(Image: Anthony Behar/Sipa USA)

Early economic data released on Thursday in Europe and the US is indicating a black hole, sucking everything within reach into a collapse in demand the size of which we haven’t seen in 90 years — or possibly ever (in the case of aviation and travel, for example).

Evidence of the black hole provided a welcome dose of reality for the great COVID-19 recovery party which has seen governments, politicians and business continue to believe that it will be back to 2019 in a “V” bounce once the lockdowns are eased or lifted.

Snapback here we come!

The Eurozone economies saw growth fall 3.8% from the three months to December. European data (like Australia’s) is reported on a quarter-on-quarter basis, so on an annualised basis, the economy fell 14.4%, worse than the US dip at a 4.8% annual rate.

And that’s before what everyone agrees will be an even deeper slide in the June quarter. The Reserve Bank of Australia, remember, is forecasting a 10% slump here in the six months to June, with most happening this quarter.

Can we imagine what the current quarter’s data for Europe will be like when reported from the end of June onwards?

France and Italy saw their second quarterly falls, which put them into recession, while the Spanish economy fell more than 4% from the end of 2019.

The French economy contracted by 5.8%, pushing the country into deep recession after the fall in the three months to December. Spanish GDP sank a record 5.2%. Italian GDP fell 4.7% from the fourth quarter of 2019 (deeper than the 2.8% quarter-on-quarter slump seen in the first quarter of 2009, during the GFC).

Like France Italy is now in recession. Italian GDP fell 4.8% year on year.  And that’s only the three months to March.

In every case business investment fell, as did consumer demand, some by as much as more than 6% in Spain, France and the US.

We know this has already spilled over into the oil market with the International Energy Agency (IEA) forecasting a 29 million barrels a day slump in demand for April alone.

Yesterday the IEA forecast global energy demand will drop 6% this year , the largest percentage decline in 70 years. Oil demand could drop by 9%, returning oil consumption to 2012 levels, and coal demand could decline by 8%. Global electricity demand is forecast to fall by 5%, nuclear demand by 3%.

Surveys this week show that not everyone one who has lost their job in the US in the past two months has been able to register or have their claims acknowledged because the state systems are inadequate and not set up to process so many claims at one time.

The whole edifice is being held aloft by central banks and government, especially central banks. Every major economy has some sort of market/debt/credit support scheme. 

Analysts at Morgan Stanley said in a note on Wednesday that “G4 central banks … have announced aggressive quantitative easing programs” and are expected to make asset purchases of around US$13 trillion before this easing cycle concludes. This doesn’t include Australia, NZ, Singapore, India, and individual central banks in Europe.

Just imagine if those support schemes were not in place — we would be rapidly heading to a deep, deep depression.

No one has yet provided a realistic idea about how we will escape the slump. Reforms to tax, industrial relations and business regulations won’t engender any sort of quick hit needed to change confidence levels and get reluctant consumers interested in spending again. 

Fed chair Jay Powell got it right on Wednesday when he said more spending will be needed to help economies escape the current slump.

He said the second quarter’s fall in growth would be “unprecedented”. The fall for the Eurozone for the March quarter, for example, was the largest on record. 

If that’s unprecedented, what word could you use to describe what is expected to happen to growth this quarter?