Coronanomics (3) - The Global Economy Spinning on a Wishing Wheel


Tuesday, June 09, 2020 / 06:30 AM / by Proshare Content / Header Image Credit:  EcoGraphics

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There have been increasing concerns among investors over a possible drop in investment returns in 2020 as a variety of industries find earnings disappear as supply chains break down partially or completely. Top economies like China, the USA, the Eurozone, Japan and South Korea have been hit hard by the COVID-19 pandemic which has triggered problems of fiscal balance (rising public debt), unplanned monetary expansion, economic shut-ins and falling foreign exchange incomes as international trade shrinks.


Manufacturing Activity in Major Economies

US, China Japan and the Eurozone all recorded declines and contractions in manufacturing activities in April. The decline and contraction are as a result of the continuous spread of the pandemic coronavirus.


The lockdown imposed on US, China, Eurozone and Japanese economy to prevent and curb the further spread of the virus harmed manufacturing activities. The US, China, Japanese and Eurozone Purchasing Managers' index declined to 36.1%, 49.4%, 41.9% and 33.4% respectively indicating a contraction in manufacturing activities (see Chart 1).


Chart 1: Manufacturing Activity In Major Economies

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Source: Caixin, au Jibun Bank, IHS Markit, CNBC 


Services Activity in Major Economies

US, Eurozone and Japan recorded a decline in their services activity in April while China recorded an improvement in its services PMI (from March). The outbreak and the spread of the pandemic coronavirus in the world led to a restriction in movement and reduction in consumer spending which hurt retail stores, restaurants and the aviation business.


Chart 2: Services Activity in Major Economies

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Source: Caixin, au Jibun Bank, IHS Markit, Cnbc


US, Eurozone and Japan recorded a contraction in services PMI to 26.7%, 12.0% and 21.5% respectively in April from 39.8%, 26.4% and 33.8% in March 2020. A major reason attributable to the contraction in US service PMI is the reduction in new business from abroad as customers held back from placing orders amid global economic uncertainty and the coronavirus outbreak. While the contraction in the Japanese services PMI was attributed to weak demand both at home and abroad.


The Chinese economy recorded an improvement in its services PMI to 43% in March from 26.5% in February 2020 and 44.4% in April 2020.  This was attributable to the gradual recovery of the Chinese economy and the easing of the earlier January 2020 lockdown (see Chart 2).

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Retail Sales of Major Economies

China, US and South Korea recorded sharp declines in retail sales as lockdown measures during the pandemic forced many stores to be shut and kept consumers at home. A surge in online sales reported by some retailers, such as Amazon, failed to stem an overall decline in retail sales. Economists warned that consumers may not resume spending even after lockdown measures are lifted. That's evident in the "slow improvement" in retail sales in China even after the country allowed the gradual reopening of businesses. In April 2020, China and US's retail sales plunged by -16.40%, and -7.50 respectively, no data yet for South Korea for April (see Chart 3).


Chart 3: Dip in Retail Sales Y-o-Y (%)

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Source: US Census Bureau, National Bureau of Statistics of China, Refinitiv


Movements in 10 years government bond yields of major economies

There has been an increase in apprehension over the increasing spread of the coronavirus.  Panic amongst investors has driven investors to bid up bond-prices, resulting in yields in major economies inching lower. Investors tend to flee towards government-backed assets because they are considered safe havens in times of market volatility and uncertainty.

Major economies have recorded a fall in their bond yields in recent times mainly attributed to the spread of the coronavirus (see Chart 4).


Chart 4: Movements in 10 Years Government Bond Yields of Major Economies

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Source: Proshare Research, World Government Bonds


Global Unemployment Rate

Major economies recorded an uptick in the unemployment rate attributed to the spread of the coronavirus in the world. According to the US Bureau of Labour Statistics, America's unemployment rate rose to 14.7% in April, as more than 26 million jobs were lost over the last five weeks.  China, Australia, South Korea and Canada also recorded a rise in unemployment by 6.0%, 6.20%, 3.8% and 13.0% respectively in April 2020 (see Chart 5).


Chart 5: Global Unemployment Rate (%)

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Source: US Bureau of Labor Statistics, National Bureau of Statistics of China, Deutsche Bundesbank, Australian Bureau of Statistics, Statistics Korea, Refinitiv.



The world is facing unprecedented global health, social and economic emergency with the COVID-19 pandemic. Rising to such challenges is nothing new to airlines, border aviation and the travel sector. Given the high uncertainties, prospects for the year have been downgraded several times since the outbreak.

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Taking into consideration the past market trends, it shows that between five- and seven years' worth of growth would be lost because of coronavirus. With the introduction of travel restrictions across the world, Q1 2020 shows a decline of 22% in international tourist arrivals, with arrivals in March down by 57% following the start of the lockdown in many countries, widespread travel restrictions and the shutdown of airports and national borders, this represents a loss of 67 million international arrivals in the first quarter of 2020 compared to the same period of last year.


