Weekly Economic And Financial Commentary – August 03, 2020

The US economy registered the sharpest drop in over 74 years in which quarterly GDP data has been available. The economy contracted 32.9% YoY (deeper than 5% YoY contraction in Q1) following measures implemented to curb the spread of the coronavirus. For context, household disposable incomes expanded 42 % YoY in Q2, and the savings rate rose by 25.7% YoY on average due to government income support to offset wage losses. The contraction in GDP was widespread with personal consumption expenditure dropping 34.6% YoY, private sector investment fell sharply by 49% YoY, net trade contributed negatively to top-line GDP in Q2 following a faster decline in exports by 64% YoY compared to decline in imports by 53% YoY. The FOMC at its meeting last week left benchmark rate unchanged at 0.0%-0.25%, and signaled preparedness to step up purchases of treasury securities and agency residential and commercial mortgage-backed securities more rapidly should it deem it necessary.

Still reflecting on the damage inflicted by COVID-19, the Euro area GDP contracted by 15% YoY in Q2 (deeper than 3.1% YoY contraction in Q1), according to a flash estimate published by Eurostat. The contraction largely reflects falls across large economies. French GDP tumbled 19% YoY, Italian GDP plunged 17.3% YoY, Germany GDP plummeted 11.7% YoY and Spanish GDP fell 22.1% YoY. Separate data revealed unemployment rate rose to 7.8% at the end of June compared to 7.2% at the end of Q1 20 following rising unemployment rate in Germany (4.2% from 3.8% in March), Spain (15.6% from 14.5% in March), Italy (8.8% from 8.4% in March), Netherlands (4.3% from 2.9% in March) and France (7.7% from 7.6% in March).