Govts pledge aid as global commerce seizes in face of virus
Here is a look at how the outbreak is reshaping the global economy
Governments and central banks are scrambling to find ways to keep businesses from going bankrupt as the virus outbreak grinds the world economy to a halt.
A day after Wall Street endured its worst daily drop since the crash of 1987, European markets wavered, as did U.S futures markets. There is tremendous volatility, with the extent of economic damage from the pandemic still anyone’s guess. Factories are closed, retail stores are closed, travel has ground almost to a halt and billions of people are sheltering at home, going outside only to find essential supplies.
Here is a look at how the outbreak is reshaping the global economy and how individuals, businesses and governments are responding.
GOVERNMENT AND CENTRAL BANKS: Where to begin is an enormously complex question. Big industry and small business are looking at a complete, or nearly complete halt to operations. Restaurants that have been shuttered employ hundreds of thousands of people. Airlines are grounding flights, meaning no crews are needed. The dilemma afflicts every sector of the national and global economy. The risk of frozen economic activity will ripple outward, from the banking and mortgage industry, to services ranging from dog walking to doctors visits.
The U.S. Federal Reserve created a lending facility to buy short-term loans from banks and companies to ease the flow of credit as the economy grinds to a halt. The Fed announced March 17 that it’s reviving a program it first used during the 2008 financial crisis to unclog a short-term lending market for what is known as “commercial paper.” Large businesses issue commercial paper to raise cash to meet payrolls and cover other short-term costs. Borrowing rates in the commercial paper market have been spiking as more companies have sought to raise cash in the expectation that their revenue will plunge.
The White House is proposing a roughly US$850 billion emergency economic rescue package for businesses and taxpayers. Treasury Secretary Steven Mnuchin will outline the package to Senate Republicans at a private lunch, with officials aiming to have Congress approve it this week. It provide relief for small businesses and the airline industry and include a massive tax cut for wage-earners. Two people familiar with the request described it to The Associated Press on the condition of anonymity because they weren’t authorized to speak publicly.
Spain will mobilize 200 billion euros or the equivalent to one fifth of the country’s annual output in loans, credit guarantees and subsidies for workers and vulnerable citizens, Prime Minister Pedro Sanchez announced Tuesday. The measures passed by the Spanish Cabinet include allowing some families to delay their mortgage dues and ensure that workers who are temporarily laid off receive unemployment subsidies even if they don’t match the current criteria to qualify for them.
Greece will provide 2 billion euros to help businesses hit by a loss of revenue due to the conronavirus outbreak, while the state will pay part of employees’ salaries in affected sectors. Speaking in a televised address to the nation March 17, Greek Prime Minister Kyriakos Mitsotakis said all tax and social security contributions were also being suspended, while emergency measures would be taken in order to help secure jobs.
France’s government pledged 45 billion euros ($50 billion) in aid for small businesses. That’s in addition to tens of billions already promised for French workers forced to stop working because of store and restaurant closures and strict new confinement measures. French Finance Minister Bruno Le Maire announced the new aid will include tax breaks and a “solidarity fund” for struggling small businesses. “This epidemic will be a catastrophe for all countries of the world,” he said. “The shock will be violent.”
Sweden’s central bank will buy securities for up to an additional 300 billion kronor ($31 billion) and offer more loans to banks on favourable terms
New Zealand vowed Tuesday to spend billions of dollars supporting distressed companies with its economy headed for recession. The stimulus package is equivalent to 4% of GDP. A large chunk of the new spending will go to businesses that have lost more than 30% of their income as a result of the downturn. Other money will go toward health costs, income support, and the airline industry.
STORES, RESTAURANTS AND OTHER PUBLIC PLACES: The places that we once gathered, save for public areas, are now largely closed. That number of retailers, national fast food chains movie theatres and malls that are locking their doors continues to grow.
Apple said over the weekend that it would close all of its stores until March 27. It said March 17 that those stores will remain closed indefinitely.
McDonald’s and Wendy’s say the dining areas of all North American restaurants are closing. Takeout or delivery is still available at most locations, though some chains have declared out an outright shutdown in areas where clusters of coronavirus have emerged, including Starbucks. McDonald’s said in a regulatory filing that dining areas in France are closed. In Spain and Italy, both hard hit by COVID-19, all restaurants are completely closed. The Chicago fast food giant said 95% of its 3,300 restaurants in China are now open.
The Mall of America, the nation’s largest shopping mall, will close March 17 and its doors will remain locked until at least April.
Food delivery company DoorDash is waiving fees for restaurants, hiring out-of-work waiters and delivering food to the needy as the new coronavirus radically changes the restaurant industry. The San Francisco company will allow independent restaurants sign up for its delivery service for free through the end of April. Restaurants that sign on won’t have to pay commissions to DoorDash for 30 days. DoorDash will also reduce commissions for existing restaurant partners. The company said it is creating a priority access program for restaurant workers who want to become delivery drivers. It has also signed on with United Way to deliver food to the elderly, mobility impaired and low-income households. The company said its default service will now be a dropoff at the door, so drivers can limit their interaction with customers.
Ralph Lauren and Foot Locker announced nationwide closures of stores in regulatory filings. They follow Patagonia, Under Armour, Urban Outfitters, REI and others in doing so.
With so many people stocking, and overstocking pantries, Dollar Tree temporarily suspended online ordering to ensure the shelves in its stores are loaded. Like Amazon, Target and Walmart, Dollar Tree has experienced a sharp spike in online orders as consumers scramble to secure staples while avoiding public places. Dollar Tree said most of the items on its website are still available in stores.
