<keyword id="125045" type="COMPANY" weightage="20" keywordseo="Fitch-Ratings">Fitch Ratings</keyword> on Thursday slashed India's economic growth projections to 0.8 per cent in the current 2020-21 fiscal saying an unparalleled global recession was underway due to disruptions caused by the outbreak of <keyword id="1754604" type="PERSON" weightage="20" keywordseo="coronavirus">coronavirus</keyword> pandemic and resultant lockdowns. In its Global Economic Outlook, Fitch Ratings said India's <keyword id="6354971" type="DEFINITION" weightage="20" keywordseo="gross-domestic-product">gross domestic product</keyword> (<keyword id="35050" type="CITY" weightage="20" keywordseo="gdp">GDP</keyword>) growth will slip to 0.8 per cent for the year April 2020 to March 2021 (FY21) as compared to an estimated 4.9 per cent growth in the previous fiscal. <br /><br /> Growth is, however, expected to rebound to 6.7 per cent in 2021-22. <br /><br /> The rating agency predicted two consecutive quarters of contraction or negative year-on-year growth in current fiscal -- (-)0.2 per cent in April-June and (-)0.1 per cent in July-September. This compares to 4.4 per cent estimated growth in January-March. <br /><br /> Growth is expected to rebound to 1.4 per cent in the last quarter of 2020 calendar year. <br /><br /> Fitch said the slump in FY21 growth was mainly due to a projected fall in consumer spending to just 0.3 per cent in FY21 from 5.5 per cent a year back and a 3.5 per cent contraction in fixed investment. <br /><br /> The agency has further made large cuts to global GDP forecasts in its latest Global Economic Outlook (GEO) in response to coronavirus-related lockdown extensions and incoming data flows. <br /><br /> "World GDP is now expected to fall by 3.9 per cent in 2020, a recession of unprecedented depth in the post-war period," said <keyword id="172683" type="PERSON" weightage="20" keywordseo="Brian-Coulton">Brian Coulton</keyword>, Chief Economist at Fitch Ratings. <br /><br /> This would be twice as severe as the 2009 recession. <br /><br /> The decline in GDP equates to a USD 2.8 trillion fall in global income levels relative to 2019 and a loss of USD 4.5 trillion relative to pre-virus expectations of 2020 global GDP. <br /><br /> "No country or region has been spared from the devastating economic impact of the global pandemic," the rating agency said. <br /><br /> A notable feature of this update is sharp further downward revisions to GDP forecasts for emerging markets (EM). <br /><br /> Falling commodity prices, capital outflows and more-limited policy flexibility are exacerbating the impact of domestic virus-containment measures; Mexico, Brazil, Russia, South Africa and Turkey have all seen big GDP forecast adjustments. <br /><br /> "With China and India both now expected to see sub-1 per cent growth, we expect an outright contraction in EM GDP in 2020, a development unprecedented since at least the 1980s," it said. <br /><br /> "We expect supply responses and a relaxation of lockdowns to help oil prices to recover in 2H20 from current lows, which are being exacerbated by storage capacity issues in the US and elsewhere." <br /><br /> Several major economies recently have extended lockdown measures. India too has extended the nationwide lockdown that began on March 25 to May 3. <br /><strong>SEE ALSO: <a href="https://www.businessinsider.in/india/news/data-of-coronavirus-patients-state-wise-in-india/articleshow/74669748.cms">Coronavirus cases in India state wise</a><br /></strong><a href="https://www.businessinsider.in/india/news/checkout-the-name-of-coronavirus-containment-zones-in-mumbai/articleshow/75045928.cms"><strong>List of coronavirus hotspot in mumbai</strong></a><br />

Fitch cuts Indian growth forecast to 0.8% for FY21 over Covid-19 disruptions

<ul class="summary-list"><li>The Russia-Ukraine war could be the final nail in the coffin for economic <keyword id="13472772" type="UNKNOWN" weightage="60" keywordseo="globalization" source="Orion">globalization</keyword>.</li><li>President Joe Biden framed the US ban on Russian oil as an opportunity to reach energy independence.</li></ul><p>Globalization was already under siege before Russia invaded Ukraine, but now the war is shaping up to be the final nail in its coffin as countries like the US start to rethink the past several decades of moving supply chains abroad.</p><p>The West, led by the US, moved quickly to impose historic sanctions against Russia, but it now faces a massive problem. The measures, especially those targeting Russia's massive energy sector, have <a href="https://www.businessinsider.com/russia-ukraine-inflation-lifting-prices-american-shoppers-gas-wheat-nickel-2022-3">driven prices for key commodities sharply higher</a> in recent weeks. While demand remains just as hot as it was before the war, partially removing Russia from energy markets <a href="https://www.businessinsider.com/sanctions-russia-spilling-over-inflation-slower-economic-growth-recession-risks-2022-3">placed fresh pressure on global supply</a>.</p><p>That's left America and its allies rushing to fill the hole. In his speech announcing the US's ban on Russian oil, President Joe Biden urged <a href="https://www.businessinsider.com/biden-us-ban-russian-oil-natural-gas-coal-imports-report-2022-3">the importance of becoming "energy independent"</a> to "protect our <keyword id="11893570" type="UNKNOWN" weightage="100" keywordseo="economy" source="Orion">economy</keyword>." The embargo should motivate the country "to accelerate the transition to clean energy," he added.</p><p>The administration took an even larger step toward energy independence on Thursday, <a href="https://www.businessinsider.com/biden-oil-release-lower-gas-prices-stockpile-russia-ukraine-inflation-2022-3">urging Congress to enact "use it or lose it" fines</a> on domestic oil producers' idled wells to boost at-home production. The White House also announced plans to leverage the Defense Production Act to accelerate domestic production and processing of minerals used in batteries.</p><p>"The path to real American energy independence depends on reducing our reliance on foreign oil and on fossil fuels," a senior administration official said. "And the path to that energy security runs through clean energy."</p><p>The message is the latest to eschew globalization and emphasize the benefits of economic self-sufficiency. The US is considering ways to rely less on others' resources, which can insulate countries from global shocks like Russia's invasion.</p><p>But such independence would come with a price for America. If the Russia-Ukraine war does usher in a deglobalized economic order, inflation will probably continue to be a major problem.</p><h2>Reversing globalization means greater independence ... </h2><p>With the US already suffering through supply-chain turmoil as a result of the COVID-19 pandemic, it's more attractive than ever to be less economically dependent on others. Brian Coulton, the chief economist at Fitch Ratings, told Insider the war in Ukraine marked a "quite fundamental" pivot point from globalization to independence.</p><p>This doesn't mean an end to global trade, but it does mean countries are likely to start prioritizing domestic production for goods essential to daily life. It could also fragment the global economy into smaller blocs that only trade with nearby members.</p><p>"The phrases you keep hearing are, 'We need to ensure energy security, we need to ensure food security, we need to ensure technology security,'" Coulton said. "When they say 'security,' they mean 'we need to make this stuff at home.'"</p><p>Biden's remarks underscore a shift in economic sentiment that's been years in the making. President Donald Trump ran on the platform of moving manufacturing jobs back to the US, and he justified his trade war with China by arguing it would leave the US less dependent on foreign manufacturers. In fact, Coulton said globalization "probably peaked in 2012 or 2013" and had been "gradually eroded" since.</p><p>Russia's invasion added new urgency to the pivot. Though Russian oil accounted for only about 3% of US crude imports in 2021, the interconnectedness of the global energy market <a href="https://www.businessinsider.com/why-russian-oil-sanctions-rattle-united-states-energy-independence-2022-3">still pushed prices sharply higher</a>. That <a href="https://www.businessinsider.com/gas-price-outlook-forecast-biden-russia-crude-oil-ban-sanctions-2022-3">lifted US gas prices to new highs</a> and sparked <a href="https://www.businessinsider.com/clean-energy-gas-price-swings-inflation-white-house-2022-3">a new push toward energy independence</a>.</p><p>The impulse to wean the US off others' goods is only natural, Tania Babina, a business professor at the Columbia Business School, told Insider. The invasion was bound to have immediate impacts, but the economy can adapt to a new world of more limited international trade just as it did during the coronavirus-related lockdowns of early 2020.</p><p>"What people don't always think about — but economists do — is that things are not static," Babina said. "You can change things and reshuffle things and relocate things to soften the blow of a given shock."</p><h2>... but also higher prices</h2><p>Shifting to economic independence can indeed soften the blow, but it also comes with its own challenges. Chief among them: strong inflation. Coulton of Fitch said <keyword id="13530578" type="UNKNOWN" weightage="60" keywordseo="deglobalization" source="Orion">deglobalization</keyword> "seems to be the baseline now," which would mean "higher prices."</p><p>The math is fairly simple. Much of globalization's appeal came from the cheap labor offered in manufacturing hubs like China and Vietnam. Companies moved production abroad, and lower labor costs kept prices low for all kinds of goods.</p><p>Prices for durable goods in the US — think appliances, cars, and electronics — fell nearly 17% from 2000 to 2020, according to the Consumer Price Index. Yet the overall price index — one of the most widely followed measures of inflation — rose 53% over the same period, signaling globalization was hugely deflationary for a broad range of products.</p><p>Bringing those jobs back to the US would almost certainly mean pricier goods. Labor costs are higher in the US, and the shake-up to supply chains could lift material costs as well. A "Made in America" movement would be a boon for economic independence, but Americans would have to pay up.</p><p>"This decoupling will inevitably create challenges for companies, including higher costs and margin pressures," Larry Fink, the CEO of the investment giant BlackRock, said in a March 24 <a href="https://www.blackrock.com/corporate/investor-relations/larry-fink-chairmans-letter">letter</a> to shareholders, noting that bringing supply chains back to the US would most likely cause inflation to continue soaring.</p><p>Still, deglobalization won't mean complete independence. Russia's actions <a href="https://www.businessinsider.com/russia-ukraine-global-power-balance-shakeup-economist-intelligence-unit-outlook-2022-3">accelerated a "bifurcation" of the world</a> into two sparring camps, the Economist Intelligence Unit said in a March 23 report. The West is likely to maintain internal trade partnerships and economic cooperation even if it moves away from autocracies like Russia and China.</p><p>And while China hasn't formally sided with Russia in its invasion of Ukraine, the two countries enjoy a close economic relationship. The EIU predicted the war in Ukraine would accelerate Russia's "pivot eastwards" and "cement its alliance with China." That move would decisively rupture Russia's connection to the West and create a new economic bloc with which to compete, further tangling the globalized supply chains used mere months ago.</p><p>"Some countries will take sides, but many others will seek to maintain a foot in both camps," the EIU said. "As time goes on, this balancing act will become increasingly difficult."</p>

