When the U.S. sneezes, the world catches a cold. What happens when it has severe COVID-19?
July 20, 2020 @ 14:35 +03:00
During a blue-sky moment in 2018 near the end of a decade-long economic expansion, it was the United States that helped pull the world along as the extra cash from tax cuts and government spending flowed through domestic and global markets. But if it was U.S. policy that pushed the world higher then, it is U.S. policy that threatens to pull the world under now as the country’s troubled response to the coronavirus pandemic emerges as a chief risk to any sustained global recovery.
Officials from Mexico to Japan are already on edge. Exports have taken a hit in Germany, and Canada looks south warily knowing that any further hit to U.S. growth will undoubtedly spill over. It was a clinical description of a grim set of facts: After the U.S. government committed roughly $3 trillion to support the economy through a round of restrictions on activity imposed to curb the virus in April and May, the disease is surging in the United States to record levels just as those support programs are due to expire.
The U.S. economy accounts for about a quarter of world gross domestic product. Though much of that is service-related, and much of the direct impact of the virus is tied up in industries like restaurants with weak links to the global economy, the connections are still there. A lost job leads to lower consumer spending leads to fewer imports; weak business conditions lead to less investment in the equipment or supplies that are often produced elsewhere.
Year-to-date U.S. imports through May are down more than 13%, or roughly $176 billion. In Germany, whose measures to contain the pandemic are considered to have been among the most effective, exports to the United States plunged 36% year-over-year in May. Analysts see little prospect for improvement, with year-to-date U.S. auto sales through June down nearly 24% from a year earlier. In Japan, the speed of the recovery is seen tied directly to U.S. success in stemming the virus.
The IMF projected U.S. GDP will shrink this year by 6.6%, in line with many analysts’ projections. The Bank of Canada is more pessimistic, forecasting U.S. GDP to fall 8.1% on the year. That has already been lowered once as the health situation decayed. A further leg down would hit Canada directly, with perhaps three-fourths of the country’s exports headed over the U.S. border.
When the U.S. sneezes, the world catches a cold. What happens when it has severe COVID-19?, Reuters, Jul 20