Coronavirus Economic Crisis (Pt. 2): Unemployment, Health and Singapore

Coronavirus Economic Crisis (Pt. 2): Unemployment, Health and Singapore

Are we going… YES. Recession is already here. Entire industries have come to a halt, unemployment rates are skyrocketing, countries are enforcing stricter and stricter lockdown laws, and Coronavirus cases are on the rise globally. The question isn’t anymore if we are going into recession, or when we are going into recession, the question to ask now is, how bad will it be? The following article will analyze the U.S. and global economic situation through the lens of unemployment and a coordinated health response, while explaining the unique importance of Singapore.

United States Unemployment Impact

One of the first major weekly indicators showing the overall impact of the Coronavirus has been and will continue to be the rise in unemployment benefit filings. Every Thursday, the Bureau of Labor Statistics in the United States releases the number of individuals who had filed for unemployment in the previous week, and the numbers are rapidly rising. Over the past three weeks, unemployment records have been broken. On March 12^th the BLS reported that approximately 30,000 people in the United States had filed for unemployment. One week later, on March 19^th, this number rose 33% in 7 days to 281,000. 

The previous highest U.S. weekly increase in unemployment filings was approximately 695,000 back in 1982. This was shattered as on March 26^th, as jobless claims exceeded Goldman Sachs and JP Morgan estimates, with the week’s official number being 3.25 million filings. One week later, on April 2^nd, an additional 6.87 million individuals in the U.S. filed for unemployment, and just last week, the pattern continued on April 9th as another 6.61 million individuals filed jobless claims. In just 21 days, the number of people filing for unemployment has skyrocketed from 211,000 to two consecutive weeks above 6 million, which is a 3100% increase weekly, never before seen in U.S. history. The weekly jobless claims trend can be seen in figure 1 above tracing back to 1967, and the chilling spike of the last three weeks seem to statistically mirror the grueling Mt. Everest in the face the U.S. economy’s last fifty-year history. The facts are these, in three weeks 16.8 million people have filed for unemployment, which is 10% of the current U.S. labor force. That brings the estimated overall unemployment rate to around 14.4% but due to lags in the economic data releases as official statistics, the true overall unemployment is unknown.  According to William Rodgers, former chief economist at the U.S. Department of Labor, the U.S. unemployment rate has risen from 3.5% to 17% in just three weeks. The exact figure will be unknown for a while, but the reality is this: The U.S. economy has surpassed the level of unemployment experienced at the peak of the Great Recession in less than 21 days. This is completely unprecedented. The unemployment at the height of the Great Recession was 10% in October 2009, and this took 18 – 24 months to develop.

It is important to put these numbers in perspective to truly understand the scope and desolation embedded within these numbers. Imagine in week one, every single teacher in the entire country loses their job in both public and private schools. In week two, every single person involved in any type of transport industry is laid off. No trains, no subways, no planes, no ferries, no buses, no transportation. Now you have a situation where you have no teachers in any schools and no transportation workers. To top it off in week 3, every financial institution shuts down and lays off every single worker. Local, state, and national banks countrywide close, brokers, credit agencies, investment companies, securities contractors, insurance providers, and wealth management firms all closed, everybody is told to go home. Imagine your daily life in this world where you have no teachers, no transportation, and no finances services. This is what has happened in the last 21 days. There are approximately 3.5 million teachers in America in public and private schools, the transportation industry employs around 5.2 million individuals and the financial services, and insurance industries employs approximately 6.5 million people, all totaling around 15.5 million jobs. This is still under the number of jobless claims experienced in the last three weeks, which was approximately 16.8 million jobs.  If you want to paint this picture from a global perspective, envision the entire Australian and New Zealand workforce being laid off in just 21 days, 15.6 million people without a job, and two economies decimated.

