Global economy: The coming wave of lockdowns

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The latest economic numbers showed record growth last week, but nobody is celebrating, said Courtenay Brown and Felix Salmon at Axios. The emergence of much of the country from lockdown led to a startling economic growth of 33.1 percent in the last quarter. But that number is deceptive. The economy is slowing again, and it's still "as far below its peak as in the darkest days of the last recession." The good number on economic growth also hides a lot of variation — and suffering. "Dense blue states are doing worse than open red states; women are doing worse than men; blacks are doing worse than whites; the poor are doing worse than the rich."

Corporations, too, posted excellent results in their latest earnings reports, but these were overshadowed by the "one word investors didn't want to hear," said Bob Pisani at CNBC: lockdown. As of last week, "85 percent of companies had beaten expectations by an astounding 19 percent on average" in the third quarter, a great sign of economic strengthening. Then soaring coronavirus case numbers in France and Germany prompted both countries to close bars, restaurants, and theaters for a month; more countries are considering similar measures. Wall Street was betting on the global economy to keep improving as reopening proceeded, while a new stimulus package would "be the bridge to a vaccine" sometime in the second quarter of 2021. Congress failed to deliver on the stimulus before the election, and the potential for a resurgence of lockdowns undermines the reopening narrative. That's an "explosive combination."

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More lockdowns would be a mistake, said The Wall Street Journal in an editorial. Europe was "supposed to have done everything right to prevent another infection surge," with mask mandates and closures. It didn't last. "As before, the shutdowns are a blunderbuss response that won't eliminate the virus, but they will do considerable economic and public-health damage." Europe's recovery is about to go in reverse, sending a "ripple throughout the global economy." Fears of a market collapse were already at "their highest levels in many years," said economist Robert Shiller at The New York Times. According to my surveys, "an overwhelming majority of investors said there was a greater than 10 percent probability of an imminent market crash." The combination of high stock prices and investor fears makes this "a high-risk moment."

One positive sign for the world economy is that Europe's lockdowns aren't as draconian as before, said Neil Unmack at BreakingViews. Germany, for instance, is shutting bars but not stores, while France intends to keep schools open. So "the economic shock should be milder" than the contraction caused by the first wave. "The key question is how long lockdowns last, or how frequently they happen." What we do know, said Mohamed El-Erian at Bloomberg, is that what's happening in Europe is "a leading indicator for the United States." The U.S. will see more hospitalizations and deaths, and its own wave of closures. In response, the Fed will do its best to keep markets from collapsing — and in the process make the "disconnect between a profitable Wall Street and a struggling Main Street" even greater.

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