think GDP growth will be as high as 6.5% this year."

Stimulus effect

The recovery in the US follows massive stimulus efforts, which have sent trillions of dollars to households and businesses.

Federal Reserve Chair Jerome Powell on Wednesday credited the rescue packages with helping to ease the crisis so far.

But he warned that the economic rebound was still vulnerable to problems with vaccination rollout and the emergence of new strains.

The US economy grew just 1% in the last three months of the year, compared to the prior quarter, as surging virus cases led to a sharp pullback in consumer spending on dining and other activities.

Some of the shifts produced by the pandemic, such as increased automation and remote work, also mean that some of the jobs that have disappeared may never return, Mr Powell added.

"We're a long way from a full economic recovery," he said at a press conference after the Federal Reserve's regular meeting. "Getting the pandemic under control - that's the single most important economic growth policy that we can have."

Unemployment

On Thursday, the US Labor Department reported that another 847,000 people had filed new claims for jobless benefits last week - down slightly from a week earlier but still above pre-pandemic records.

More than 18.2 million people were collecting some form of unemployment support in the week ended 9 Jan, it said.

Tim Quinlan, economist at Wells Fargo, said the figures were a sign of the "dark winter" that many officials had warned about.

"We do not look for the labour market to improve meaningfully until vaccine distribution ramps up in earnest and until the spread of the virus is sharply curtailed," he said. "The timing of that remains frustratingly uncertain."

Joe Biden has proposed another $1.9tn in spending, with millions devoted to vaccination efforts, as well as re-opening schools and supporting those cast out of work due to the virus.

But the plan - described as a "bridge" to help the US economy until life can return to normal - will have to overcome resistance in Congress, where many Republicans have said they are sceptical of the need for such programmes and worried about the cost.

Reuters News - COVID-19 savages U.S. economy, 2020 performance worst in 74 years

 WASHINGTON (Reuters) - The U.S. economy contracted at its deepest pace since World War Two in 2020 as the COVID-19 pandemic depressed consumer spending and business investment, pushing millions of Americans out of work and into poverty.

Though a recovery is underway, momentum slowed significantly as the year wound down amid a resurgence in coronavirus infections and exhaustion of nearly $3 trillion in relief money from the government. The moderation is likely to persist at least through the first three months of 2021.

The economy’s prospects hinge on the distribution of vaccines to fight the virus. President Joe Biden has unveiled a recovery plan worth $1.9 trillion, but some lawmakers have balked at the price tag soon after the government provided nearly $900 billion in additional stimulus in late December.

White House economic advisor Brian Deese said the report from the Commerce Department on Thursday underscored the urgency for Congress to pass Biden’s plan, warning that the cost of doing nothing was too high.

“Without swift action, we risk a continued economic crisis that will make it harder for Americans to return to work and get back on their feet,” said Deese.

Gross domestic product decreased 3.5% in 2020, the biggest drop since 1946. That followed 2.2% growth in 2019 and was the first annual decline in GDP since the 2007-09 Great Recession.

Nearly every sector, with the exception of government and the housing market, contracted last year. Consumer spending, which accounts for more than two-thirds of the economy, plunged 3.9%, the worst performance since 1932. The economy tumbled into recession last February.

Delays by the government to offer another rescue package and renewed business disruptions caused by the virus restricted GDP growth to a 4.0% annualized rate in the fourth quarter. The big step-back from a historic 33.4% growth pace in the third quarter left GDP 2.5% below its level at the end of 2019.

The economy is expected to return to its pre-pandemic level in the second quarter of this year.

The Federal Reserve on Wednesday left its benchmark overnight interest rate near zero and pledged to continue pumping money into the economy through bond purchases, noting that “the pace of the recovery in economic activity and employment has moderated in recent months.”

With the virus still raging, economists are expecting growth to slow to below a 2.0% rate in the first quarter, before regaining speed by summer as the additional stimulus kicks in and more Americans get vaccinated.

“We foresee record-breaking consumer spending growth in 2021 with households benefiting from a watered-down $1.2 trillion version of Biden’s rescue plan, vaccine diffusion gradually reaching two thirds of Americans by July and employment accelerating this spring,” said Gregory Daco, chief U.S. economist at Oxford Economics in New York.

Stocks on Wall Street rallied as mega-cap technology shares tried to recoup recent losses. The dollar slipped against a basket of currencies. U.S. Treasury prices were lower.

