Here We Go Again! 30 July 2020
A report by the Dubai Statistics Centre showed that the real estate sector’s Q1 growth was 3.7% higher, year on year, contributing 8.0% to Dubai’s GDP. In 2019, it was estimated that real estate activities grew 3.3%, and contributed 7.2% of Dubai’s GDP, with an added value of US$ 8.0 billion, according 10.7% to Dubai’s overall economic growth. Q1 also witnessed a 30.4% annual growth in cash sales – the best first quarter for ready home cash sales since 2014 – and this would have been higher if not for the Covid movement restrictions introduced in mid-March. Although Q2 figures were lower, overall results point to the fact that there will be a bounce back, as business returns to the new form of normalcy, assuming no further lockdowns.
The DLD report indicated that there were 15.0k transactions, totalling US$ 13.1 billion, in Q1 and 7.8k, worth US$ 6.7 billion, in Q2. The DLD noted that the local real estate market saw 22.8k transactions totalling US$ 19.8 billion in H1– not a bad return considering the onset of Covid-19, starting mid-March. It seems that a combination of the government’s stimulus packages and initiatives, along with very low interest rates and competitive prices, may be working.
When it came to Q2 mortgage registrations, the top three locations were Hadaeq Sheikh Mohammed bin Rashid, Me’aisem First and Jabal Ali First with 205 transactions (US$ 93 million), 113 (US$ 31 million) and 107 (US$ 43 million). The top three locations, with regard to H1 sales, were Dubai Marina, Business Bay and Al Merkadh, with 1.5k, 1.3k and 1.2k sales, valued at US$ 920 million, US$ 450 million and US$ 687 million respectively.
According to Chesterton’s Q2 report, apartment rentals declined by 3.9% in Q2, with much bigger declines noted in The Views and The Greens, both with double-digit drops. Villa rentals fell by an average 2.6% in Q2, with The Springs down 3.3%; over the past twelve months, The Springs and The Meadows recorded falls of 12.2% and 12.7%, with The Lakes recording the lowest annual decline, as the average was around 10%. The past six months have seen a noted improvement in The Meadows and The Lakes, down by 2% and 4%, although The Springs dropped 6%. There have been reports that prices in Emirates Hills may have dipped up to 20% over the past twelve months.
It is reported that GEMS schools will reopen across the UAE in September, following the recent issue of a 100-plus set of health and safety guidelines by Dubai’s school regulator, in relation to the start of the new academic year. The Knowledge and Human Development Authority (KHDA) has yet to specifically confirm that Dubai schools can reopen but it seems that GEMS, and other private school, expect a positive decision from the authority and are taking action accordingly. In April, GEMS Education announced that it would offer 20% – 50% tuition fee cuts for families impacted by Covid-19.
After twenty-seven months, DEWA has commissioned a new US$ 91 million 400/132 kV substation in Dubai South which has a conversion capacity of 2020 megavolt-amperes (MVA) and a 2.4 km overhead lines link with the grid. With this latest addition, the agency has twenty-three 400/132 kV substations, with four more being built. It is estimated that power transmission network under construction total US$ 2.7 billion, including the final testing of 11 new 132/11 kV substations costing over US$ 400 million.
A major local social event has become the latest victim of the current pandemic, with the cancellation of the 51st Emirates Airline Dubai Rugby Sevens due to run for three days between 26-28 November. This Tuesday also saw the demise of a popular restaurant and bar located in Media City. Located on the 43rd floor of the Media One Hotel, (and hence the name Q43), it was a popular after-work hangout for office staff working in the environs. Q43, operated by Solutions Leisure Group, which also owns Asia Asia, Lock, Stock and Barrel and STK brands, is the latest such outlet to close. There is no doubt that the F&B sector has been battered, facing monthly losses of up to US$ 300 million in staff salaries, housing and benefits, excluding rents and operational costs.
The interbank lending rate has slipped to a several-year low, settling at 0.75% and 1.1% for the six-month and one-year rates respectively – down from the 2.20% and 2.28% rates earlier in the year; the three-month and one-month rates are currently at 0.62% and 0.33%. For some, this is good news as EIBOR is used for various lending rates which will normally result in lower mortgage and lower business costs.
