IMF projects global economy to shrink by 4.9% this year over Covid-19

The International Monetary Fund has sharply lowered its forecast for global growth this year because it envisions far more severe economic damage.

The International Monetary Fund has sharply lowered its forecast for global growth this year because it envisions far more severe economic damage from the coronavirus than it did just two months ago.

The IMF predicts that the global economy will shrink 4.9 per cent this year, significantly worse than the 3 per cent drop it had estimated in its previous report in April. It would be the worst annual contraction since immediately after World War II.

For the United States, the IMF predicts that the nation's gross domestic product the value of all goods and services produced in the United States will plummet 8 per cent this year, even more than its April estimate of a 5.9 per cent drop. This, too, would be the worst such annual decline since the US economy demobilized in the aftermath of World War II.

The IMF issued its bleaker forecasts Wednesday in an update to the World Economic Outlook it released in April.

The update is generally in line with other recent major forecasts. Earlier this month, for example, the World Bank projected that the global economy would shrink 5.2 per cent this year.

The IMF noted that the pandemic was disproportionately hurting low-income households, imperiling the significant progress made in reducing extreme poverty in the world since 1990.

Covid-19 could cause economic loss up to $8.8 trn, 9.7% of global GDP: ADB

Nearly 300,000 people worldwide have died from complications from the virus, which has infected more than 4.3 million people.

Global economic losses caused by the coronavirus pandemic could be between $5.8 trillion and $8.8 trillion this year, the Asian Development Bank (ADB) said on Friday, more than double its earlier estimates as containment measures paralyse economies.
The ADB's forecast, equal to 6.4% to 9.7% of global gross domestic product, was worse than projections in April when it said the global economy could suffer between $2.0 trillion and $4.1 trillion in losses, depending on how long containment measures were in place.

"This new analysis presents a broad picture of the very significant potential economic impact of Covid-19," said ADB Chief Economist Yasuyuki Sawada. "It also highlights the important role policy interventions can play to help mitigate damage to economies."

The ADB said the upper end of the range assumed curbs on movement and businesses lasting six months, while the bottom end assumed they would last three months.

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After the health crisis brought the economy of China, where the virus surfaced in December, to a virtual halt in the first quarter, several countries and territories have reported a rise in infections and deaths, leading to widespread travel bans and stay-at-home orders.

Nearly 300,000 people worldwide have died from complications from the virus, which has infected more than 4.3 million people.

Measures to contain the spread could inflict $1.7 trillion to $2.5 trillion in economic losses in Asia, and between $1.1 trillion and $1.6 trillion in China, the ADB said.

Travel restrictions and lockdowns will likely cut global trade by $1.7 trillion to $2.6 trillion and put between 158 million and 242 million people out of work, the ADB said.

Explained: What is negative crude future and how does it affect consumers?

The price of a barrel of crude varies based on factors such as supply, demand and quality. Supply of fuel has been far above demand since the coronavirus forced billions of people to stop traveling.

The price of a barrel of benchmark US oil plunged below $0 a barrel on Monday for the first time in history, a troubling sign of an unprecedented global energy glut as the coronavirus pandemic halts travel and curbs economic activity.

The contract for West Texas intermediate crude, or WTI, is the benchmark for US crude oil prices.

Such a steep drop in the oil benchmark prompted strong reactions beyond trading floors. Here is an explanation of what negative crude prices mean in the real world:

What Does a negative future price mean?

The price of a barrel of crude varies based on factors such as supply, demand and quality. Supply of fuel has been far above demand since the coronavirus forced billions of people to stop traveling.

Because of oversupply, storage tanks for WTI are becoming so full it is difficult to find space. The US Energy Information Administration said last week that storage at Cushing, Oklahoma, the heart of the US pipeline network, was about 72% full as of April 10, the Reuters reported.

"There's no available storage anymore so the price of the commodity is effectively worthless," said Bob Yawger, director of futures at Mizuho in New York. "So when it's minus a dollar, they'll pay you a dollar to get it out of there."

The price plunge was partly due to the way oil is traded. A futures contract is for 1,000 barrels of crude, delivered into Cushing, where energy companies own storage tanks with roughly 76 million barrels of capacity.

Each contract trades for a month, with the May contract due to expire on Tuesday. Investors holding May contracts didn't want to take delivery of the oil and incur storage costs, and in the end had to pay people to take it off their hands.