K-SHAPED RECOVERY

Services businesses like restaurants, bars and hotels have borne the brunt of the recession, disproportionately impacting lower-wage earners, mostly women and minorities. That has led to a so-called K-shaped recovery, where better-paid workers are doing well while lower-paid workers are losing out.

The stars of the recovery have been the housing market and manufacturing as those who are still employed seek larger homes away from city centers, and buy electronics for home offices and schooling. A survey by professors at the University of Chicago and the University of Notre Dame showed poverty increased by 2.4 percentage points to 11.8% in the second half of 2020. The sharpest rise since the 1960s boosted the ranks of the poor by 8.1 million people.

Rising poverty was highlighted by persistent labor market weakness. In a separate report on Thursday, the Labor Department said initial claims for state unemployment benefits totaled a seasonally adjusted 847,000 for the week ended Jan. 23. While that was down 67,000 from the prior week, claims remain well above their 665,000 peak during the 2007-09 Great Recession.

Including a government-funded program for the self-employed, gig workers and others who do not qualify for the regular state unemployment programs 1.3 million people filed claims last week.

The economy shed jobs in December for the first time in eight months. Only 12.4 million of the 22.2 million jobs lost in March and April have been recovered. About 18.3 million Americans were receiving unemployment checks in early 2021.

“The labor market is struggling this winter, but better times are ahead,” said Ryan Sweet, a senior economist at Moody’s Analytics in West Chester, Pennsylvania.

Lack of jobs and the temporary expiration of a government weekly jobless subsidy curtailed growth in consumer spending to a 2.5% rate in the fourth quarter after a record 41% pace in the July-September quarter.

But business investment grew at a 13.8% rate, with spending on equipment rising at a 24.9% pace. Spending on nonresidential structures rebounded after four straight quarterly declines.

Businesses also accumulated inventories last quarter, contributing to GDP growth. But the inventory build pulled in more imports, leading to a larger trade deficit, which subtracted from output. The housing market recorded another quarter of double-digit growth, thanks to historically low mortgage rates. Government spending was weak.

Reporting by Lucia Mutikani; Editing by Chizu Nomiyama and Andrea Ricci

Our Standards: The Thomson Reuters Trust Principles

BBC News - China takes new foreign investment top spot from US

 China has overtaken the US as the world's top destination for new foreign direct investment, according to UN figures released on Sunday.

New investments into America from overseas companies fell by almost half last year, leading to the loss of its number one status.

In contrast, UN figures show direct investment into Chinese firms climbed 4%, putting it number one globally.

The top ranking shows China's growing influence on the world economic stage.

• Chinese economy 'to overtake US by 2028'
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China had $163bn (£119bn) in inflows last year, compared to $134bn attracted by the US, the United Nations Conference on Trade and Development (UNCTAD) said in its report

In 2019, the US received $251bn in new foreign direct investment while China received $140bn.

While China may be number one for new foreign investment, the US still dominates when it comes to total foreign investments.

This reflects the decades it has spent as the most attractive location for foreign businesses looking to expand overseas.

But experts say the figures underline China's move toward the centre of the global economy which has long been dominated by the US, the world's biggest economy.

China, currently involved in a trade war with the US, has been predicted to leapfrog it to the number one position by 2028, according to the UK-based Centre for Economics and Business Research (CEBR).

Trump slump

Foreign investment in the US peaked in 2016 at $472bn, when foreign investment in China was $134 billion.

Since then, investment in China has continued to rise, while in the US it has fallen each year since 2017.

The Trump administration encouraged American companies to leave China and re-establish operations in the US.

It also warned Chinese companies and investors that they would face new scrutiny when investing in America, based on national security grounds

While the US economy has been struggling since the Covid-19 outbreak last year, China's economy has picked up speed.

China's economic growth, measured in gross domestic product (GDP), grew 2.3% in 2020, official data showed this month.

This makes China the only major economy in the world to avoid a contraction last year. Many economists have been surprised with the speed of its recovery, especially as it navigated tense relations with the US.

Overall, global foreign direct investment (FDI) dropped dramatically in 2020, falling by 42%, according to the UNCTAD report. FDI normally involves one company taking control of an overseas one, typically through a merger or acquisition.

The UK saw a fall of more than 100% in new foreign direct investment last year from $45bn in 2019 down to -$1.3bn.

BBC News - Coronavirus: How the pandemic has changed the world economy

 The coronavirus pandemic has reached almost every country in the world.