‘Made in America’ is about to make a roaring comeback. That's good and bad.

<ul class="summary-list"><li>The Russian people are feeling the brunt of <keyword id="12754126" type="UNKNOWN" weightage="60" keywordseo="sanctions" source="Orion">sanctions</keyword>, but the pain is spilling into other nations.</li><li>Oil bans have driven prices higher worldwide, and fears of food shortages abound.</li></ul><p>An economic cold war has emerged.</p><p>It's bringing higher <keyword id="11894140" type="UNKNOWN" weightage="60" keywordseo="inflation" source="Orion">inflation</keyword> and a slowdown in recovery from pandemic setbacks. It could also usher in a new global power structure.</p><p>Russia has now been the world's most-sanctioned country <a href="https://www.axios.com/russia-most-sanctioned-country-0de10d02-51aa-46c4-9711-bb45303fdfb8.html">by one measure</a> for about a month. President Vladimir Putin's invasion of Ukraine prompted the US, UK, and European Union to retaliate with <a href="https://www.businessinsider.com/russia-sanctions-ukraine-invasion-economic-damage-putin-russian-elites-banks-2022-2">an unprecedented wave of economic punishments</a>.</p><p>There's no clear end in sight for the crippling sanctions imposed, and the impact has already left the country's <keyword id="11893570" type="UNKNOWN" weightage="100" keywordseo="economy" source="Orion">economy</keyword> reeling. The ruble has <a href="https://www.businessinsider.com/russian-ruble-us-europe-energy-export-ban-sanctions-ukraine-conflict-2022-3">lost a third of its value</a> against the dollar. JPMorgan data shows the worst recession in the country since its 1998 financial crisis.</p><p>Yet prolonged sanctions are also likely to spill into other countries in two major ways: higher prices and slower pandemic recoveries worldwide.</p><p>The world might be past the worst of the Omicron wave, but Russia's invasion and the global financial retaliation are putting a new — and possibly more powerful — drag on its rebound.</p><p>"The bottom line is that so long as war smolders in eastern Europe it will cloud the economic picture for the entire globe," Dana Peterson, chief economist at The Conference Board, said in a <a href="https://www.barrons.com/articles/the-economic-shock-of-russias-war-will-shake-the-world-51647463866">Barron's column</a> published Thursday. </p><h2>Moving away from Russian oil will be a major challenge, especially in Europe</h2><p>The crux of the new economic risk starts with common goods like oil and wheat. These key Russian and Ukrainian commodities, along with others like nickel and natural gas, <a href="https://www.businessinsider.com/russia-ukraine-inflation-lifting-prices-american-shoppers-gas-wheat-nickel-2022-3">have seen their prices surge</a> through 2022 as the conflict has raised fears of supply strains.</p><p>Gas prices <a href="https://www.businessinsider.com/gas-price-outlook-forecast-biden-russia-crude-oil-ban-sanctions-2022-3">soared into the spring</a> as countries moved away from Russian crude oil. Europe was already struggling through <a href="https://www.businessinsider.com/global-energy-market-crunch-mess-inflation-risk-new-economic-era-2021-10">an energy crunch</a> that started in the fall of 2021, and the continent now faces the biggest hit from pricier gas.</p><p>"Given Europe's dependence on Russian energy, and its closer linkages to Russian industry, the drag on its growth is much greater than elsewhere," JPMorgan economists led by Bruce Kasman said in a note. The EU imported about 40% of its natural gas from Russia in 2021, <a href="https://www.iea.org/news/how-europe-can-cut-natural-gas-imports-from-russia-significantly-within-a-year">according to the International Energy Agency</a>, and replacing that would be a huge challenge.</p><h2>A major world breadbasket is now on fire</h2><p>Food prices are also poised to climb. <a href="https://oec.world/en/profile/hs92/wheat">Ukraine and Russia together account for a quarter of the world's wheat exports</a>, according to the Observatory of Economic Complexity, and the invasion has <a href="https://markets.businessinsider.com/commodities/wheat-price">lifted prices 38% in the last month alone</a>. That's set to weigh on common foodstuffs like bread, cereal, and pasta.</p><p>Rising fertilizer costs raise a <a href="https://farmpolicynews.illinois.edu/2022/03/global-food-crisis-possible-no-precedent-even-close-to-this-since-world-war-ii/">longer-term food risk</a>. Russia is a major exporter of all sorts of crop fertilizers, and the souring of trade relationships could cripple future crops.</p><p>In advanced economies, the disruption to food and fertilizer supply is likely to keep inflation higher for longer. The toll in poorer countries, though, is far more dire. Some economies <a href="https://www.axios.com/un-guterres-war-ukraine-global-hunger-crisis-ab031f28-b683-4198-8ea0-cd9c7550827f.html">can't afford to bear the brunt of higher food prices</a>, leaving residents trapped in an impossible situation. If backstops aren't put in place soon, the supply issues <a href="https://www.businessinsider.com/ukraine-russia-bread-food-prices-civil-unrest-arab-spring-egypt-2022-3">could spark civil unrest and casualties</a> in areas far from the invasion's front lines.</p><p>"Vulnerable populations are most likely to become refugees and will find it hardest to bear the rising costs of food and fuel," McKinsey economists said in a March <a href="https://www.mckinsey.com/business-functions/strategy-and-corporate-finance/our-insights/war-in-ukraine-lives-and-livelihoods-lost-and-disrupted">report</a>. "Securing the continual supply of food to the countries most exposed to exports from these regions is becoming a major near-term issue."</p><p>The advanced economies can reshuffle their trade relationships and import necessary goods from elsewhere. But that will take time, and until then, Americans are likely to shoulder the costs of even pricier gas and groceries.</p><h2>Central banks' task to fight inflation without hurting economic recoveries just got trickier</h2><p>Central banks were already aiming to cool inflation before war broke out by raising interest rates. Timing that transition is now an even more difficult task. Moving too fast could discourage spending and kick off recessions, but acting too slowly could allow inflation to worsen.</p><p>In the US, the Federal Reserve <a href="https://www.businessinsider.com/federal-reserve-hikes-interest-rates-inflation-higher-costs-loans-mortgages-2022-3">began raising interest rates this month</a>, and while the central bank is widely expected to continue rate hikes at each of its six remaining meetings this year, the <a href="https://www.businessinsider.com/federal-reserve-interest-rate-hike-inflation-fight-tightening-monetary-policy-2022-3">exact scope and timing of the Fed's monetary tightening remain up in the air</a>.</p><p>Now that the conflict has exacerbated inflation, central banks could feel the pressure for more aggressive interest-rate increases. The conflicting forces could result in "subpar growth," JPMorgan's economists said. Only by cooling the economy to a less-than-ideal level, they argue, can the Fed and its peers get their hands around inflation.</p><h2>The West has never tried to cut off an economy as big as Russia's</h2><p>Severing the Russian economy — the 11th-largest in the world — from the financial system could shake up the global economic order.</p><p>There's simply no precedent for the economic dislocation Russia is experiencing, Brian Coulton, chief economist at Fitch Ratings, told Insider. Similarly severe sanctions have been levied on smaller economies like North Korea and Cuba, but never against such a global superpower. That leaves economists without much foresight as to how the sanctions will play out in the coming years.</p><p>"We don't really have a playbook for how this might work, trying to disconnect an economy of this scale," Coulton said, adding that the immediate effects will arise in the global energy supply.</p><p>The Russia-Ukraine war "may fundamentally alter" the status quo in global trade, economists at the International Monetary Fund said in a recent <a href="https://blogs.imf.org/2022/03/15/how-war-in-ukraine-is-reverberating-across-worlds-regions/">report</a>. Supply chains, payment networks, and central-bank reserves could all be disrupted <a href="https://www.businessinsider.com/russia-ukraine-global-power-balance-shakeup-economist-intelligence-unit-outlook-2022-3">as new global alliances and rivalries form</a>.</p><p>So far, that's starting to look like a new delineation between the East and the West. The US, UK, and EU might have removed Russia as a trade partner, but other countries like India and China will likely step in and fill that void, Tania Babina, a business professor at the Columbia Business School, told Insider.</p><p>That could spark a "bipolarization" in the global economy and cut away at decades of globalization, she added. "Where the West is going to come in and cut off supplying stuff to Russia, you're going to have all these non-Western countries and nondemocratic countries set up increased trade and new trade opportunities."</p>