The June contract, with delivery a month away, is still trading at above $20 a barrel, but the price crash indicates that most storage space has been gobbled up

As news goes from bad to worse, Modi govt scrambles to revive the economy

Finance Minister Nirmala Sitharaman said this week she's not closing the door on additional steps to support the economy.

Business Standard : The bad news is getting worse for India’s economy and Prime Minister Narendra Modi is exhausting all options to stem the fallout. Data on Friday will likely show the economy had its weakest performance last quarter in more than six years, with the growth rate dropping below the symbolically important 5% mark. It’s a culmination of several months of downbeat figures, from plunging car sales to shrinking factory output and an export slump.

Having left much of the stimulus burden to the central bank early this year, Modi is now taking bolder steps to reverse the decline. In recent months, the government has slashed corporate taxes, set up a special real-estate fund, merged banks and announced the biggest privatization drive in more than a decade. While authorities are committed to doing more, the policy room may be narrowing. “Domestic demand is displaying chronic weakness, with an apparent credit crunch afflicting wide swaths of the economy,” said Taimur Baig, chief economist at DBS Group Holdings Ltd. in Singapore. “Production and sales are under pressure, and public spending is running out of room due to poor tax collection.”

Why in India, 6% Economic Growth Is Cause for Alarm: QuickTake

Friday’s eagerly awaited data will probably show gross domestic product grew 4.5% in the July-September period from a year ago, according to the median estimate of 41 economists surveyed by Bloomberg. That would be the slowest pace since the March quarter of 2013. India was the world’s fastest-growing economy until last year, posting quarterly growth rates of as high of 9.4% in 2016. A crisis among shadow banks -- a key source of funding for small businesses and consumers -- weak rural spending and a global slowdown have since conspired to bring down growth steadily.

“The nature of the slowdown is broad-based, with consumption as well as investment oriented sectors feeling the pain,” said Indranil Pan, chief economist at IDFC First Bank Ltd. in Mumbai. “Continuing poor domestic sentiment along with the lack of any demand uptake globally would ensure that any recovery process would only be gradual.”

Aggressive Easing

The Reserve Bank of India has already cut interest rates by 135 basis points this year to the lowest since 2009, with more easing to come. The central bank is expected to look through the recent breach of its 4% medium-term inflation target and deliver another rate cut on Dec. 5. India’s Central Banker Das Faces a Tough Balancing Act (1) “The onus is on the government to do the heavy lifting,” said Devendra Pant, chief economist of India Ratings and Research, a local unit of Fitch Ratings Ltd..

Why an obscure hydrocarbon may be carrying bad news for the global economy

That product is naphtha, something used to make a vast array of goods while also being integral to churning out gasoline.

An obscure product made by oil refineries has a grim story to tell investors right now about the fortunes of the global economy.

That product is naphtha, something used to make a vast array of goods while also being integral to churning out gasoline. Oil refiners’ margins from making it are the weakest in years in Europe and Asia. Unusually, some petrochemical plants in Asia have even been losing money when processing it.

Signs of weakening manufacturing in China could scarcely have come at a worse time for the market, given a backdrop of surging U.S. shale oil and gas supply that’s flooded petrochemicals producers with the raw materials they need. With some of those plants undergoing maintenance, it’s little wonder the naphtha market is taking a hit.

"Naphtha demand is simply very sensitive to economic sentiment and growth,” said Jan-Jacob Verschoor, London-based director of Oil Analytics Ltd., which keeps track of the margins of hundreds of oil refineries around the world. “The trade war with escalating tariffs, has killed manufacturing sentiment in the East, thereby weakening margins of petrochemical plants.”

Naphtha rarely grabs headlines because it’s usually not consumed directly. Instead, refineries make it from crude oil and then use it to churn oudrot gasoline. Likewise, petrochemical plants process it to make what ultimately becomes plastics and other manufacturing raw-materials. The fuel was on board a tanker recently attacked just outside the Persian Gulf, part of a spate of incidents targeting shipping in the region.

The profits an oil refiner makes from turning crude oil to naphtha -- known as crack spreads in trader jargon -- are plunging. In Japan, a benchmark for the fuel in Asia, they slumped to the lowest in at least four years in recent weeks. Corresponding indicators in Europe also remain seasonally very weak, prompting speculation they could be encouraging some refiners to process less crude.

Business Standard