Its spread has left national economies and businesses counting the costs, as governments struggle with new lockdown measures to tackle the spread of the virus.

Despite the development of new vaccines, many are still wondering what recovery could look like.

Here is a selection of charts and maps to help you understand the economic impact of the virus so far.

Global shares in flux

Big shifts in stock markets, where shares in companies are bought and sold, can affect the value of pensions or individual savings accounts (Isas).

The FTSE, Dow Jones Industrial Average and the Nikkei all saw huge falls as the number of Covid-19 cases grew in the first months of the crisis.

The major Asian and US stock markets have recovered following the announcement of the first vaccine in November, but the FTSE is still in negative territory.

The FTSE dropped 14.3% in 2020, its worst performance since 2008.

n response, central banks in many countries, including the UK, have slashed interest rates. That should, in theory, make borrowing cheaper and encourage spending to boost the economy.

Some markets recovered ground in January this year, but this is a normal tendency known as the "January effect".

Analysts are worried that the possibility of further lockdowns and delays in vaccination programmes might trigger more market volatility this year.

A difficult year for job seekers

Many people have lost their jobs or seen their incomes cut.

Unemployment rates have increased across major economies.

In the United States, the proportion of people out of work hit a yearly total of 8.9%, according to the International Monetary Fund (IMF), signalling an end to a decade of jobs expansion.

Millions of workers have also been put on government-supported job retention schemes as parts of the economy, such as tourism and hospitality, have come to a near standstill.

The numbers of new job opportunities is still very low in many countries.

Job vacancies in Australia have returned to the same level of 2019, but they are lagging in France, Spain, the UK and several other countries.

Some experts have warned it could be years before levels of employment return to those seen before the pandemic.

Most of countries now in recession

If the economy is growing, that generally means more wealth and more new jobs.

It's measured by looking at the percentage change in gross domestic product, or the value of goods and services produced, typically over three months or a year.

The IMF estimates that the global economy shrunk by 4.4% in 2020. The organisation described the decline as the worst since the Great Depression of the 1930s.

The only major economy to grow in 2020 was China. It registered a growth of 2.3%.

The IMF is, however, predicting global growth of 5.2% in 2021.

That will be driven primarily by countries such as India and China, forecast to grow by 8.8% and 8.2% respectively.

Recovery in big, services-reliant, economies that have been hit hard by the outbreak, such as the UK or Italy, is expected to be slow.

Travel still far from taking off

The travel industry has been badly damaged, with airlines cutting flights and customers cancelling business trips and holidays.

New variants of the virus - discovered only in recent months - have forced many countries to introduce tighter travel restrictions.

Data from the flight tracking service Flight Radar 24 shows that the number of flights globally took a huge hit in 2020 and it is still a long way from recovery.

Hospitality sector has shut its doors worldwide

The hospitality sector has been hit hard, with millions of jobs and many companies bankrupt.

Data from Transparent - an industry-leading intelligence company that covers over 35 million hotel and rental listings worldwide - has registered a fall in reservations in all the top travel destinations.

Billions of dollars have been lost in 2020 and although the forecast for 2021 is better, many analysts believe that international travel and tourism won't return to the normal pre-pandemic levels until around 2025.

Shopping... at home

Retail footfall has seen unprecedented falls as shoppers stayed at home.

New variants and surges in cases have made problems worse.

Pedestrian numbers have fallen further from the first lockdown, according to research firm ShopperTrak,

Separate research suggests that consumers are still feeling anxious about their return to stores. Accountancy giant EY says 67% customers are now not willing to travel more than 5 kilometres for shopping.

This change in shopping behaviour has significantly boosted online retail, with a global revenue of $3.9 trillion in 2020.

Pharmaceutical companies among the winners

Governments around the world have pledged billions of dollars for a Covid-19 vaccine and treatment options.

Shares in some pharmaceutical companies involved in vaccine development have shot up.

Moderna, Novavax and AstraZeneca have seen significant rises. But Pfizer has seen its share price fall. The partnership with BioNTech, the high cost of production and management of the vaccine, and the growing number of same-size competitors have reduced the investors' trust in the company to have bigger revenue in 2021.

A number of pharmaceutical firms have started already distributing doses and many countries have started their vaccination programmes. Many more - such as Johnson & Johnson and Sanofi/GSK - will join the vaccine distribution during 2021.