WEAK US ECONOMY STYMIES GLOBAL RECOVERY

People in China are back to buying German luxury cars. Europe’s assembly lines are accelerating but the global economy is waiting for the US to get COVID-19 outbreak under control and boost the recovery, but there’s little sign of that, David McHugh, Paul Wiseman and Joe McDonald wrote for the Associated Press (AP) on August 12, 2020.

The US’ fumbling response to the pandemic and its dithering over a new aid package is casting doubt on its economic prospects and making it one of the chief risks to a global rebound. While it does not dominate global commerce like it did 20 years ago, the US is still by far the biggest economy - accounting for 22% of total economic output, versus 14% for No. 2 China, according to the World Bank.

That makes its handling of the pandemic and its economy crucial for companies like Officina del Poggio, a producer of luxury handbags in Bologna, Italy, that sells 60% its vintage motorcycle-inspired satchels to US customers. Company owner Allison Hoeltzel Savini said retail sales dried up during the spring. She had already suffered a blow when Barneys, her main client, went bankrupt and didn’t pay for the spring-summer collection that she had shipped. Same for Shenzhen Aung Crown Industrial Ltd., which makes baseball hats. The company usually sells about 60% of its output to the US. “We can’t afford to lose the US market,” said general manager Kailyn Weng. “It is difficult to find other markets that could digest such a great amount of high-quality hats ... We have no alternative but to focus on the US market.”

The US is unlikely to pull the world economy out of its rut as it did in past downturns such as after the Asian financial crisis of the late 1990s. “The US won’t be the locomotive,” said Nariman Behravesh, chief economist at research firm IHS Markit. The US economy shrank at an annual pace of 32.9% from April through June, by far the worst quarter on record. The numbers are expected to bounce back strongly in the second half but to leave the US economy well short of where it stood at the beginning of 2020.