DIFC and Jiaozi Fintech Dreamworks signed a Memorandum of Understanding that will support the UAE in facilitating the ‘Belt and Road’ economic initiative. The partnership, with one of China’s first Fintech innovation and entrepreneurship platforms, will also assist the Dubai centre, already in the world’s top ten FinTech hubs, to further strengthen and enhance relationships with the global financial community. DIFC, already home to over two hundred FinTech related companies, will also benefit from a myriad of opportunities offered by its new Chinese partner.
DIFC will be the MENA base for Startupbootcamp, one of the global industry-focused start-up accelerators and part of the corporate innovation and venture development firm Rainmaking. This is another step by the centre, which is currently involved in a three-month programme to help local start-ups, to enhance its international stature as a leading player. Startupbootcamp, a venture, launched in 2018 and involving Visa, HSBC and Mashreq, has already helped twenty payments, lending and Islamic digital banking FinTech start-ups.
Following a decision by the DIFC Courts, it seems that BR Shetty is facing a global freezing order on his assets, at the request of Credit Europe Bank (Dubai) which claims that the founder of NMC Health, has defaulted on a loan of more than US$ 8 million. The bank has indicated that two security cheques, apparently signed by Mr Shetty, have been “dishonoured upon presentation due to insufficient funds”. The claim also included New Medical Centre Trading and NMC Healthcare, saying that they “are jointly and severally liable” for the repayment of money initially secured through a 2013 credit agreement. The bank claimed Mr Shetty “has now fled the jurisdiction of the UAE to India” and that there was a risk of his “substantial” assets in the UAE being dissipated.
Always one known to empower his employees to move out of their comfort zones, Mohamed Alabbar has suspended all job titles across the Emaar Group, including his own ‘Chairman’ title, with business cards now showing only an employee’s name and their department. He wants to focus on ‘talent not titles’, as the group reassesses its business strategy going forward post Covid-19. In a staff memo he noted that “the recent pandemic has forced us to pause and reflect on every aspect of our business. The products we produce, the systems we use, the people we employ – and most importantly, the culture we create. The challenges we face now will be greater than ever.” With a proven track record, there is no doubt that the man, formerly known as the Chairman, will succeed in making Emaar a somewhat different, more efficient and better business entity.
Network International has invested US$ 288 million for a 60% stake in the DPO Group, Africa’s largest online commerce platform. This funding will be financed from a 10% equity placing of the Dubai-based enabler’s existing issued share capital, US$ 50 million vendor consideration shares issued to Apis Partners and US$ 13 million issued to DPO co-founders. DPO, which covers nineteen countries on the continent and services 47k merchants, has recorded annual growth in excess of 30% over the past two years, with 2019 revenues at US$ 16 million.
DP World posted an 8.8% decline, to 16.7 million shipping containers, in Q2 container volumes, with the outlook remaining uncertain, as infections begin to rise again in certain countries. The global port operator noted that the biggest fall was in the Asia Pacific and Indian subcontinent, with container numbers down 12.2% to 7.2 million. H2 figures were 5.3% lower at 33.8 million containers. The company has also announced that it has agreed to purchase a 60% stake in South Korea’s UNICO Logistics Co. Ltd. This is a continuum of the Dubai company’s strategy to add to its global network to enhance connections for both end-users and cargo owners, by improving efficiencies in the supply chain. The eighteen-year old South Korean company has twenty-five subsidiaries, in twenty countries, and is one of the largest independent NVOCC (Non-Vessel Operating Common Carrier) in the country, with links in the expanding transcontinental rail freight market, including the Trans-Siberian Railway and Trans China Railway.
For the fifth month in a row, UAE petrol prices will remain the same, with Special 95 and diesel retailing at US$ 0.490 per litre and US$ 0.561 in August. It is exactly five years ago that previously subsidised fuel prices were aligned with market prices; at the time, Special 95 and diesel were selling at US$ 0.586 and US$ 0.545 in August 2015.
In line with other local banks that reported last week, Commercial Bank of Dubai posted declines in both H1 revenue and net profit – down 6.5% to US$ 385 million and 24.3% to US$ 144 million. With operating expenses dipping 9.9% to US$ 105 million, operating profit came in 5.2% lower at US$ 280 million. Net impairment allowances, driven higher by the negative economic impact that Covid-19 has had on businesses and households in the emirate, were 30.1% higher, at US$ 135 million, whilst the non-performing loan ratio increased by 103 bps to 6.97% over the six months to 30 June. At H1 end, gross loans were 4.2% higher, compared to 31 December 2019, at US$ 18.2 billion.