Now, what are the longer unemployment projections for possibly the next three months and onward? In a worst-case scenario, in just the next three months, the U.S. federal reserve of St. Louis has forecasted that just the second quarter (April – June) will see 47 million layoffs. This translates to an unemployment rate of 32.1% by the end of June. During the Great Depression, unemployment peaked at 24.9% in 1933, more than three years after the original stock market crash in October of 1929. Expert forecasting suggests that: the U.S. economy will far surpass the Great Depression levels of unemployment and reach a standing rate of 32.1% in just three months. The St. Louis Fed has explicitly said that "These are very large numbers by historical standards, but this is a rather unique shock that is unlike any other experienced by the U.S. economy in the last 100 years.” These are unprecedented and frightening times, as uncertainty seems to be prevailing, but a full – rounded and full informed scope is important to remember.

Crucially these estimates did not account for the impact of the $2 trillion stimulus package recently released by the U.S. government or any future packages they may release. This means that while the stimulus package released by the United States will slightly reduce the impact of the unemployment rate and the negative impact on the economy, but it is not a magic solution. To evaluate its potential effectiveness would take another five pages. Still, I do intend in the next few weeks to analyze the U.S. stimulus package or hopefully packages, in tandem with the actions taken by other governments. But the important thing to understand at this moment in time is that it will have a positive impact, but the stimulus package will not be a cure. For companies and individuals suffering, the stimulus is designed to keep them afloat during this time of crisis until recovery starts. Acting as a bridge while they receive no income or investment. Similar to a lifeboat designed to keep you alive until you reach land or are rescued.

Global Unemployment Impact

Globally there has also been a massive impact on unemployment, “currently, more than 4 out of 5 people (81%) in the global workforce of 3.3 billion are affected by full or partial workplace closures because of COVID-19” according to the International Labor Organization. The report estimated that internationally there are 1.25 billion currently employed individuals working in sectors identified as being at high risk of “drastic and devastating” increases in layoffs and reductions in wages and working hours.[1]

Australian Treasurer Josh Frydenberg said more than 800,000 businesses have already applied for the so-called job keeper program, a program part of Australia’s stimulus packages aiding small businesses. “There’s definitely going to be an uptick in unemployment and a significant reduction in growth,” according to Frydenberg, with experts believing that unemployment could grow to 10.1%.[2] The United Kingdom, according to Oxford University, on par with the United States face the expected probability of reaching a 30% unemployment rate.[3]

In Spain, in March 833,979 lost their jobs, a record number in terms of jobless claims for the country, accounting approximately for 3.5% of the Spanish labor force in just four weeks. This is on top of their already record-high 14% unemployment rate, which is among the highest in the developed world.[4] Austria’s unemployment rate has jumped to 12%, the highest since the aftermath of World War 2. IN Germany, 470,000 companies applied for wage support in March, suggesting that a near 5^th of the German workforce will experience reduced hours.[5]

Across the other side of the world in Asia, Thailand has seen 23 million people (one – third) of its workforce, apply for government cash handouts, the program is expected only to be able to cover 9 million. In China, despite statistics releasing an unemployment number of 6.4%, raging debates have erupted on the credibility and accuracy of these numbers.[6] According to Liu Chenjie, chief economist at fund manager Upright Asset, a privet asset management firm in Hong Kong, 205 million workers have been driven into "frictional unemployment," where individuals want to work but cannot or are unable to return to work. If this were true, this would represent more than 25% of China's 775 million-strong labor force. Based on Lieu’s calculation, the Chinese services sector has been hit the hardest with 180 million jobs disappearing, mainly because of “consumers’ willingness and ability to spend.”, which has been sharply curtailed by the pandemic.[7]

From these numbers, it seems that the United States and China have been the hardest hit, but it is evident that the impacts are being felt throughout global economies. Worse times are most likely still to come as the pandemic is still in its early stages, but it is essential to ask and understand, what does the current situation mean for the long term and the recovery? When will we reach land, or be rescued and start to see a restoration of the U.S. and global economy? This heavily ways on the health response. [8]

Importance of the Health Response

The reality of the matter is that the world is facing a global health crisis, which is causing an economic crisis. It is because of this reality that it is crucial to understand that to reduce the long term economic and health consequences of the COVID – 19 pandemic, a fully enabled global public health response is needed to reduce the severity of the long term financial impact. While this does not mean that in the short term, we won't experience suffering or pain across various global industries, it does mean that if the appropriate and severe short term action falls short of what is desperately needed, the extended consequences could be worse than ever imagined.What do I mean by this? It is the health response that matters for us to get out the other side of this pandemic, financially and medically. According to a new study by world-class doctors and researchers at the University of Sydney, in Sydney Australia, eighty to ninety percent of the country's population needs to strictly follow and practice social distancing.  If only seventy percent of the population follows the social distancing policies, as seen in figure 2, the curve will not flatten. Infection rates will still spike, and the virus will still keeping running rampant. Furthermore, if these policies are followed, the modeling says that the virus infections can be brought under control within a minimum of three to four months.