Cutting Russia out of the global economy means higher prices, a slower recovery, and a whole new global power structure: 'We don't really have a playbook for how this might work'

Mumbai, Apr 23 () Describing the coronavirus-induced recession as "unparalleled", Fitch Ratings has massively slashed its global growth forecast, saying the world economy is set to contract by a hefty 3.9 per cent in 2020.  <p>The sharp downward revision is driven by a massive decline in Asian economies, led by China and India which are slated to post sub-1 per cent growth this year.  </p><p>Several major economies have extended lockdowns of eight-nine weeks. This contrasts to the previous assumption of around five weeks. An extra month of lockdown will reduce the annual flow of income by around 200 basis points, Fitch said.  </p><p> "The world GDP is now expected to fall by 3.9 percent in 2020, a recession of unprecedented depth in the post-war period," Fitch Chief Economist Brian Coulton said in a note.  </p><p> "This is twice as large as the decline anticipated in our early April forecast and would be twice as severe as the 2009 recession," he added.  </p><p> The report also sharply cut the forecasts for emerging markets (EMs) primarily because of the sub-1 per cent growth expected in the Asian growth engines of China and India. </p><p> The problem of falling commodity prices, capital outflows and more limited policy flexibility are only exacerbating the troubles, it added.  </p><p> While Mexico, Brazil, Russia, South Africa and Turkey have all seen big GDP forecast adjustments, China and India are now expected to see sub-1 per cent growth.  </p><p> "We expect an outright contraction in EM GDP in 2020, a development unprecedented since the 1980s. We expect supply responses and a relaxation of lockdowns to help oil prices to recover in 2H from the current lows, which are being exacerbated by storage capacity issues in the US and elsewhere," it said.  </p><p> The decline in global GDP equates to a USD 2.8 trillion fall in global income levels relative to 2019 and a loss of USD 4.5 trillion relative to Fitch's pre-virus expectations of 2020 global GDP. It expects the Eurozone GDP to decline by 7 per cent, US by 5.6 per cent, and British GDP by 6.3 per cent in 2020.  </p><p> The biggest downward revisions are in the Eurozone economies, where the measures to halt the spread of the pandemic have already taken a very heavy toll in Q1.  </p><p> "We have cut Italy's growth to -8 percent following official indications that GDP already fell 5 percent in 1Q and after a recent extension of the lockdown there," it added.  </p><p> Italy has been on the longest lockdown as it has suffered the worst toll with over to 25,000 deaths so far.  </p><p> Official estimates also point to France and Spain experiencing near 5 per cent declines in GDP in Q1, with the Spanish outlook hit particularly hard by the collapse in tourism, said Coulton.  </p><p> Even allowing for a slightly less negative outlook for Germany, where the headroom for policy easing is greater and the benefits of a recovery in China will be felt more directly, the Eurozone GDP is expected to shrink by 7 per cent, Coulton added.  </p><p> "No country or region has been spared from the devastating economic impact of the global pandemic. We now anticipate that GDP in both the US and the Britain where lockdowns started a little later than in the Eurozone, will plunge by over 10 percent (not annualised) in 2Q, compared to forecasts of around 7 percent in our early April update. This will result in annual GDP declines of around 6 percent, despite aggressive macro policy easing," the report warned.  </p><p> "Macro policy responses have been unprecedented in scale and scope and will serve to cushion the near-term shock. But with job losses occurring on an extreme scale and intense pressures on small businesses, the path back to normality after the crisis subsides is likely to be slow.  </p> "Our forecasts now show US and Eurozone growth remaining below pre-virus 4Q of 19 levels through the whole of 2021," added Coulton.  BEN  ABMABM