DFM has seen its H1 net profit jump 21.0% to US$ 21 million, as revenue, driven by higher trading volumes, increased by 11.0% to US$ 49 million; H1 trading value was 25.0% higher at US$ 8.4 billion, compared to the same period in 2019. Q2 profit was 20.0% higher at US$ 12.0 million, with revenue up 8.5% to US$ 25.0 million. The bourse’s general index slumped by 36% in Q1 but had recovered somewhat by the end of Q2, improving by 16%. By the end of July YTD, the bourse was 64 points (3.2%) from its 01 January start of 1,987.
The bourse opened on Sunday 26 July and, 60 points (3.1%) lower the previous four weeks shed 2 points on the shortened week to close on 2,051 by 29 July – a day earlier than normal because of the Eid Al Hada break. Emaar Properties, US$ 0.04 lower the previous fortnight, closed down US$ 0.01 on US$ 0.70, whilst Arabtec, up US$ 0.09 the previous three weeks, remained flat at US$ 0.25. Wednesday 29 July saw the market trading at 297 million shares, worth US$ 80 million, (compared to 127 million shares, at a value of US$ 41 million, on 23 July). For the month of July, the bourse lost 14 points (0.7%) from its opening 2,065 reading. Emaar opened the month at US$ 0.75 and shed US$ 0.05, whilst Arabtec headed in the other direction, climbing US$ 0.09 from it July opening of US$ 0.16.
By Thursday, 30 July, Brent, US$ 3.69 (9.3%) higher the previous fortnight closed up US$ 0.44 (1.0%) at US$ 43.75. Gold, having climbed US$ 98 (5.4%) the previous week, had another positive week, climbing US$ 62 (3.3%), by Thursday 30 July, to US$ 1,960. Oil output has fallen to a nine-year low, with Opec+ agreeing to cut production levels by 9.7 million bpd. Curbs are being lowered to 7.7 million bpd from this Saturday, 01 August as demand begins to move higher, as lockdown restrictions are being lifted.
In 2019, there was an 18.0% surge in global sukuk issuances to US$ 145.7 billion, of which US$ 38.5 billion (26.4%) were international and the balance of US$ 107.2 billion domestic. This was the highest value of annual sukuk issuance ever since its 2001 launch. International issues were 16.6% higher, with an 18.9% hike for domestic, driven by three countries accounting for 84.1% of the total – Malaysia (US$ 54.0 billion), Saudi Arabia (US$ 18.9 billion) and Indonesia (US$ 17.3 billion). US$ 76.4 billion or 81.3% of domestic issues were long-term sukuk.
Rio Tinto has posted a 20.0% fall in H1 profit to US$ 3.3 billion driven by significant declines in copper and aluminium prices, even though Chinese demand nudged iron ore prices were 1.0% higher, year on year. The miner’s underlying earnings — excluding a range of one-off costs — were down just 4.0% to US$ 4.75 billion. Despite the rather large decline in profit, the company will still pay a US$ 1.55 interim dividend. The efficiency of Rio Tinto can be seen that it is estimated that its iron ore production costs are US$ 14.50, and the spot price is currently US$ 100.
L Catterton seems set to bring the Australian swimwear brand Seafolly back into its fold, after June’s appointment of KordaMentha as voluntary administrators of Seafolly and sister brand Sunburn. The Australian investment group’s portfolio also includes Jones the Grocer, RM Williams and 2XU. The liquidator decided to appoint L Catterton the preferred bidder, out of fifteen formal expressions of interest for the iconic beachwear brand, because “it provided the best return to all creditors including its suppliers”. The bid may have been enhanced by its promise to forgo any payments it might have been entitled to as the brand’s major creditor; stakeholders will vote on the arrangement on 03 August.