While this model has been specifically modeled on the Australian population using approximately 24 million software agents, let us see how this model and its predictions compare to what we have seen so far from around the world.

Epicenter: Wuhan, China: The original epicenter of the outbreak, experienced its first cases in December 2019, before identifying the outbreak and going into lockdown quarantine on January 23^rd. Having a history of social control over its citizens, China enforced its strictest policies on the citizens of Wuhan. “Apartment compounds allowed people to go in and out through one gate, each household could only send one person out once every three days to purchase groceries, and everyone's temperature is checked upon entrance.” But despite these substantial measures, numbers continued to rise, and therefore the government increased its restrictive policies. “Hubei government ordered community officials to began enforcing "the strictest, around-the-clock, closed management" of all residential complexes, banning the private use of cars, forbidding residents from leaving their apartments without permission and requiring purchasers of cold medicine to disclose their temperature, address and identification number at the pharmacy.”[9] After 77 days or 11 weeks of complete lockdown, Chinese officials lifted partial restrictions in Wuhan on April 8^th, allowing Wuhan residents to travel domestically and open some businesses. Small businesses and factories in Wuhan started opening last Thursday, March 30^th, ten weeks after the shutdown. While its infection rate has reportedly dropped to near zero, only partial restrictions have been lifted as Chinese officials stay vigilant.[10]

Interesting Mention: South Korea: South Korea and the United States reported their first case on the same day, the stark difference, South Korea was ready, the U.S. wasn't. South Korea had a battle with Middle East Respiratory Syndrome (MERS) back in 2015, which led to mass testing, tracing, and quarantining of 17,000 people, which led to the country squashing the disease in 2 months. Still, MERS only infects one additional person; therefore, its infection rate is much lower than the Coronavirus. After MERS, the government very quickly realized testing alongside hospital prevention and control measures were extremely vital in responding to pandemics. Legislation was also passed promptly in the MERS aftermath strengthening the country’s ability to respond, such as authority given to the government to collect mobile phone, credit card, and other data from those who test positive to reconstruct their recent whereabouts. As a result of these changes, South Korea is very uniquely equipped and ready for the Coronavirus having widely available testing, prevention protocols, quarantine actions, and accurate tracing methods. These measures have enabled them to implement a swift and effective response resulting in only ten thousand cases and 186 deaths and sending the country only into partial lockdown closing schools, religious gatherings, outdoor rallies, daycare centers, and some businesses.[11]

Case to watch: Singapore. Singapore reported its first case on January 24^th, 2020, one day before Australia and immediately took action. Similar to South Korea, Singapore learned many lessons from a previous pandemic, in their case, the SARS outbreak in 2002 and 2003. Within three days of its first case, Singapore had implemented thermal scanning of people arriving at Changi International Airport, and on February 1^st barred all visitors who had visited China in the past 14 days. Just 16 days later, Singapore had 75 confirmed cases and issued a “stay at home” notice, which they track on citizen’s phones. Every few hours, citizens will receive an SMS and are required to click on a link revealing their location, the government even had people knocking on doors routinely preventing people from "gaming" the system and having a friend or family click the link from home if they leave. Like South Korea, Singapore had in place protocols, wide testing availability and were well prepared for COVID – 19, they currently only have six deaths and 1400 cases and have been praised for their initial response by the World Health Organization.

