Need To Know: May 13
India’s Shocking Economic Crash
Grim leading indicator data shows India’s already troubled economy has fallen off a cliff because of Covid-19.
The vital services sector has been especially hammered during a 40-day nationwide lockdown. Services make-up more than half of India’s gross domestic product.
The IHS Markit services purchasing managers index plunged by a stunning 43.9 points, crashing to 5.4 in April, and hitting single digits for the first time. The dividing line between contraction and expansion is 50.
Manufacturing also plummeted. The purchasing manager’s index nosedived from 50.6 in March to 7.2 in April.
The Purchasing Manager’s indices are based on monthly surveys sent to senior executives at more than 400 companies in each economic sector, which are weighted by their contribution to GDP.
Overall, analysts say it appears the economy contracted at an annual rate of 15% in April.
Other indicators like an inconceivable zero car sales, put Asia’s third-largest economy on course for a sharp contraction. Analysts expect GDP to shrink by nearly 25% in the April-June quarter from a year ago, and 4.5% for the fiscal year through March 2021.
With a rapidly growing population, India needs growth to be more like 6-7% a year just to create enough jobs for its potential workforce.
Large swathes of the population have been left destitute, with an estimated 122 million people losing their jobs in April.
The good news? The government began easing restrictions in some areas this week.
The bad news? Several of the most industrialized states, including Maharashtra and Gujarat, are still grappling with rising virus infections. India’s top 10 Covid-19 affected states contribute 66% to the country’s GDP.
India’s economy was already in trouble before the Covid blow.
Economic growth is at a multi-year low. Neither five consecutive rate cuts by the central bank last year nor a cut in corporate tax rates in September revived consumption. The tax cuts led to a loss of $20 billion in revenue this financial year, giving the government less tools to stimulate in the crisis.
The Modi government had sought to limit fiscal deficit to 3.3% of GDP. No matter what it does, that target will likely not be met. The question, as with the rest of the economy, is how deep the drop will go.
Feeling heat on Covid, China snaps
China has issued a lengthy and angry denial dismissing claims it mishandled the Covid-19 pandemic and trying to counter charges it came from a virology lab in Wuhan.
The rebuttal was notably published by state news agency Xinhua, claiming, “Lies evaporate in the light of truth. It is time to let facts speak for themselves.”
The heated rhetoric comes amid growing calls from around the world for Beijing to investigate the origins and pay damages to those affected, including American President Donald Trump and Secretary of State Mike Pompeo who said there is compelling evidence the virus got out of the Wuhan lab.
What are China’s facts, according to Xinhua?
Xinhua says even though the first cases were recorded in Wuhan, that did not mean the virus originated there.
As evidence, it points to Michael Melham, Mayor of Belleville of New Jersey, who “thinks he may have been sick with the virus back in November 2019.”
It also rejected allegations the virus had been manufactured in the Wuhan lab – citing Chinese scientific assessments that it was not man-made – and insisting that it had not leaked accidentally. Note: China has refused to allow international medical experts into Wuhan, let alone the lab.
It goes on to accuse “The New York Times, the American Broadcasting Company (ABC), the British Broadcasting Corporation (BBC) and other mainstream media in the West” of stoking xenophobia against Chinese.
Xinhua also said demands for compensation had no legal basis, stating: “China and the U.S. do not have a mutual treaty and agreement on public health incidents.”
The reason for a long defense in its official mouthpiece?
China realizes it’s losing the global war of public perception and the political climate has shifted in the U.S. in perilous ways.
A bill has already been introduced in Congress to strip China of sovereign immunity so those affected can sue the People’s Republic.
And there are increasing calls for the U.S. to compel companies to shift large parts of production away from China, so that vital parts of the supply chain are not dependent on just one source. Japan is already paying companies to do that.
If nothing else, the uncertainty deters future foreign investment in China.
Roughly 19 percent of China’s GDP comes from exports, about 5 percent of which are destined for the United States. Roughly 13 percent of the United States’ GDP comes from exports, and 0.5 percent which go to China.
So China can bark, but it has a small bite. Transparency and cooperation would serve Beijing better, but the Communist Party is not that kind of dog.