Fitch sees global economy shrinking 3.9 pc in 2020

<ul class="summary-list"><li><keyword id="82981" type="CITY" weightage="60" keywordseo="Fitch">Fitch</keyword> upgraded its <keyword id="154571" type="PERSON" weightage="60" keywordseo="Global-growth">global growth</keyword> forecast for 2021 to 6.1% from 5.3% on Tuesday.</li><li>The new estimate would make for the fastest worldwide expansion since at least 1980.</li><li>US growth will reach 6.2% as vaccination and new stimulus boosts the nation's recovery, Fitch said.</li></ul><p>The world <keyword id="34412" type="ORGANIZATION" weightage="100" keywordseo="economy">economy</keyword> is set to thrive through 2021 as vaccinations and a new swath of fiscal support bring countries back to pre-pandemic norms, Fitch economists said.</p><p>The team led by Brian Coulton lifted their estimates for economic growth in a Tuesday note, joining several other firms in preparing for a strong recovery. Global gross domestic product is now expected to grow 6.1% through 2021, up from the previous estimate of 5.3%. The new forecast calls for the fastest rate of global growth since at least 1980 and follows a 3.4% decline in 2020.</p><p><keyword id="572312" type="ORGANIZATION" weightage="60" keywordseo="global-GDP">Global GDP</keyword> will grow 3.9% in 2022, the team added. That estimate is little changed from Fitch's December forecasts.</p><p>The US economy is expected to slightly outperform the rest of the world and grow 6.2% this year, the firm said. That's up from a previous estimate of 4.5% expansion. <keyword id="293989" type="ORGANIZATION" weightage="60" keywordseo="US-GDP">US GDP</keyword> is now projected to reach its pre-pandemic highs by the end of the second quarter, three months earlier than Fitch last forecasted.</p><p>The $1.9 trillion stimulus measure signed by President Joe Biden last week drove the bulk of Fitch's revisions. The package is "much larger than expected" and, when joined with new relief plans in the EU and India, should contribute to the global recovery, the economists said.</p><p>Vaccine rollouts are also grounds for optimism, they added. The US is administering roughly 2.5 million vaccinations each day on average, according to <a href="https://www.bloomberg.com/graphics/covid-vaccine-tracker-global-distribution/">Bloomberg</a> data. That rate sets the country up to reach herd immunity in the next five months, although <a href="https://www.businessinsider.com/johns-hopkins-professor-herd-immunity-us-april-2021-2">more optimistic estimates</a> see herd immunity arriving as early as next month. Though the eurozone's distribution efforts have lagged, the region should see vaccination accelerate in the second quarter, Fitch said.</p><p>"It still looks reasonable to assume that the health crisis will ease by midyear, allowing social contact to start to recover. But immunization delays or problems remain the key risk," the firm added.</p><p>Fitch's projections for US growth are fairly conservative compared to peers. Goldman Sachs <a href="https://www.businessinsider.com/economic-outlook-gdp-growth-biden-stimulus-infrastructure-plan-recovery-goldman-2021-3">lifted its own 2020 estimate to 7%</a> on Monday, or 8% on a fourth-quarter-by-fourth-quarter basis.</p><p>Morgan Stanley holds an even more bullish outlook, estimating growth <a href="https://www.businessinsider.com/economic-outlook-us-gdp-growth-inflation-unemployment-forecasts-morgan-stanley-2021-3">will reach 8.1% on a Q4-by-Q4 basis</a>. It also said the US economy will return to pre-pandemic levels of output by the end of the current quarter.</p><p>Even the Federal Reserve's latest projections exceed Fitch's. The central bank <a href="https://www.businessinsider.com/federal-reserve-economic-outlook-gdp-unemployment-rate-stimulus-vaccinations-fomc-2021-3">boosted its 2021 growth estimate to 6.5%</a> from 4.2% in a Wednesday release. The Fed also sees the unemployment rate falling to 4.5% by the end of the year, an improvement from the previous 5% estimate.</p><p>And risks still loom over Fitch's more modest forecast. Apart from the aforementioned vaccination setbacks, volatility in the Treasury market could lift borrowing costs sooner than expected and hinder the recovery. The eventual unwinding of government support programs could also slam unhealthy private-sector businesses and spark new bankruptcies, Fitch said.</p>

Global GDP will grow the most since 1980 this year amid widespread vaccination and massive stimulus, Fitch says

<ul class="summary-list"><li>The US won't return to full employment until the fourth quarter of 2022, Fitch Ratings said Wednesday.</li><li>Matching workers' skills with new jobs will take time, as will a rebound in workforce participation.</li><li>Some workers - particularly older Americans - are likely permanently discouraged from work, Fitch added.</li></ul><p>The good news: The <keyword id="165109" type="PERSON" weightage="60" keywordseo="US-labor-market">US labor market</keyword> is well on its way to a full recovery.</p><p>The bad news: It's going to take a while to get there.</p><p>After improving steadily through 2021, <a href="https://www.businessinsider.com/april-jobs-report-266000-payrolls-unemployment-rate-labor-market-recovery-2021-5">the disappointing April jobs</a> report signaled the <keyword id="409455" type="PERSON" weightage="60" keywordseo="labor-market">labor market</keyword>'s rebound wouldn't be as smooth as most hoped. With labor shortages and supply bottlenecks now dragging on the broader recovery, economists are updating their employment projections to account for numerous new hurdles.</p><p>Fitch Ratings economists joined the crowd on Wednesday. The team led by Brian Coulton sees a return to full employment arriving in the fourth quarter of 2022, about 15 months from today. The <keyword id="6358907" type="UNKNOWN" weightage="60" keywordseo="unemployment">unemployment</keyword> rate will fall to 4.3% from the April reading of 6.1%, and the employment-to-population ratio will return to a steady state, the team added.</p><p>Filling the hole in the labor market requires creating 7 million jobs, but a handful hurdles stand in the way of such an achievement, according to the team.</p><h2>(1) The dangers of long-term unemployment</h2><p>Bringing Americans back into the workforce is crucial to bringing about a full recovery, and those who've been out of it the longest present a significant challenge.</p><p>Almost 30% of unemployed Americans have been out of the labor force for more than a year, and that share is growing, Fitch said in a note to clients.</p><p>Bouts of unemployment lasting more than a year are far more likely to turn into permanent detachment from the workforce. Bringing the country to full employment will hinge on bringing the long-term unemployment rate from its latest reading of 1.8% closer to its pre-pandemic norm of 0.5%, the team said.</p><h2>(2) Matching workers' skills with the right job</h2><p>Various economists and officials have warned that, while the <keyword id="34412" type="ORGANIZATION" weightage="100" keywordseo="economy">economy</keyword> will fully rebound, it <a href="https://www.businessinsider.com/economic-outlook-unemployment-scarring-risks-federal-reserve-support-jerome-powell-2021-4">won't look the same as it did</a> in early 2020.</p><p>Some jobs will be permanently erased, and others will crop up elsewhere as the post-pandemic economy takes form. Those structural shifts in where labor is in demand will force some unemployed Americans to either move or change their skillsets entirely.</p><p>"Rapid changes in the sectoral demand for labor can lead to lasting increases in unemployment if workers made unemployed in shrinking industries are unable to move into other sectors," the economists said.</p><h2>(3) Some participation won't return until well after reopening</h2><p>The <keyword id="9865674" type="UNKNOWN" weightage="60" keywordseo="labor-force-participation-rate">labor force participation rate</keyword> took on new relevance during the pandemic as millions of Americans who lost their jobs didn't look for new roles and dropped out of the workforce entirely.</p><p>The rate sank from 63.4% in January 2020 to a pandemic low of 60.2% in April of last year. Yet after $5 trillion in stimulus, vaccine distribution, and progress toward a full reopening, <keyword id="9865675" type="UNKNOWN" weightage="60" keywordseo="labor-force-participation">labor force participation</keyword> stood at 61.7% last month.</p><p>"While we believe a large share of the fall will be reversed as the economy opens up there is also a likelihood that some people have permanently left the workforce," Fitch said. Such a dynamic would persistently drag on the labor market until more Americans join the workforce.</p><h2>(4) Many older workers are out for good</h2><p>The participation rate for Americans aged 55 and older shows a particularly concerning trend.</p><p>The rate dove to 38.4% at the peak of the pandemic's onset and sat even lower, at 38.3%, last month. That contrasts sharply from rates for other age groups, which have retraced at least half of their pandemic-era declines.</p><p>The trend is also unlikely to be linked to early retirement, Fitch said. The number of retirees rose by 1.24 million in 2020, according to social security data. That's less than the 1.37 million jump seen the year prior.</p><p>If the trend continues throughout reopening, it "could signal permanent discouragement from the labor force among older workers," the team said.</p>