Many millions of jobs in the industry are at risk of being lost, airlines are filing for bankruptcy or at the risk of filing for bankruptcy, such airlines include LATAM Airlines Group, Virgin Australia and Avianca Holdings, to mention a few. The hotel and hospitality industry is also facing similar challenges, the industry would lose 20% of its turnover (see Chart 6).


Chart 6: International Tourist Arrivals

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Table 2: Countries and Number of Tourist Per annum

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Travel and tourism provide about 319 million jobs in the world and generates about 10.4% of the world GDP, the lockdown and restrictions caused by a coronavirus in these countries would have a dire impact on the tourism industry in the world.


Major Economies GDP

As the COVID-19 pandemic continues to spread, major economies such as the USA, China, Europe and South Korea have all reported slow GDP growths or contractions in their Q1 2020 numbers. The USA, China, Western Europe and South Korea reported growths of -4.8%, -6.8%, -3.8% and +1.3%. The contractions could be attributed to the temporary lockdowns of the various economies designed to curb further spread of the virus (see Chart 7).


Chart 7: Major Economies GDP Dip in Q1 2020

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Source: Trading Economics, Proshare Research


Commercial Services Export

Services are not subject to tariffs in the way that goods are, world commercial services trade still slowed sharply in value terms in 2019 after recording strong increases in the previous two years (see Chart 8). Chart 7 shows growth in the dollar value of services exports by major categories. The category of "Goods related services" recorded the strongest growth with a +1.2% increase in 2019, followed by travel at +1.1%. A -0.5% drop in the value of transport service may have reflected weakness in goods trade as a result of trade frictions between major economies.


Given the spread of the coronavirus across various continents and countries, commercial services export is projected to decline significantly in 2020.

Chart 8: Growth in the value of Commercial Services Exports by Category, 2015‑2019

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Source: WTO Secretariat, UNCTAD and ITC 



Exporters and Importers in the World Merchandise Trade


China, the USA and Germany were the top three exporters in world merchandise trade, accounting for 13.2%, 8.7% and 7.9% respectively of the world's merchandise export trade. While the top three leading importers of world merchandise trade in 2019 were the USA, China and Germany accounting for 13.4%, 10.8% and 6.4% respectively of the world's import merchandise in 2019 (see Chart 9). A decline in economic activities in these major trading economies would hurt global trade.


Chart 9: Leading Exporters and importers In the World Merchandise Trade, 2019

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Source: WTO and UNCTAD


Leading Exporters and Importers of Commercial Services

The USA, the UK and Germany were the top three leading exporters of commercial activities in 2019, accounting for 13.7%, 6.8% and 5.5% respectively of the world's commercial activities. While the top three leading importers of world commercial services in 2019 were China, the USA and Germany accounting for 10.8%, 9.9% and 6.3% respectively of the world's commercial services in 2019 (see Chart 10). A decline in economic activities in these major trading economies will harm global trade.

Chart 10: Leading Exporters and Importers of Commercial Services, 2019 (%)

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Source: WTO and UNCTAD

Table 3: Merchandise trade volume and real GDP, 2018-2021

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Figures for 2020 and 2021 are projections.

1.       Average of exports and imports.

2.       Other regions comprise Africa, the Middle East and Commonwealth of Independent States (CIS) including associate and former member States.


Global trade, which was already slowing in 2019, is expected to be weighed down further in 2020. World merchandise trade is set to plummet by between 13 and 32% in 2020 due to the COVID-19 pandemic. A 2021 recovery in trade is expected on the duration of the outbreak and the effectiveness of the policy response. Nearly all regions will suffer double-digit declines in trade volumes in 2020, with exports from North America and Asia hit hardest. Trade will likely fall steeper in sectors with complex value chains, particularly electronics and automotive products. Services trade may be most directly affected by COVID-19 through transport and travel restrictions. Merchandise trade volume already fell by 0.1% in 2019, weighed down by trade tensions and slowing economic growth. The dollar value of world merchandise exports in 2019 fell by 3% to US$ 18.89 trillion (see Table 3).

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Global Recession Looms

The Organization of Economic Co-operation and Development (OECD) in its most recent report dated March 2, 2020, downgraded its 2020 real GP growth projections for almost all economies. The reason for its downgrade was the increasing spread of coronavirus across continents. The Chinese economy where the virus initially broke out recorded the highest downgrade by -0.8% as its new forecast growth was put at +4.9% from a previous forecast rate of +5.7% (see Chart 11).


The Global economy is interconnected, with China being a major lever of global output, trade, tourism and commodities. The relative size of the Chinese economy in global trade makes the global economy susceptible to negative spill-offs from the Chinese economy.

Chart 11: OECD Global economic growth in 2019 and 2020f

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Source: OECD, Proshare Research


Table 4: OECD Real GDP Growth (%)

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Related Reports (PDF)

1.     Download the Full PDF Report - Coronanomics and the Nigerian Economy, June 06, 2020

2.     Executive Summary PDF - Proshare, June 06, 2020


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