          Here is the interesting part about Singapore. Friday, April 3^rd, prime minister Lee Hsien long announced new stricter lockdowns lasting until May 7^th, closing schools for the first time and most non-essential businesses including gyms, museums, and workplaces while grocery stores, clinics, and banking services will stay open. Lee stated that “Looking at the trend, I am worried that unless we take further steps, things will gradually get worse or another big cluster may push things over the edge.” This has all been done in fear of a second wave, making Singapore as a country and a case study a very imminent leading indicator for the course that COVID – 19 takes in other countries.[12] If a country such as Singapore, whose initial response was among the best if not the best in the world can prevent a second wave with its preventive measures, this is excellent news for the rest of the world. It means that COVID -19 can be managed effectively once brought under control, but if a second wave breaks out, this could potentially be indicating even bigger disaster for the rest of the world. The last devastating global pandemic was the Spanish flu back in 1918, which, although was born in a time under very different circumstances, arrived in three different waves as the virus mutated, killing between twenty and fifty million people globally. Therefore, if Singapore experiences a second wave, this would mean that even if countries currently facing war like numbers such as Italy, Spain, the United States, and the United Kingdom, were to bring COVID – 19 under control in the following months, they could still be potentially vulnerable to a second or third wave, threatening to bring even more devastation.[13]

From a health perspective, the lesson is this, citizens and nations need to abide by strict social distancing laws for a minimum of three months and then reassess the situation before lifting restrictions. If these precautions are not taken and enforced, the devastation we have already seen in terms of infection and mortality rates will exponentially grow, spiraling the virus even further out of control. This will require more extended shutdown periods to contain the virus, meaning that instead of having a painful 3 to 4 months of total lockdown, opening the economy to early could completely reset the clock and erase the progress already made. Ultimately this could result in a six to twelve or in a worst-case scenario eighteen-month ongoing battle with the virus with constant opening and closing of the economy. This type of situation will result in health and economic devastation not only never experienced before in modern history but well beyond our wildest imagination. If this becomes a reality, the COVID – 19 recession will be much worse than the Great Depression, and generations will feel the effects for years to come. Moving forward, what do we do, and what do we look for to avoid devastation?

Takeaways for the Future:

Enforcing social distancing and lockdown laws, it's a crucial step in fighting COVID – 19 and reducing the medical and economic impacts. In terms of unemployment, the next three to five months will see significant increases in numbers in the U.S. and globally, but dependent on the health response, those numbers will hopefully slowly start to stabilize. For a best-case scenario, watch the development of Singapore. If Singapore fails, countries facing a crisis such as the U.S. and Italy, currently in their "first wave," need to be extremely vigilant and could see a fierce battle in the next twelve to eighteen months. As second and third waves could possibly be highly threatening, not only to unemployment and economic figures but to the survival rates of the globe’s 7.7 billion individuals. If Singapore can control and contain what fears to be a possible second wave of the virus in the next two to three months, this will be an incredibly positive sign for the rest of the world. This will mean that future waves can be averted, and the virus can be controlled in three to five months if the appropriate measures are enforced and followed.

Finishing on a positive note, it is understood that we are facing exceptionally challenging times as individuals, families, friends, countries, and economies. It is important to remember that the world has incredible doctors, brave nurses, intelligent researchers, courageous leaders, and, most importantly, strong and resilient individuals. I believe that we can, and we will make it to brighter days. The power of humanity and our ability to stand strong in the face of adversity, which has been underestimated many times before, will win. While we might not always see the light ahead, we will come together, fight together, and emerge on the other side of this global challenge united and stronger than ever before. 

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[1] (HRM Asia, 2020)

[2] (Bloomberg, 2020)

[3] (Bloomberg, 2020)

[4] (The Local Es, 2020)

[5] (Japan Times, 2020)

[6] (Japan Times, 2020)

[7] (South Morning China Post, 2020)

[8] (St. Louis Federal Reserve, 2020)

[9] (NPR, 2020)

[10] (Bloomberg, 2020)

[11] (Science Magazine, 2020)

[12] (ABC News, 2020)

[13] (Forbes, 2020)

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Forbes. (2020, March 31st). How Bad Will Unemployment Get? Here’s What The Experts Predict. Retrieved from https://www.forbes.com/sites/sergeiklebnikov/2020/03/31/how-bad-will-unemployment-get-heres-what-the-experts-predict/#470220114f16

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Trade War Opens the Door for Emerging Markets

