Will riots put brakes on US economy coronavirus recovery?
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We’re only halfway through 2020, and the US economy seems to be taking hit after hit amid Coronavirus pandemic and now facing violent riots all across the country.
Minneapolis police officers arrested George Floyd after being accused by a deli employee of trying to purchase cigarettes with a counterfeit $20 bill. Seventeen minutes after the officers arrived at the scene, George Floyd showed no signs of life after dying of asphyxiation, according to the autopsy.
The video of the incident soon became viral all across social media platforms for people all around the world to see. Only one day after the event, on 26 May, protests began in Minneapolis in support of justice for Floyd and opposition to police brutality. Protests quickly spread all across the US and internationally to support the same cause.
Now, the protests across the US aren’t the only challenge that the country’s economy is facing. Since the outbreak of the Coronavirus pandemic, the US economy suffered its worst contraction in a very long time as the country, like the rest of the world, introduced lockdowns and social distancing restrictions to slow the spread of the virus.
How will the country’s economy survive both the ongoing pandemic and series of protests and riots? Will the demonstrations slow down the US economy’s comeback from the Coronavirus crisis?
US economy amid Covid-19 pandemic
Over the last six weeks, over 33 million people in the US have filed for unemployment benefits as the entire country is in lockdown. Businesses have closed their doors to customers and were forced to either send their employees at home or place them in technical unemployment.
Before the pandemic spread in the US, the country’s economy was expected to grow by 2% this year. However, since mid-April, nearly 95% of the country was in some form of lockdown, these expectations began to seem unrealistic.
Moreover, according to the Commerce Department, consumer spending, which accounts for nearly two-thirds of the country’s economy, has dropped by 7.6% in the first six weeks of the year.
Spending on food services and accommodation dropped by 70% while spending on clothing and footwear was down more than 40%. Even health spending took a hit as concerns about contracting the virus forced doctors to postpone treatments and other medical care services.
Over the last couple of weeks, some states across the US have started to remove some of the orders, trying to restart their economies. Yet, the orders remain in place in many other states, including major economic engines of the country such as New York and California.
While economists were hoping that the pain will ease as businesses gradually restart, the country faces another major challenge: protests and riots following the killing of George Floyd.
The effects of civil unrest across America
The spread of riots and protests across the US are also putting the country’s economy at risk by slowing down its comeback from the COVID-19 pandemic.
The civil unrest has left a significant trail of destruction in many parts across the US, from New York to Chicago to Los Angeles, which put greater stress on already frazzled business owners. From having to clean off graffiti from their stores to sweeping up shattered glass and replacing stolen merchandise and furnishing, these business owners are taking another major hit after having to close their doors for more than two months.
Now, closed doors mean a significant drop in sales, and considering the most recent events surrounding the riots, they will continue to experience a net negative both in the short and long term. Thus, it is expected that the civil unrest will add a couple of percentage points to the already sharp drop in the gross domestic product caused by the lockdown orders.
But it isn’t just destroyed businesses that might put brakes on the US economy’s recovery from the Coronavirus pandemic. The protests might also increase the risk of another wave of coronavirus infections, which may force the government to impose new lockdown orders even in those states where the restrictions were slowly being removed.
Many protestants don’t respect social distancing restrictions or don’t wear surgical masks, as recommended by the authorities, increasing the risk of taking the virus or spreading it to the people surrounding them. Needless to say, another wave of infections and another couple of months spent in lockdown will hurt the already fragile US economy even more than the pandemic did so far.
Protests change the markets outlook for a recovery
Historically, civil unrest in the past did not spell calamity for US markets, and the economy has proved its resilience. However, unlike any other moment in history when riots have spread across the country, this year, the civil unrest has started after an unprecedented intervention by the Federal Reserve to give support to the economy throughout the uncertain times caused by the COVID-19 pandemic. Nearly $3 trillions have been injected into the financial markets across the US to reconcile after the deep economic damage caused by COVID-19.
Now, it is too early to say whether the riots will lead to a second wave of infections, which will slow down the pace of the economic recovery. Moreover, some experts believe that the riots have led to a sort of classic hurricane-style shock when there are delays in activities, but then people and businesses start rebuilding process that can boost GDP.
However, despite escalating protests, it seems like the stock market is moving higher of optimism about restarting the economy. One essential factor contributing to lifting stocks is the Federal Reserve’s unprecedented intervention, from injecting such a massive amount of money into financial markets to buying up short-term corporate debt and municipal bonds.
Moreover, the protests are treated as an internal matter at the moment, so, so far, there’s no impact on currencies from that. Plus, as the dollar is used widely across the world, it seems to have a safe-haven status. So, US investors will continue to use PAMM forex brokers to trade. Also, it appears that investors aren’t looking at 2020 but instead ahead to 2021 and beyond that when the country’s economy is expected to get better.
So, it seems that, so far, the civil unrest didn’t have a significant impact on markets thanks to the Fed’s actions to help prop up the economy. However, if protests continue for longer than expected, they can cause more economic damage by hurting consumer confidence.
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