This Week in COVID-19 and Economic Diplomacy: ‘Slowing Eurozone Recovery’

Our weekly COVID-19 and Economic Diplomacy tracker looks at policies that impact the coordination of international governments and central banks, ongoing commentary and analysis, and asks what these turbulent times mean for economic diplomacy. 

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The Highlights

• U.S. unemployment fell to 8.4% but only 1.4 million jobs were added. Of the 22 million jobs lost in the early stages of the pandemic, less than half have been recovered.
   
• German exports increased 4.7% month-on-month while French exports rose 9.6% signaling the eurozone is heading for recovery. However, experts warn that the recovery is beginning to slow. 
   
• China rolled out a new economic initiative, dual circulation, which focuses on domestic demand and innovation to offset reliance on foreign markets and investors. South Africa’s GDP fell 16.4% as major emerging economies struggle to respond to the pandemic given their few policy options. 

U.S. Developments

• Senate Majority Leader Mitch McConnell rolled out Republicans’ $500 billion coronavirus relief bill. The legislation is not expected to advance as Democrats seek a much larger stimulus. During negotiations with White House Chief of Staff Mark Meadows and Treasury Secretary Steven Mnuchin, Democrats refused to consider a bill costing less than $2 trillion. The legislation includes $300 weekly enhanced unemployment benefits through the end of the year, $250 billion for small businesses to receive a second round of PPP loans; and $10 billion for childcare support. The bill does not include new money for state and cities or new stimulus checks. 
   
• Unemployment fell to 8.4% in August but employers only added 1.4 million jobs, down from gains made in the previous three months. In its latest survey, the Labor Department found that an increasing number of people reported they had lost their jobs permanently. Applications for unemployment benefits rose as corporations laid off workers and small-businesses failed. Of the 22 million jobs lost in the early stages of the pandemic, less than half have been recovered. Jason Furman provides analysis of the employment numbers here. 

European Developments

• More than 40% of UK companies took on debt during the pandemic. Many now warn of cutting back operations, driving fears of “zombie companies.” One in four companies warn over future growth plans, 10% of them stated they may stop trading altogether. Many of these companies borrowed from government-backed loans which have lent more than £52 billion to 1.2 businesses. Two-thirds of businesses stated that repaying their loans may have a negative impact on their business. One-fifth stated they would change their investment plans due to taking on this additional debt.
   
• The rise in German and French exports signal that the eurozone’s economy is heading for recovery in the third quarter. German exports increased 4.7% month-on-month while French exports rose 9.6%. Experts warn, however, that recovery is starting to slow as the growth in German exports was slower than the last two months and French exports remain 17% below last year’s level. Europe’s jobs market outlook is less rosy with declines in employment and the number of hours worked.  

Emerging Markets

• Xi Jinping’s new economic strategy is domestically-focused to confront a post-pandemic world and increasingly hostile relations with the U.S. The new initiative, dubbed “dual circulation,” relies on domestic demand and innovation as a main engine of growth while maintaining but easing dependence on foreign markets and investors. This plan will shape China’s five-year development plan and prepares for the potential of the “U.S. seal[ing] off China in certain tech areas.” To increase domestic consumption, China will need to dramatically reduce inequality which would require serious social and economic changes. 
   
• South Africa’s GDP fell 16.4% in the second quarter, equating to an annualized rate of 51%. The South African Reserve Bank estimates that GDP will fall 7% overall, the country’s worst contraction since the Great Depression. The second quarter spans the time of the national lockdown order with most lockdown restrictions ending last month. Prior to the pandemic, the economy suffered from stagnation and structural problems.
   
• The pandemic has highlighted emerging economies’ limited policy options in addressing the health and economic impact of the crisis. India’s economy shrunk by 25%; Mexico lost 17% of its output; Peru output contracted by 27%. Major low-income economies “will have to give up on lockdowns - they just don’t work and they are not worth the economic pain” states Charles Robertson, chief economist at an emerging market investment bank.

Odds and Ends

• Tedros Adhanom, Director-General of the WHO, writes in The Economist on why vaccine nationalism will prolong the economic and health crisis. 
   
• Kitty Richards and Joseph Stiglitz pen an oped for the New York Times on raising taxes for high-income people to bolster local economies and support their residents.
   
• Juliette Kayyem, a senior lecturer with the Belfer Center, writes in The Atlantic on the pandemic’s emotional toll.
   
• The New York Times published several features on the pandemic’s effect on communities and families. Up to 54 million Americans could be food insecure before the end of the year, a 46% increase since the pandemic began. The service economy is devastated as low-wage workers hope that office-based business return. Millions of students in Latin America are leaving university. 100,000 New York students are homeless.