Huawei has become the biggest seller of global smartphones, shipping 55.8 million devices in Q2, compared to Samsung’s 53.7 million, mainly attributable to the fact that China was the first country to come out of lockdown. The Chinese telecom actually reported a 27% decrease in overseas shipments, more than offset by the fact that Huawei accounts for 70% of all smartphones sold in China. Its main competitor, Samsung was hit hard by Covid-19, with shipments dropping by up to 30% but still saw Q2 operating profit 23% higher, driven by the increasing number of the population working from home. Demand for computer chips has seen margins improve, as prices nudged higher, whilst orders for cloud applications, relating to remote working and online education, moved higher; people staying at home and utilising internet-based services, including video conferencing and movie streaming, added to Samsung’s revenue stream. Other leading memory chipmakers, such as rival Korean producer SK Hynix and US firm Micron Technology are benefitting for the same reason, with the former posting a tripling of Q2 profits. Samsung will launch its new Galaxy Note and Galaxy Z Fold handsets in Q3.
It appears that Boeing will delay the debut of its new 777X jet by up to a year, (as the coronavirus crisis has seen customers cut back on potential orders), to see what direction the industry will take post Covid-19. The current US-Sino spat has also resulted in certain Chinese orders in doubt until trade normalcy returns. It is reported that Emirates, the biggest customer for the plane, does not expect delivery until next year. The manufacturer, already behind schedule because of issues with its GE9X engines and other glitches, is continuing with the 777X test flights. As this will be the first new jet to be introduced since the grounding of the 737 Max, it is expected that it will face extra scrutiny from not only the US Federal Aviation Administration but also other global aviation regulators.
BA’s parent company, IAG, (which also owns Iberia and Air Lingus), is looking at a US$ 3.3 billion rights issue to strengthen its balance sheet, battered and bruised by the impact of Covid-19. Unlike other major carriers, such as Deutsche Lufthansa, Air-France KLM and major US carriers, BA did not receive direct state aid; however, it did benefit from government wage support programmes. IAG has extended its global commercial partnership with American Express for an air miles deal and will receive a payment of almost US$ 1.0 billion. Having posted a Q1 operating loss before exceptional items of US$ 630 million (Q1 2019 – US$ 158 million profit), and because of the impact of the pandemic, the airline has introduced a tough cost reduction strategy including staff cuts, retiring its fleet of 747s, three years earlier than planned, and deferring delivery of sixty-eight aircraft. The bad news is that BA will make an even bigger quarterly loss in Q2 and, with passenger demand not expected to return to 2019 levels until 2023, further major group-wide restructuring measures will be required.
The Johnson government introduced a surprise and sudden 14-day quarantine last Saturday on people arriving in the UK from Spain, (and is currently closely monitoring Germany and France, as cases increase there). This followed a spike in that country’s coronavirus cases, with more than nine hundred new cases reported on Friday, and officials warning a second wave could be imminent, as major cities have seen cases surge. Tui, the UK’s biggest tour operator, cancelled all flights to mainland Spain until 09 August but will continue to travel to the Balearic and Canary Islands as from Monday. Other operators including BA, Ryanair, easyJet and Jet 2 will maintain normal scheduling, although easyJet is cancelling all its Spanish holidays. Airlines and the travel companies were unanimous in expressing disappointment at the government decision, with some suggesting that testing should be introduced at airports to avoid the need to self-isolate automatically.
Consequently, London-listed shares of airlines and tour operators fell sharply on Monday dealing a blow to an industry, already reeling from the downturn. The likes of EasyJet, IAG, On The Beach, Ryanair, Tui and Wizz Air were all down between 4% – 13% on the day.
Tui is set to close over 32% of its 500+ UK outlets but hopes that the 630 staff involved will be with redeployed in a mix of sales and home-working roles and in remaining stores; it has already shut overseas customer services centres in Mumbai and Johannesburg. In May, the tour company announced that 8k worldwide jobs would be lost in a major restructuring programme to cut costs. There is no doubt that Covid-19 has accelerated customers’ purchasing habits with the trend moving to on-line – rather than to face – meetings.
The latest major retailer to announce staff cuts is Selfridges, with 450 retrenchments, (14% of its workforce), as annual revenue is set to be “significantly less” than last year, as a result of not only Covid-19 but also fundamental changes in shopping habits which had been evident for some time. Senior management realise the need to restructure the company so as it keeps ahead of its competitors and embraces the impact of e-commerce on the way the High Street operates in the future. The double whammy of the scarring impact Covid-19 will have on the economy – including the retail sector – and the need for rapid change and restructuring of the business at the same time, will see Selfridges, and others, experiencing their worst year ever.