In the first two weeks of June the Trump Administration imposed a 25% tariff on steel imports and 10% on aluminum imports from Canada, Mexico, and the European Union, while slamming China with a 25% tariff on US$50 billion worth of Chinese products. These actions have sparked international uproar and retaliation from the affected countries. Within the past week the European Union have announced “rebalancing” tariffs on approximately US$3.2 billion worth of US products including steel, bourbon, peanut butter, corn, cranberries, and orange juice. China has also announced a 25% tariff of their own, worth a total of US$50 billion on 659 US products including soybeans, corn, wheat, pork, rice, and electric cars. Earlier in June Mexico didn’t stand down either announcing tariffs ranging between 15% and 25% targeting agricultural products including apples, potatoes, bourbon and pork, valued at a total of US$3 billion. Canada has also joined the party alongside Mexico imposing tariffs on steel, aluminum, maple syrup and more, worth a total of US$12.8 billion. Finally, while Russia has announced plans to retaliate, India has aligned with other nations on June 21^st announcing tariffs on 29 US products including apples, almonds, walnuts and steel worth approximately US$235 million. All these tariffs will have significant global impact as the prices of US products and imports will rise, potentially creating opportunities for emerging economies to fill the export gap in various markets.

                The soybean industry in one of the most exposed to upheaval, as tariffs impacts and regional droughts are creating major supply gaps within the industry. The United States accounts for 34% of the world’s soybean production while Brazil accounts for 30% and Argentina approximately 18%.

This has potentially led to a prime opportunity for Brazil, India, and other small players to increase production and take more market share. Together the USA, Brazil and Argentina account for 82% of world soybean production. Argentina might have been a player looking to increase soybean exports but has been recently plagued by damaging weather conditions. Unfortunately, major droughts in Argentina caused by a trough of low air pressure off the southeast coast of Brazil  have resulted in non – tropical climates which have inevitably brought drought. Some Argentinean farmers have seen yields cut in half while the nation has experienced a fall in soy production by 31% in 2017/2018.  Argentina has resorted to importing soybeans this season, seeing its highest imports from the US in twenty years, while also turning to nieghbor Paraguay. Thus, Argentinean prospects to increase soybean exports to gain market share are unlikely in the short term, as the nation firsts addresses domestic shortages. China is also a key player in the soybean industry, accounting for 60% of the world’s soybean consumption. Amid tensions with the US, the Chinese government has shifted its policy to encouraging a significant increase in domestic soybean production, but given the current scenario this might not be enough. While China consumes 60%, the country only produces 4% of the world’s soybeans, meaning it can only meet Chinee consumer demand for 7 weeks using domestic supply and are therefore forced to rely heavily on imported soybeans. Of the soybeans imported by China the USA accounts for 44% of imports and Brazil 45%. In April, before the tariff retaliations, US Soybeans imported to China were approximately US$403 whereas Brazilian soybeans were about US$414 per tonne. Forecasters predict that China’s 25% tariff on US soybeans could potentially increase US soybean costs to more than US$100 per tonne. Meanwhile, Brazilian soybean shipments to China will only be between US$15 and US$20 per tonne, making the possible overall cost of Brazilian soybeans, still approximately US$80 cheaper per tonne. These circumstances could heavily cripple the American market while firmly boosting Brazilian competitiveness. Therefore, Chinese tariffs and competitive Brazilian soybean prices sets Brazil in an ideal position to take advantage of the output gap, and potentially gain more market share.  

One of the challenges Brazil faces may be the extent to which its could increase production, but data from the rainforest monitoring organization Imazon has shown a huge increase and acceleration in between February and April 2018. These efforts are most likely in aim of clearing land for more farms and infrastructure to support the Brazilian agricultural industry. While this may be in favor of economic growth, these actions could have detrimental development and environmental consequences, as the Amazon rainforest is at a current deforestation rate of 17%. This is quickly nearing the predicted climate tipping point of 20% - 25% which could see catastrophic alterations in global climate patterns. Meanwhile, there are also other countries making small bids to increase their own market share within the soybean industry. Paraguay, the world’s 6^th largest producer of soybeans, accounting for approximately 3% of world production in 2016, overtakes Argentina for the first time this year as it looks to expand its influence and become a more regional player within the market. Furthermore, India has also approached China in its attempt to fill the global output gap after discussion at the fifth India – China Strategic Economic dialogue earlier this year. Chairman Rajiv Kuar of India told the Chairman of China’s National Development and Reform Commission, He Lifeng, that, “you import a lot of agricultural products, up to USD 20 billion or more…I was noticing that there are some tariffs you imposed on farmers' from Iowa and Ohio. Maybe India can substitute for soybean and sugar, if we could access those exports with all the due quality considerations to our farmers. That is very useful.”