4 reasons it will take more than a year for the US to get back to full employment, according to Fitch

<ul class="summary-list"><li>The February <keyword id="134929" type="PERSON" weightage="60" keywordseo="jobs-report">jobs report</keyword> exceeded expectations and hints at how reopening can accelerate job growth.</li><li>The bulk of the job gains came from industries hit the hardest by the pandemic.</li><li>Stronger hiring is coming, it's just a matter of "how long it takes to get there," BlackRock said.</li></ul><p>The February jobs report shows the <keyword id="409455" type="PERSON" weightage="60" keywordseo="labor-market">labor market</keyword> in reopening rehearsal. </p><p>The US <a href="https://www.businessinsider.com/february-jobs-report-379000-payrolls-unemployment-rate-labor-market-recovery-2021-3">added 379,000 nonfarm payrolls last month</a>, handily exceeding the median economist estimate of 200,000 additions. The unemployment rate fell to 6.2% from 6.3%, labor force participation held steady, and the number of Americans citing COVID-19 for not seeking employment fell by 500,000.</p><p>The drivers behind the gains are also encouraging.</p><p>While the drop in unemployment seen in January was largely tied to more Americans dropping out of the labor force, last month's dip was tied to increased hiring across a broad set of sectors. The payroll increase would've "easily" topped 500,000 had adverse weather not contributed to construction jobs falling by 61,000, Morgan Stanley economists led by Robert Rosener said.</p><p>For all intents and purposes, the report came in more positive than expected. Investors overwhelmingly thought so, too. Treasurys declined sharply as traders bet on a faster-than-expected economic rebound, bringing the 10-year yield to its highest level since February 2020. The Dow Jones industrial average and S&amp;P 500 gained, led by cyclical and value stocks.</p><h2>Fanning February's flames</h2><p>A deeper dive into the data shows a recovery that's found its footing. The leisure and hospitality industries - among those hit hardest by the pandemic and resulting restrictions - counted for 355,000 of the month's payroll additions. Temporary job losses declined, suggesting businesses were able to reopen and rehire workers as COVID-19 case counts fell nationwide. </p><p>The overall gains are a "surprise" and can be boiled down to reopening "arriving earlier than expected," Brian Coulton, chief economist at Fitch, said.</p><p>Warming weather, continued vaccination, and even lower daily case counts stand to supercharge job gains into the summer. Plenty on Wall Street agree. The data "suggest that the labor market recovery is accelerating in earnest," Bank of America economists Joseph Song and Michelle Meyer said Friday.</p><p>Michael Feroli, chief US economist at JPMorgan, said investors can expect "even better numbers" as reopening provides an "incredibly powerful tailwind."</p><p>"There is no ambiguity regarding where employment is headed, in our view, but just how long it takes to get there," Rick Rieder, chief investment officer of global fixed income at BlackRock, said.</p><h2>Not so fast</h2><p>Still, the battle is far from won. A handful of datapoints signal the climb to maximum employment will be much steeper than the 6.2% U-3 rate implies. </p><p>Ahead of the February report's release, Federal Reserve Chair Jerome Powell and Treasury Secretary Janet Yellen repeatedly said the <a href="https://www.businessinsider.com/us-unemployment-rate-double-official-rate-fed-worst-great-recession-2021-2">"real" unemployment rate</a> was closer to 10%. The unofficial estimate included Americans <a href="https://www.bls.gov/covid19/employment-situation-covid19-faq-february-2021.htm">misclassified as being employed</a> and <a href="https://www.bls.gov/news.release/empsit.t01.htm">those who dropped out of the labor force</a> since the pandemic began.</p><p>That "real" rate <a href="https://www.businessinsider.com/real-unemployment-rate-february-jobs-report-yellen-powell-labor-market-2021-3">improved to 9.1%</a> through February, according to Insider analysis. While this is down significantly from the year-ago peak of nearly 24%, the pace of decline slowed significantly through the winter.</p><p>The U-6 unemployment rate - which tracks people marginally attached to the workforce and Americans employed part-time for economic reasons - showed no improvement at all and held at 11.1% last month.</p><p>These gloomier datapoints practically guarantee Powell will keep ultra-easy monetary conditions in place for the foreseeable future. The Fed chief cautioned on Thursday that it "<a href="https://www.businessinsider.com/fed-jerome-powell-inflation-patient-stimulus-treasury-yields-reopening-monetarypolicy-2021-3">will take some time</a>" to achieve the central bank's goal of maximum employment. The healthy decline in baseline unemployment is cause for some optimism, but a broad set of criteria need to be met to ensure the recovery is robust, he added.</p><p>"We want to see wages moving up. We'd want to see that the gains in employment are broad-based and that different demographic groups were experiencing it," Powell said. "We have a high standard for identifying what maximum employment is."</p><p>The still-elevated unemployment rate has also been cited by Democrats as a sign additional stimulus is still warranted. Senate Democrats <a href="https://www.businessinsider.com/senate-democrats-stimulus-plan-kick-off-marathon-debate-2021-3">kickstarted a lengthy amendment process</a> on Friday with aims to pass a $1.9 trillion relief package over the weekend. The deal includes $1,400 direct payments, a $400 supplement to federal unemployment benefits, and funding for state and local governments.</p><p>While Republicans have argued the bill is a case of overspending, Democrats have pointed to lasting labor-market pain as justification for the hefty price tag. The bulk of February's payroll gains can be traced to business reopenings, but an additional stimulus package could boost demand and drive new demand for workers.</p>