The existing backers of troubled Debenhams have started plans that they hope will see new owners in place by the end of September. There could be various outcomes, including a sale to a third party, a potential JV with new investors or the current owners retaining ownership. Even before the onset of Covid-19, Debenhams had been struggling with the shift to online shopping and being taken over by lenders last year, and the pandemic has only exacerbated their problems. Potential suiters include a Chinese consortium and billionaire Mike Ashley, who owns rival House of Fraser and has failed in earlier bids to buy Debenhams. Since lockdown restrictions have been eased, the retailer has reopened 124 of its 142 shops.
Lloyds Banking Group posted a pre-tax H1 loss of US$ 780 million, as its impairment provision for bad debts jumped to US$ 3.2 billion, pushing its total provision to nearly US$ 5 billion, as income fell 16.0% to US$ 9.6 billion; its net interest margin fell 20 basis points to 2.59% The UK’s largest bank made a US$ 3.8 billion profit last year. On the news, the bank’s shares dipped 9.0% to an eight-year low.
In a bid to sell Asda in the UK, Walmart has requested interested parties, reportedly including the likes of private equity firms Apollo Global Management, Lone Star Funds and TDR Capital, to submit second-round bids by early September. The UK grocery unit, which has been on the market for at least the past two years, could be worth as much as US$ 10.0 billion. A proposed 2018 agreement to sell to J Sainsbury for US$ 9.4 billion was scuttled by UK antitrust authorities.
With online food sales almost doubling during the pandemic, Amazon has decided it wants some of the action in the UK and its ambitious aim is to be serving millions by year-end. Amazon Fresh, (founded in 2016 and with an estimated fifteen million customer base), is to offer same or next-day grocery deliveries for customers in London and the Home Counties. To date, shoppers have had to subscribe to Amazon Prime and also to pay a monthly fee or a charge per order but from Tuesday all orders above US$ 52 have been delivered free. It has about 10k products, including fresh, chilled and frozen food, and aims to roll out the same quick and free grocery service to “multiple cities” by the end of this year. There is no doubt that the latest move by Amazon will disrupt the market, as their ambition is usually to be the biggest player in every “game” it plays; Amazon Fresh has no need to – and has not – given sales figures or customer numbers since its inception. The worrying factor for competitors, with Amazon now after a bigger slice of this fast-expanding market, is that the tech giant does not need to make a profit which will make it very difficult for grocers to compete in the online sales sector.
Having apparently agreed a US$ 450 million deal to acquire Newcastle FC from Mike Ashley, in April, a Saudi Arabian-backed consortium has ended its bid. The agreement was being discussed under the EPL’s owners’ and directors’ test and has dragged on since then. It appears that the three entities involved – Saudi’s SWF, PIF, PCP Partners (including Amanda Staveley) and Reuben Brothers – ran out of patience and pulled out the deal with “regret”. There is every chance that American entrepreneur, Henry Mauriss, may enter the race to buy the club. There had been opposition by various groups to the takeover and there is every possibility that the “suits” did not want to get embroiled in any potential political problems – and sat on the fence for too long.
It has been reported that, in H1, 381k cars were manufactured in the UK – 42% lower than the total this time last year, and the lowest in sixty-six years; during the period, it is estimated that 11.3k jobs have been lost at carmakers and companies which supply them with parts and services. In June, car production was 48% lower at 56.6k. The sector has been hit with a triple whammy – Covid-19, the possibility of Brexit tariffs on the horizon as the UK leaves the EU starting 01 January 2021, and the fact that global sales have been heading south for some years. At the beginning of the year, the UK was looking at producing two million vehicles – now it seems that this figure could be less than half that number.
With Nissan forecasting an US$ 4.5 billion loss this year (to 31 March 2021), its shares have plunged by 10% in Tokyo, as the virus plays havoc with its turnaround plans (post Carlos Ghosn) and sales expected to be the lowest in a decade. Japan’s second largest carmaker is worried that a second wave of the pandemic would cause even further devastation for the company, as well as the global industry which is already struggling. With June quarter sales 50% lower in the US and 40% down in China, global sales were off 48%. Even with a four-year plan to cut production by 20% and slash costs, figures like these will see the carmaker continuing to post losses in the future. With its YTD share price down by a third, and its liquidity tightening, it seems that Nissan may just run out of time to introduce the changes that it needs to turn the company back on track.