With hopes of a rescue fading in a pandemic, the London fashion and furniture retailer Laura Ashley said that it will appoint administrators to devise its direction going forward. The company’s main shareholder MUI Asia said it will not be able to step in with the money that is needed. The company, which was an iconic presence on the U.K. high street during the 1980s, said in a prepared statement that the outbreak has had “an immediate and significant impact.”
U.S. movie theatres have closed nationwide, turning dark nearly all of the country’s 40,000-plus screens in an unprecedented shutdown. The largest chains had tried to remain open even as Hollywood postponed upcoming releases, including the new James Bond film. But after President Donald Trump on March 16 urged against gatherings of more than 10 people, AMC Theaters, the nation’s largest chain, said March 17 its theatres would close.
BIG TECH: The biggest tech companies in the world are banding together to combat misinformation about the pandemic and also fraud. Facebook, Google, Microsoft, Twitter, Linkedin, Reddit and YouTube said in a joint statement that they will also attempt to disseminate across their platforms essential updates from government health organizations. Misinformation and confusion in social media posts have been problematic for years. The spread of the coronavirus has exacerbated the problems for which Facebook and others were lambasted during the 2016 U.S. presidential election.
Facebook says it is giving $100 million in grants — cash and advertising credits — to small businesses to help them during the coronavirus. The company said Tuesday businesses can use the money to cover operational costs, rent, or pay workers. It said that most of the money will be given in cash, with the rest being credits to advertise on Facebook. The company says the money will go to up to 30,000 small businesses in 30 countries who go through an application process.
HEAVY INDUSTRY: Ford Motor Co. will shut down all of its vehicle and engine factories in Europe starting Thursday to help contain the coronavirus and because sales are down and parts are running short. The company expects the shutdown to last for a number of weeks, but reopening depends on spread of the virus, national restrictions, parts supplies and dealer stock requirements.
Vehicle plants in Cologne and Saarlouis in Germany and the Craiova plant in Romania will halt production starting March 19. The company’s engine and vehicle assembly plant in Spain stopped work on Monday after three confirmed coronavirus cases among workers.
Supplies to Ford factories in Europe have been increasingly interrupted, and vehicle sales have declined as some countries have forced dealers to close sales operations.
The U.S. factories for Ford, General Motors and Fiat Chrysler remain in operation, but some members of the United Auto Workers union are trying to get the companies to close them soon to help stop the virus from spreading.
Volkswagen announced the closing of most of its European plants for two weeks due to uncertainty about demand for cars and supplies of parts. Chief Financial Officer Frank Witter said Tuesday that uncertainty about the severity and duration of the virus outbreak made it impossible to give a reliable outlook for sales.
Airbus will suspend production at its French and Spanish facilities for the next four days to implement tougher health and safety protocols, including more rigorous sanitation and enforced distancing between workers.
TRAVEL: Qantas, Australia’s largest airline, and Hong Kong’s Cathay Pacific Airways both cut international passenger capacity by 90%. Qantas’s cuts will last until the end of May, Cathay Pacific’s apply in April.
Canada’s second largest airline is suspending all commercial international and transborder flights for a 30-day period as it helps operate rescue and repatriation flights in partnership with the Canadian government. Westjet says it will suspend normal service on March 22. Prime Minister Justin Trudeau says now is the time for Canadians to come home. The government has mandated the screening of passengers by airlines before boarding.
Hong Kong’s Cathay Pacific Airways cut its flight schedule by 90% in April after passenger traffic in February fell by more than half from a year ago. Hong Kong’s airlines were already under pressure because of political unrest which has hurt tourism.
American Airlines on Monday suspended about 75% of its long-haul international flights and began grounding about 135 planes. It will cut passenger-carrying capacity in the U.S. by 20% in April and 30% in May. Airlines are talking to unions about taking cuts in pay or hours, and some are cutting executive and management salaries.
MARKETS: Stocks are pushing higher on Wall Street March 17, a day after their worst plunge in more than three decades, as more aid appears on the way from Washington for a struggling economy.
Markets around the world remain highly volatile as traders see a recession growing more likely and large sections of the economy come closer to shutting down due to the coronavirus outbreak. The 4.1% rise for the S&P 500 follows Monday’s 12% plummet.
Treasury Secretary Steven Mnuchin says the financial markets will stay open for people to access their money during the coronavirus outbreak. Mnuchin said at a White House briefing March 17 that shorter hours may still be necessary. But he says banks and other institutions will not shut down as the U.S. grapples with the pandemic.
Mnuchin recalls that financial institutions closed after the 9-11 terrorist attacks because of disruptions to technology. He says that’s not the case in the current situation.
The investor-oriented ZEW index of German business confidence recorded its sharpest decline ever as Europe’s economy faces an almost certain recession whose depth could exceed the one that followed the global financial crisis. The index fell to minus 49.5 points in March from plus 8.7 points in February, a fall of 58.2 points and the biggest drop since the survey began in 1991, the institute said March 17. Germany and other countries are restricting entry at the border and ordering many businesses to close, leading to a massive drop in sales and activity across Europe.
DOWNWARD SLOPE: Vail Resorts will close all slopes for the remainder of the ski season. The company announced Saturday that it would shut down its 34 resorts for at least one week. The company said Tuesday, however, that it will consider reopening Breckenridge Ski Resort in Colorado, Heavenly Mountain in Lake Tahoe in California and Whistler Blackcomb in British Columbia, Canada.