The February jobs report shows Americans are eager for a full reopening

<ul class="summary-list"><li>The US lost 140,000 nonfarm payroll jobs in December, according to the Bureau of Labor Statistics.</li><li>The loss comes as a surprise, as some economists anticipated more jobs would be added.</li><li><keyword id="6355003" type="UNKNOWN" weightage="60" keywordseo="leisure">Leisure</keyword> and <keyword id="9248878" type="UNKNOWN" weightage="60" keywordseo="hospitality-workers">hospitality workers</keyword> were particularly hard hit, as were workers who couldn't work from home.</li></ul><p>The United States lost 140,000 jobs in December.</p><p>The Bureau of Labor Statistics reported the surprising dip in nonfarm payroll jobs on Friday. As <a href="https://www.businessinsider.com/december-jobs-report-140000-payrolls-lost-unemployment-rate-coronavirus-recession-2021-1">Insider's Ben Winck reported</a>, economists had actually anticipated that 50,000 jobs would be added.</p><p>It's the first decline in a jobs report since April, showing how the recovery has slowed down. On the other hand, <keyword id="6358907" type="UNKNOWN" weightage="60" keywordseo="unemployment">unemployment</keyword> remained steady at 6.7% coming in lower than the 6.8% economists had forecasted, Winck also reported.</p><p>Significantly, the payroll report shows that America is still seeing a <a href="https://www.businessinsider.com/what-is-a-k-shaped-recovery-coronavirus-pandemic">K-shaped recovery</a>, with low-wage jobs and jobs with low work-from-home capacity all seeing the biggest losses.</p><h2>These three charts highlight the slow recovery for lower-wage industries</h2><p>Jed Kolko, the chief economist at Indeed, shared on <a href="https://twitter.com/JedKolko/status/1347540675982749698/photo/1">Twitter</a> a chart showing just how much the pandemic continues to affect different types of jobs, based on how likely it is that those jobs can be worked from home. The following chart from Indeed shared with Insider shows these varying job losses:</p><iframe title="Job losses since the beginning of the pandemic by ability to work from home" id="datawrapper-chart-smJO9" src="https://datawrapper.dwcdn.net/smJO9/1/" scrolling="no" frameborder="0" style="width: 0; min-width: 100% ; border: none;" height="501"></iframe><p>Employment for jobs that can't be done from home, such as in <keyword id="34615" type="ORGANIZATION" weightage="60" keywordseo="restaurants">restaurants</keyword> and grocery stores, is 8.4% below its February level. However, jobs that can be done from home haven't been as largely affected. The extent to which a job can be done from home is based on research from <a href="https://www.nber.org/papers/w26948">Jonathan Dingel and Brent Neiman</a>.</p><p>Nick Bunker, an economist at Indeed, shared on <a href="https://twitter.com/nick_bunker/status/1347538832955203588/photo/1">Twitter</a> a graphic highlighting job changes last month and since February based on typical industry wages. The following chart from Indeed shared with Insider shows the percent change in jobs over the last month:</p><iframe title="Change in jobs from November to December" id="datawrapper-chart-wT3zW" src="https://datawrapper.dwcdn.net/wT3zW/1/" scrolling="no" frameborder="0" style="width: 0; min-width: 100% ; border: none;" height="206"></iframe><p>Lower-wage jobs were the only type that saw a loss instead of a gain last month, showing this group of jobs is still struggling to recover. Lower-wage jobs saw about a 0.9% loss in jobs last month, and Bunker notes on Twitter that overall these jobs "remain the hardest hit since the pandemic started."</p><p>Similarly, Insider has been tracking what the recovery since the start of the pandemic has looked like in various subsectors. </p><iframe title="Job losses since the beginning of the pandemic versus occupation hourly wages" id="datawrapper-chart-20ZV8" src="https://datawrapper.dwcdn.net/20ZV8/1/" scrolling="no" frameborder="0" style="width: 0; min-width: 100% ; border: none;" height="450"></iframe><p>(Using data from the Bureau of Labor Statistics, the chart above highlights the percent change in employment from February to December across different industries along its vertical axis. We also included median hourly wage data from the BLS as of May 2019 along the horizontal axis.)</p><p>Higher-wage industries are around, or even above, their February level of employment, while many lower-paying industries are still below pre-pandemic levels. For instance, "<a href="https://data.bls.gov/timeseries/CES5552300001?amp%253bdata_tool=XGtable&amp;output_view=data&amp;include_graphs=truephs=true">securities, commodity contracts, and other financial investments and related activities</a>" industry, with a high median hourly wage of $39.85, is just 0.8% below its February employment. </p><p><a href="https://data.bls.gov/timeseries/CES4349200001?amp%253bdata_tool=XGtable&amp;output_view=data&amp;include_graphs=truephs=true">Couriers and messengers</a> are among the few lower-wage industries that have experienced job gains amid the pandemic, adding 37,400 jobs last month. This is because more workers are needed to deliver goods as people continue to shop from home, similar to <a href="https://www.businessinsider.com/employment-change-industries-from-february-to-november-2020-12">last month's report</a>. Employment in couriers and messengers is now 26.2% higher than in February.</p><p>Last month, two industries in the leisure and <keyword id="29913" type="COMPANY" weightage="60" keywordseo="hospitality">hospitality</keyword> sector saw their first drops in employment since the spring, and are still below their level of employment in February. After a smaller number of gains in November compared to October, <a href="https://data.bls.gov/timeseries/CES7072100001?amp%253bdata_tool=XGtable&amp;output_view=data&amp;include_graphs=truephs=true">accommodation</a> saw a drop in employment in December at 23,600 jobs lost. Its level of employment is now 31.8% below last February's level. Additionally, the <a href="https://data.bls.gov/timeseries/CES7072200001?amp%253bdata_tool=XGtable&amp;output_view=data&amp;include_graphs=truephs=true">food services and drinking places</a> industry is 19.9% below February's level.</p><h2>Restaurants and leisure were hit especially hard</h2><p>Leisure and hospitality workers were particularly hard hit, <a href="https://www.bls.gov/news.release/pdf/empsit.pdf">losing 498,000 jobs</a>. <keyword id="2102016" type="PERSON" weightage="60" keywordseo="restaurant-workers">Restaurant workers</keyword> bore the brunt of that, shedding 372,000 jobs - three-quarters of those losses, according to the Bureau of Labor Statistics.</p><p>"The people who work in restaurants and bars are uniquely hurt by this pandemic, and don't deserve it. Over 110,000 restaurants and bars - over one in six across the country - have been left with no choice but to permanently close since March, destroying an important ladder of economic opportunity for millions of people," The Independent Restaurant Coalition (IRC) said in a press release. "Restaurants, bakeries, bars, and coffee shops employ more non-white managers and young people than any other industry. Immigrants, a million single mothers, and the formerly incarcerated rely on restaurants and bars for their livelihood."</p><p>"This is the clearest sign yet that tighter social distancing restrictions are weighing on the <keyword id="34412" type="ORGANIZATION" weightage="100" keywordseo="economy">economy</keyword>, with half a million jobs lost in the leisure and hospitality sector in December," Brian Coulton, Fitch chief economist, said. "The more reassuring aspect of the report is that employment declines were very concentrated, with most industries outside leisure and hospitality seeing gains." He added that GDP still appears to have been expanding in the fourth quarter. </p><p>And those jobs - which have historically been centered on in-person dining and travel - face an ever-worsening pandemic.</p>

3 charts show how December's surprisingly bad jobs report was especially devastating for the most vulnerable workers