McDonald’s has had a turbulent few months since the onset of Covid-19, reporting a 23.9% slump in Q2 same-store sales and its worst quarterly results since 2005. The main drag on revenue was a 41.4% plunge in its international operated markets. The situation will improve, as the fast food company confirmed that all but 4% of its international operations are now open and that its US domestic market is almost back to normal, with June sales only 2.3% lower, year on year.
Najib Raza, Malaysia’s PM for nine years to 2018, has been found guilty on all seven counts, in his first of several corruption trials, and sentenced to twelve years in jail for abuse of power and ten years for each of six counts of money laundering and breach of trust. Najib had been leader of the UNMO party, which lost power in the 2018 election after ruling the country for all sixty-one years since its independence from the UK. This case centred around the 1MDB state-owned wealth fund scandal and involved US$ 10 million transferred from the fund to Najib’ personal account. Set up in 2009, when the accused was PM, the 1 Malaysia Development Berhad was supposed to be used to boost Malaysia’s economic development but six years later, worries began that payments to banks and creditors were being missed. Since then, both Malaysian and US authorities believe that US$ 4.5 billion had been hived off into private hands and used to illicitly purchase luxury real estate, a private jet, Van Gogh and Monet artworks – and even to bankroll the film, ‘Wolf of Wall Street’. Strangely, the former PM, had been cleared of all allegations by Malaysian authorities while he was still in office.
There could be some pointers for the local economy on what is happening on the Australian employment front. It has been reported that more than 56% of the early coronavirus recession job losses (of 800k) were under-30s and that this group had seen almost zero real wage growth since the GFC. However, this ratio is swinging more to the older group who will also feel the pinch, when the recovery hits in, as employers will focus on more tech-savvy younger hires. At the start of the crisis in March, job losses were linked to businesses that were forced to close facilities such as shops, restaurants, gyms and theatres, as well as the travel and hospitality sectors witnessing revenue streams almost drying up.
Now other sectors – including accounting, legal and other professional offices, media and retail – are beginning to see jobs being shed, most of which will never be replaced. Now it is the turn of the older age group, in the higher-skill sectors, to face the brunt of the redundancies; they are losing jobs at a greater rate than the other skill levels in the same age group. It appears that the big companies and major professional offices have begun culling at the senior level and there is every chance that many of those white-collar vacancies have either been lost forever or will be replaced by younger – and cheaper – staff.
However, there is no doubt that the economic scarring will be faced across the whole economy and history shows that the young will also not miss out from the carnage. Australia’s Productivity Commission forecasts that Covid-19 will reshape the workforce, just as it has done in previous downturns. The report indicated that following the GFC, “from 2008 to 2018, young people had more difficulty getting jobs in the occupations they aspired to. And, if they started in a less attractive occupation, it was even harder than before 2008 to climb the occupation ladder.” It opined that after the GFC, although it took five years for employment for people aged under 35 to recover, it involved more casual work (with less full-time positions) and lower pay. The GFC post-decade also saw ten years of zero real wage growth for those between 20-34 and for those in the 15-24 age bracket a large decline in full-time work and an increase in part-time work.
In the US, the Republicans are planning to spend an additional US$ 1 trillion to ameliorate the economic damage from Covid-19 which will include a further US$ 100 billion for schools and extra US$ 1.2k stimulus payments to most of the country’s citizens. (It is no coincidence that presidential election day is less than one hundred days away). The plan will also include legislation to protect businesses from workers’ coronavirus health claims. To date, the Trump administration and the Fed Reserve have pumped in more than US$ 2.4 trillion into the economy but this has evidently not been enough. Indeed, the Fed has just extended its emergency lending facilities, another three months to 31 December, in a further bid to help the economy ride out this deepening crisis. Meanwhile, the US$ has slipped to a two-year low, as the Fed’s action shows that it is in no rush to raise historically low interest rates, trading on Thursday at US$ 1.304 to sterling and US$ 1.179 to the euro, and preferring to let inflation move higher than it has previously indicated.
