As discussed in our Q2 update, the coronavirus pandemic and the subsequent lockdown have had a significant impact on world economies. When the rate of infection began to fall, many governments began to ease the lockdowns to help stimulate an economic recovery, but a resurgence in the virus towards the end of Q3 has hampered that.
As most countries attempt to recover from the economic fallout of the virus, many people are wondering how quickly the damage can be undone. Read on to find out how different regions have fared during the third quarter.
The UK economy was badly impacted by the effects of the lockdown, and it was announced in August that the economy shrank by 20.4% in Q2, making it the worst slump on record. The Bank of England has warned that unemployment will reach 2.5 million, and it seems likely that the GDP will not return to pre-pandemic levels until 2021.
The UK economy is recovering at a slower rate than experts predicted and there continues to be job losses even in sectors which experienced growth, such as manufacturing.
The government continued to support workers with the furlough scheme, with an estimated five million workers furloughed in August. In September, the government announced a new support scheme to replace the furlough scheme which was set to end in October.
Despite the Chancellor’s measures to stimulate the economy and preserve jobs, unemployment rose to 4.1% by the end of Q3.
As we begin to see a resurgence of coronavirus cases, particularly in northern cities, we may face the prospect of a second lockdown which could hamper or reverse the economic recovery. Local lockdowns have already come into effect in some cities, such as Leicester and Bradford.
The Bank of England continues to hold its interest rate at 0.1%, despite speculation that interest rates could fall into the negative territory.
The UK’s FTSE All-Share index fell by around 2.9% during Q3, lagging behind other regions during the period. This chart shows the performance of the index from the start of 2020 to the end of the third quarter.
Source: London Stock Exchange
While the pandemic has dominated conversations about the recovery, the deadline for Brexit also looms on the horizon, with British firms potentially facing trade barriers if the UK and the EU do not reach a deal by the end of the year.
Just as in the UK, the rate of economic recovery in Europe was also slowed due to a resurgence in coronavirus cases. Despite this, the European economy rebounded, with experts predicting an 8.6% increase in GDP during Q3.
In July, the European Commission approved a €750 billion fund to help member states recover from the economic effects of the pandemic, made up of €390 billion of grants and €360 billion of loans.
Industry in Europe was badly affected by the pandemic in Q2, losing 27% of its output by April. However, around 75% of that loss has been recovered in Q3.
Despite the impact that the EU’s €750 billion fund has made in stimulating the European economy, August saw a fall in employment. There was a 2.6% fall in employment within the EU, along with a 2.8% fall for the euro area. This is the sharpest decline in employment since records began in 1995.
The US economy suffered badly in Q2 with the economy shrinking by 32.9%, the worst slump since the great depression of the 1930s.
Economic recovery continued in Q3, partially due to support from the Federal Reserve. The Fed announced in September that it would hold its rates, which are at a record low near zero, in an attempt to boost the economy.
The manufacturing sector continued to see growth during Q3, rising for the fourth consecutive month.
Unemployment surged as a result of the pandemic, with figures for the last week of July showing over 1.4 million jobless claims being made. Despite a small fall in August, the unemployment rate at the end of Q3 sat at 8.4%.
The Chinese economy continues its recovery with strong growth of 1.3% reported during Q3.
A part of China’s economic recovery has been attributed to their success in containing the virus. Subway usage in major Chinese cities is indicative of this, with usage only down by 10% compared to last year, compared to a fall of 60% for London.
Although retail sales were somewhat lower than expected, figures show that Chinese exports were up 9.5% compared to 2019. This is partly due to the increased demand for PPE, such as respirators, which are produced in China. This industry has seen an explosion of growth with surgical mask production increasing 12-fold since February.
India and Korea both posted double-digit returns in the last three months, outperforming the MSCI Asia ex Japan index.
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