<p><div class="KonaFilter image-container display-table float_right"><div><div class="image on-image"><img src="https://static-ssl.businessinsider.com/image/583d7ef9dd08953c1a8b4a3f-1542/undefined" alt="Allan Hale of Little Rock, Ark., who is active duty with the U.S. Navy based at the submarine base in Groton, Conn., wears a " data-mce-source="AP Photo/Charles Krupa" data-mce-caption="Fitch says Trump's election and the surprise triumph of Brexit is likely to lead to 'economic nationalism.'" data-link="https://www.paimages.co.uk/search-results/fluid/?q=make%20america%20great%20again&amp;amber_border=1&amp;category=A,S,E&amp;fields_0=all&amp;fields_1=all&amp;green_border=1&amp;imagesonly=1&amp;orientation=both&amp;red_border=1&amp;words_0=all&amp;words_1=all" /><p class="source"><span><a href="https://www.paimages.co.uk/search-results/fluid/?q=make%20america%20great%20again&amp;amber_border=1&amp;category=A,S,E&amp;fields_0=all&amp;fields_1=all&amp;green_border=1&amp;imagesonly=1&amp;orientation=both&amp;red_border=1&amp;words_0=all&amp;words_1=all">AP Photo/Charles Krupa</a></span></p><p class="caption">Fitch says Trump's election and the surprise triumph of Brexit is likely to lead to 'economic nationalism.'</p></div><p></p></div></div>Rating agency Fitch expects 2017 to be a year of "economic nationalism," with both Fitch and Deutsche Bank warning of the growing possibility of a trade war between the US and China.</p><p>Fitch predicts a decline in international trade <a href="https://www.fitchratings.com/site/pr/1015433">in a note published on Tuesday</a>, as governments focus on pumping investment into their own economies and embracing protectionist policies.</p><p>The rating agency says its prediction is driven by "the surge in populism and anti-establishment sentiment witnessed in the Brexit vote and Donald Trump's victory in the US presidential election."</p><p>President-elect Trump has promised a <a href="http://uk.businessinsider.com/trump-campaign-1-trillion-infrastructure-plan-with-no-tax-hike-2016-10">$1 trillion spending spree on US infrastructure as part of his campaign promise to "make America great again."</a> <keyword id="6354868" type="COUNTRY" weightage="60" keywordseo="UK">UK</keyword> Chancellor Philip Hammond last week announced a <a href="http://uk.businessinsider.com/autumn-statement-2016-national-productivity-investment-fund-housing-technology-transport-2016-11">£23 billion of investment in British housebuilding, technology, and transport.</a></p><p>Fitch says these policies are likely to lead to a short-term boost in global and local GDP growth. The agency raises its growth forecasts for the US from 2% to 2.2% in 2017 and from 2.2% to 2.3% in 2018. The global forecast is also hiked from 2.8% to 2.9% in 2017.</p><p>But Chief Economist Brian Coulton warns in Tuesday's release: "In the long term, there is little doubt that increased trade protectionism and weaker migration flows would dampen growth in the advanced economies."</p><p>Fitch adds that there is "sizeable and increasing downside risks," meaning the there's a growing chance that things could go wrong and send economies spiralling off course.</p><p>The agency writes:</p><p style="padding-left: 30px;">"First, the populist surge could exacerbate fragmentary tensions within the eurozone, with non-mainstream anti-EU parties gaining in popularity ahead of a series of key elections. Second, in the event of the US imposing punitive trade restrictions on China, retaliatory actions could see a trade or currency war develop. This would be highly damaging for global market sentiment and would reduce world growth."</p><p>Deutsche Bank raises the risk of a US-China trade war in a note sent on Monday, saying: "We need to think of the previously unthinkable as risk scenarios," in the wake of the Brexit and Trump votes. The investment bank says Trump may consider targeted tariffs on Chinese goods in a bid to reduce the trade deficit and "bring back jobs" to the US.</p><p>Deutsche Bank has already declared it <a href="http://uk.businessinsider.com/deutsche-bank-research-on-reaching-peak-globalisation-2016-11">believes the world has reached "peak" globalisation</a>, supporting Fitch's forecast of a fall in global trade.</p><p>Fitch adds in its Tuesday note that there is "potential for a reversal of globalisation to push up prices in the advanced countries over the medium term." British think tank the Institute for Fiscal Studies last week warned that Britain is facing <a href="http://uk.businessinsider.com/institute-of-fiscal-studies-research-uk-wage-growth-2016-11">an "extraordinary and dreadful" wage crisis</a> as a result of the expected return of inflation next year.</p>    <div class="margin-top">        <h3>NOW WATCH: <a href="http://www.businessinsider.com/richard-branson-entrepreneurs-government-lacking-2016-11">Richard Branson: Entrepreneurs need to fill the gap where government is lacking</a></h3>        <div>            <div>    <script src="http://player.ooyala.com/v3/6e12e8b3387a44daacfb73afba25a76e"></script>    <div class="ooyala-video-player" data-video-autoplay="false" data-video-id="V1dXVsNzE65h4lISR4rnnLRSgszALLD8" data-player-variable="ooyalapopvideo" id="ooyalaplayer_popvideo" style="width:1280px;height:720px"></div>    <script>    if (typeof RunFunctions === 'undefined') { var RunFunctions = []; }     RunFunctions.push(function()    {         var ooyalapopvideo = OO.Player.create('ooyalaplayer_popvideo', 'V1dXVsNzE65h4lISR4rnnLRSgszALLD8',{ autoplay: 'false' });     });    </script>    <noscript><div>Please enable Javascript to watch this video</div></noscript></div>        </div>        <script>(function() { function createPlayer() { OO.ready(function() { RunFunctions.forEach(function(ooyalaFunction) { ooyalaFunction(); }); RunFunctions = [];}); } createPlayer(); }()); </script>    </div>

2017 will be a year of 'economic nationalism'