Over the past week, more than 1.4 million people have filed new unemployment claims, with the economy having lost over fifteen million jobs since February and 20% of its workforce collecting unemployment benefits. It has been estimated that over 50% of US adults have seen incomes cut since the onset of the pandemic. However, there is a worry that the current benefits result in an estimated 66% of recipients getting more from unemployment than they do from actually working which may encourage some to remain unemployed.
The Institute for Fiscal Studies has estimated that, to date, UK government measures to fight the impact of Covid-19 have cost the UK taxpayer almost US$ 250 billion, equivalent to 9% of the country’s GDP. New measures introduced this week by Rishi Sunak include new financial assistance for the arts sector to add to the already introduced Coronavirus Job Retention Scheme, some tax holidays and deferrals for business and additional welfare benefits. It has been estimated that the US has already pumped in US$ 2.3 trillion into Covid-19 related measures, equating to 11% of its GDP, with most of the funds going into the likes of the Coronavirus Aid, Relief, and Economic Security Act, or Cares Act as well as more than US$ 500 billion extra for individuals in the form of tax rebates and unemployment benefits.
In Germany, government spend has been estimated at around 5% of GDP to cover extra spending on healthcare and vaccine research. It has also introduced Kurzarbeit which assists businesses to retain workers by putting them on shorter hours, while covering some of the worker’s loss of income. There have also been grants to SMEs and self-employed people, along with interest-free tax deferrals, as well as a temporary reduction in value added tax. To date it has increased its overall spending by about 5% of its GDP but further increases will be seen in August. Measures taken include postponement of tax and national insurance payments, extending unemployment benefits, boosting national insurance and further financial support for SMEs and the self-employed.
What is common to all four economies is that governments have poured in billions of dollars to try to negate the impact of Covid-19. Only time will tell whether these actions, and the amount of money used, have been the right approach. What is certain is that there will be a huge debt having to be repaid by the respective governments – and it is usually the poor taxpayer left to pick up the pieces. At the same time, banks will be left with huge impairment losses – as many loans cannot be repaid. No guesses who will bail out the banks.
The German economy shrank at its fastest rate on record amid the impact of Covid-19 . Official data shows a “massive slump” in household spending, investment in equipment and machinery and in exports and imports. The country, the world’s fourth largest economy, is a leading export nation, and has been badly hit by global trade being ravaged by international trade disruptions. There are signs that the worst could be over, unless there is a second wave of the pandemic which is on the cards as Germany has recently seen a rise in its infection rate. Latest figures indicate an uptick in industrial production and retail sales, but whatever happens the German economy will be scarred and, although it will climb out of recession next quarter, it will be a long time before it returns to pre-Covid levels.
If the news from Germany was bad, what can be said of the US economy’s Q2 performance, as it shrank by a record 32.9% annual rate (9.1% on the quarter) and the three times worsethan the previous 10% record set in 1958. Some of the fall has been blamed on reduced spending on healthcare and consumer goods. Like Germany, economists expect a bounce back in Q3 but that comes with the rider that increased virus cases do not result in further shutdowns.
Heads of the four leading US tech companies – Jeff Bezos, Mark Zuckerberg, Sundar Pichai and Tim Cook – have appeared before lawmakers in Washington. There are concerns that the four companies – Amazon, Facebook, Google and Apple – have been abusing their power to quash competition and with being involved in anti-trust behaviour. There is an increasing number of lawmakers leaning to introducing tougher regulations to curb the power of these companies that some feel are too big to fail, with some even calling for a break-up of these tech monoliths. Democratic David Cicilline said that a year-long investigation had concluded the online platforms had “wielded their power in destructive, harmful ways in order to expand”. Not surprisingly, all four insisted they had done nothing illegal and stressed the American roots and values of their firms. There are also concerns that they do not do enough to remove hateful rhetoric and false information and sometimes show political bias. One certainty from this e-meeting is that nothing will be done, and these tech companies will just carry on as before.
There are reports that Swiss prosecutors have launched legal proceedings against Fifa president Gianni Infantino, relating to an alleged secret meeting with the Swiss attorney general Michael Lauber. Subsequently, the lawyer has offered to resign for covering up the meeting and lying to supervisors about investigations into corruption surrounding the world football body which has not been immune from scandal in the past. The case is being led by special prosecutor Stefan Keller, who has now opened proceedings against both men and will review criminal complaints against them and others. Here We Go Again!