By and large, given the market circumstances and the immense impact of global trade tensions and sanctions, smaller producers will become more active, but Brazil is in an optimal position to capitalize and substantially expand its soybean industry, agricultural sector and international trade ties which will ultimately leading to strengthening of its economy.

                In other markets, prospects are opening as well, as in the corn industry the EU could possibly be looking to Ukraine to fill the output gap. Ukraine is currently world’s 6^th largest producer of corn and Europe’s third largest supplier, and German agriculture research specialist, Wienke von Schenk, believes Ukraine could boost its position, as the EU looks to its markets amongst new tariffs. The past year has also seen the EU, the world’s 3^rd largest consumer of corn, turn to South African markets to satisfy their demand for the grain. Given the excess of 2017’s harvest size, excess supply led to lower prices, allowing the EU to import more South African corn than it in the past six years combined.

                Mexico is also revamping its corn sources as it is turning to Brazil for its corn imports. Mexico is the world’s 5^th largest consumer of corn and has already ordered 300,000 tonnes of corn from Brazil in 2018. This is a very small fraction of the 12.75 million tonnes Mexico imported from the US in 2017, but its five times more than the country imported from Brazil last year, and the capacity to expand remains strong. Even Alejandro Vazquez, head of Aserca, an agency in the Agriculture Ministry that promotes Mexican products, stated that Mexico should have searched for US alternatives many years ago, and that “Mexico was in a comfort zone….We didn’t need to go and seek these opportunities that we’re finding now.”

Russia is in a position to cash in on wheat exports, as tariffs hit the US and Chinese output drops an estimated 20% due to poor weather conditions over the past year. Russia is currently the world’s 3^rd largest producer of wheat (60 million tonnes), with China at number one (126 million tonnes) and the United States at number five (55 million tonnes). In further Russian favor, Indonesia, the world’s tenth largest consumer of wheat, has ramped up its imports of Russian wheat over the past year. Given the current conditions, the door is open for Russia while India, the world’s second largest producer of wheat, is looking for a slice of the pie as the sub – continent nation recently revised its forecast for 2018/2019 to 98 million tonnes, 3 million tonnes higher than originally expected.

Finally, the tariffs on US steel are starting to take effect as earlier this week, Harley – Davidson announced its withdrawal of some of its US based manufacturing. After experiencing a 6% fall in share price on Monday 25^th of June, Harley – Davidson said that it is going to increase production at its overseas facilities in India, Brazil, and Thailand. The company released a statement saying that the decision, “is not the company’s preference, but represents the only sustainable option to make its motorcycles accessible to customers,” in the EU and other overseas markets.

Summing up, Chinese tariffs on US soybeans have presented multiple opportunities within the industry for Brazil to fill an excessive output gap, while India attempts to capitalize by supplying China and smaller players such as Paraguay seek to increase their regional influence in the industry. The EU tariffs on US corn could possibly see the EU rely more heavily on Ukrainian exports while also venturing into overseas markets such as South Africa. The Chinese tariffs on wheat has seen Russia attempt to increase global wheat exports, whilst India has also ramped up production. Finally, Mexican, Canadian, EU and Indian tariffs on steel, are starting to take their toll as Harley – Davidson was one of the first companies to shift more manufacturing operations overseas to economies such as Thailand, India and Brazil.

Overall, the current tariffs, sanctions and market conditions are creating a situation in which the global supply market is vulnerable to change. If emerging markets prepare themselves and seize the opportunities at hand, they could be the unexpected benefactors of ongoing international trade disputes.