<p><div class="KonaFilter image-container display-table float_right"><div><div class="image on-image"><img src="https://static-ssl.businessinsider.com/image/57f287cf11c8e79c0b8b4da6-1594/rtsez7j.jpg" alt="john cryan" data-mce-source="Reuters" data-mce-caption="Deutsche Bank CEO John Cryan addresses the bank's annual general meeting in Frankfurt, Germany, May 19, 2016." /><p class="source"><span>Reuters</span></p><p class="caption">Deutsche Bank CEO John Cryan addresses the bank's annual general meeting in Frankfurt, Germany, May 19, 2016.</p></div><p></p></div></div>Deutsche Bank's stock is down yet again on Monday as the turmoil rocking Germany's largest bank continues into a second week.</p><p>Investors are concerned that the bank may not have enough cash to pay off a massive US fine stemming from the financial crisis, and continue its operations at the same time. </p><p><span>What's more, Germany's ruling coalition said that it won't bail out the bank. For elected officials, <a href="http://www.businessinsider.com/angela-merkel-and-deutsche-bank-bailout-2016-9">a bailout would be political suicide</a>. However, Deutsche Bank investors fear that a lack of a bailout could be murder for the company. </span></p><p>Last week, reports that hedge fund counter-parties were pulling their money from the bank sent the stock plummeting. Deutsche Bank CEO John Cryan sent out a letter trying to assuage the fears of his investors and employees, and in it he pointed out a potentially deadly sickness that has attacked the nervous system of his bank.</p><p>"Trust is the foundation of banking," he wrote. "Some forces in the markets are currently trying to damage this trust."</p><p>What's fascinating about this is that what Cryan said about banking could apply to the market as a whole. All markets run on trust. And unfortunately, we're not just seeing that trust evaporate at Deutsche Bank. Its problems are just a microcosm of the trust we're seeing evaporate from markets and all around the world.</p><h2>Dark and getting darker</h2><p>To frame where we're about to go here I'm going to bring up <a href="http://www.businessinsider.com/dylan-grice-cycles-of-trust-2016-2">something I've talked about on this website perhaps 100 times before</a> - the value of trust in markets.</p><p>And the person who has explained it best in the last two years is economist Dylan Grice, a portfolio manager at Aeris Capital. In a paper written in 2014  - a time when many were confident in the global economy  - Grice saw only dark clouds forming. </p><p>He explained that he believed we were entering the trough of a cycle of trust, when people in markets would no longer have the will to cooperate with one another.</p><p>He wrote:</p><p style="padding-left: 30px;">"In my opinion, the period between the Berlin Wall coming down and the September 11th, 2001 attacks on the United States was the peak of the recent cycle. The degree of cooperation and trust was probably as high as it had been since a century earlier, as the 19th century became the 20th century."</p><p><span>But all of that has changed. As Grice was writing, relations between the US and Russia were hitting their lowest point in decades. Populism was just taking hold in Europe and the US, and things were heating up between the US and its allies in the South China Sea. Cooperation was waning, and the markets just hadn't felt it yet, Grice posited.</span></p><p><span><div class="KonaFilter image-container display-table"><div><div class="image on-image"><img src="https://static-ssl.businessinsider.com/image/57f2858111c8e735008b4ea6-2061/rtx1syck.jpg" alt="Obama and Putin" data-mce-source="REUTERS/Mikhail Metzel" /><p class="source"><span>REUTERS/Mikhail Metzel</span></p><p class="caption">These eyes do not say trust.</p></div><p></p></div></div></span></p><p><span>But now the markets are certainly feeling it - ask any trader, banker or hedge fund manager getting spanked right now. Of course, at the same time, all the factors Grice mentioned have only gotten worse. Our trust has only eroded more, and analysts beyond Grice are starting to worry.</span></p><p><span><span></span></span><span><span><span>"The rise in populism seen in many advanced countries could be a precursor to increased trade-protectionism and growing fragmentary tensions in the eurozone, both of which would increase uncertainty and damage prospects for private sector investment," <span>said Brian Coulton, Chief Economist at Fitch. </span> </span><br /></span></span></p><p><span><span><span>And as such: "<span>This year is likely to see the lowest annual growth rate for US GDP since 2009 as oil sector adjustments, weak external demand and the earlier appreciation of the dollar take their toll on industrial demand," he said.</span></span></span></span></p><p><span><span><span><span><span>Last week at Bloomberg's Most Influential conference in New York City, Economist Alan Kreuger explained that global trade, which has been slowing for the last 5 years,<span> will probably grow more slowly than GDP worldwide this year.</span></span></span></span></span></span></p><p><span><span><span><span><span><span><span>"I think that part of the moderation is because the forces that caused such rapid globalization were naturally not going to go on forever," he said.</span></span></span></span></span></span></span></p><p><span><span><span><span><span><span><span>He included the rise of China and (shout out to Grice) the fall of the Berlin Wall among those forces.</span></span></span></span></span></span></span></p><p>In other words, we're not cooperating enough to make money. We don't trust each other enough to keep the world rich. We've opened up the globalization can of worms, and there's no going back to isolated economies. There's only going forward. Adjusting to this new global economy, however, requires political trust we don't have.</p><p><div class="KonaFilter image-container display-table click-to-enlarge"><div><div class="image on-image"><a title_source="HSBC" title_caption="" class="zoomin" href="https://static-ssl.businessinsider.com/image/5734388bdd089583598b467a-960/hsbc global trade.png"><span class="sprites click-to-enlarge-icon" title="Click to enlarge"></span><img src="https://static-ssl.businessinsider.com/image/5734388bdd089583598b467a-1026/hsbc global trade.png" alt="HSBC global trade" data-mce-source="HSBC" /></a><p class="source"><span>HSBC</span></p></div><p></p></div></div></p><h2>Smack talk still smacks</h2><p>This brings us back to Deutsche Bank. The worst issues dogging the bank all have to do with trust. I'll name three.</p><ol><li>The massive $14 billion fine the US Department of Justice announced last week (<a href="http://www.businessinsider.com/deutsche-bank-share-price-september-30-2016-2016-9">which has since been reassessed down to $5 billion or so</a> - but we shall see).</li><li>The fact that the <a href="http://www.bloomberg.com/news/articles/2016-09-29/eu-calls-for-sweeping-changes-to-basel-bank-capital-proposals">EU said that it will not follow Basel banking recommendations</a> for risk management, capital requirements and the like.</li><li>The announcement from German regulators that <a href="http://www.businessinsider.com/german-government-denies-deutsche-bank-bailout-plans-2016-9">they will not be bailing out the bank</a>.</li></ol><p>The first trust issue is obvious. The DOJ is punishing Deutsche Bank for a violation of trust in its dealings in the mortgage bond market. But that's in the past. The following two issues have to do with the future, and as such, are potentially more insidious. Their solutions require trust that seems to be lacking here.</p><p>Let's go with Basel first. The EU has objected to some of Basel's rules because it thinks thinks onerous capital requirements will hurt its business. </p><p>The problem with this, though, is that if you're an investor or a counter-party that does business with Deutsche Bank you're thinking higher capital requirements might help them out a lot right now. Its balance sheet is about $2.5 trillion and it has around $15 billion in cash, leaving the bank highly leveraged and at risk of failure.</p><p>Billionaire investor Marc Lasry put it this way at the Bloomberg Most Influential Summit last week. </p><p>"So if it's levered 10 times, the problem is it's over 100 times.<span>  </span>So just so  - just math.<span> </span>I mean I didn't go to business school, but math, if you're down more than a quarter of a percent and you're levered 100 times, that means you've lost everything.<span> </span>It's just how the math works," he said. "So they've got to be fully hedged.<span>  </span>They've got to be perfectly hedged.<span> </span>And then all the stuff that they're supposed to make money on has got to work."</p><p>Right now this DOJ fine, and the fact that it looks like EU leaders can't agree on policy that would make the leverage issue easier going forward, are threats to everything working out for the bank. </p><p>"I think Deutsche doesn't really -- doesn't have any issues right now.<span>  </span>But it's just -- the -- the problem is the more people call -- keep talking about it, the harder it becomes, right, and the more they -- they'll keep saying we don't have issues," Lasry said.<span> "</span>But it's -- it's hard.<span>  </span>It's hard for somebody to be levered that much.<span> </span>It's -- you can't withstand shock."<div class="KonaFilter image-container display-table"><div><div class="image on-image"><img src="https://static-ssl.businessinsider.com/image/57f286ea11c8e7ac008b4e97-2400/angela-merkel-brexit-sad.jpg" alt="angela merkel brexit sad" data-mce-source="Markus Schreiber/AP" data-mce-caption="German Chancellor Angela Merkel speaks during a statement about the referendum in Britain at the chancellery in Berlin, Friday, June 24, 2016." /><p class="source"><span>Markus Schreiber/AP</span></p><p class="caption">German Chancellor Angela Merkel speaks during a statement about the referendum in Britain at the chancellery in Berlin, Friday, June 24, 2016.</p></div><p></p></div></div></p><p>That brings us back to the third problem - the government saying it won't bail out the bank. The reason why it won't is because Deutsche Bank has violated the trust of the German people and populism has taken hold.</p><p>That lead German politicians to violate a trust between the government and banking sector, according to Christopher Whalen, a Senior Managing Director at Kroll Bond Rating Agency.</p><p>Here's what he said in a report released Monday [emphasis ours]:</p><p style="padding-left: 30px;">"KBRA believes that public officials in the U.S. and in Europe need recall that global financial regulators have long followed a policy of avoiding public statements about financial institutions and for good reason. Ill-considered public statements, whether made directly or on background to the news media, serve to erode confidence in markets and in specific financial institutions. <strong>We believe that political leaders who seek to obtain partisan political advantage by making such statements play a very dangerous game.</strong> KBRA believes that political officials in Europe and the U.S. should avoid making public statements about specific financial institutions unless and until state assistance is actually extended. To do otherwise, KBRA believes, is harmful to investor confidence and the broader public interest."</p><p>Whalen also wrote that investors should discount what Merkel said. He <em>trusts</em> that EU leaders will come to an agreement to save the bank.</p><p>The problem is that there's not a lot of that going around these days.</p><p class="tagline">This is an editorial. The opinions and conclusions expressed above are those of the author.</p>    <div class="margin-top">        <h3>NOW WATCH: <a href="http://www.businessinsider.com/wells-fargo-ceo-john-stumpf-leave-fire-200-million-elizabeth-warren-2016-9">Wells Fargo CEO John Stumpf could walk away with $200 million </a></h3>        <div>            <div>    <script src="http://player.ooyala.com/v3/6e12e8b3387a44daacfb73afba25a76e"></script>    <div class="ooyala-video-player" data-video-autoplay="false" data-video-id="R2NDM0NjE6FZDMui53DIyMx0ZH11jzEI" data-player-variable="ooyalapopvideo" id="ooyalaplayer_popvideo" style="width:1280px;height:720px"></div>    <script>    if (typeof RunFunctions === 'undefined') { var RunFunctions = []; }     RunFunctions.push(function()    {         var ooyalapopvideo = OO.Player.create('ooyalaplayer_popvideo', 'R2NDM0NjE6FZDMui53DIyMx0ZH11jzEI',{ autoplay: 'false' });     });    </script>    <noscript><div>Please enable Javascript to watch this video</div></noscript></div>        </div>        <script>(function() { function createPlayer() { OO.ready(function() { RunFunctions.forEach(function(ooyalaFunction) { ooyalaFunction(); }); RunFunctions = [];}); } createPlayer(); }()); </script>    </div>

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