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COVID-19 will hit the poor hardest. Here’s what we can do about it

COVID-19 will hit the poor hardest. Here’s what we can do about it

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The coronavirus (COVID-19) is a crisis like no other the world has faced in recent decades in terms of its potential economic and social impacts. We estimate that the pandemic could push about 49 million people into extreme poverty in 2020.

A large share of the new poor will be concentrated in countries that are already struggling with high poverty rates, but middle-income countries will also be significantly affected. Almost half of the projected new poor (23 million) will be in Sub-Saharan Africa, with an additional 16 million in South Asia. The number of extreme poor in the poorest countries that are served by the World Bank’s International Development Association is projected to increase by 17 million. At the same time, 22 million of the projected new poor will be in middle-income countries. There are projected to be 10 million new extremely poor people in fragile and conflict-affected economies. 

"We estimate that the pandemic could push about 49 million people into extreme poverty in 2020."

The measures taken to contain COVID-19 will affect households in many ways, including job loss, loss of remittances, higher prices, rationing of food and other basic goods, and disruptions to health care services and education.

While the impacts will be felt by most households almost immediately, they will likely be deeper and longer-lasting among the poor, who are more vulnerable for several reasons:

  • Where they live. The poor live primarily in rural areas. While this could minimize their exposure to the disease, it also means they have limited access to health services. Moreover, since rural households tend to depend more on domestic remittances from urban migrants, economic shutdowns in urban areas will hurt them too. The poor in urban areas, on the other hand, live in congested settlements with low-quality services, which would significantly increase their risk of being infected by the contagion. Disruptions in food markets could be more severe in urban areas.
  • Where they work. The poor work largely in the agriculture and service sectors and are usually self-employed or informally employed, mainly in micro and family enterprises. Those employed in the informal service sector in urban areas are likely to bear the most severe initial impacts. In addition, many of the vulnerable non-poor, who are increasingly employed in the gig economy, particularly in middle-income countries, will also be at risk of slipping into poverty. Those engaged in agriculture may be able to cope, at least initially, with potential disruptions to food supplies or price spikes, but are likely to be affected by a decline in demand in urban areas over time.
  • High dependence on public services, particularly health and education. In the immediate term, limited access to high-quality and affordable health services can have devastating impacts in the event of an illness in the family, while school closures can lead to a decline in food intake among children of poor families who rely on school feeding programs. In the long term, the impacts of lost months of schooling, early childhood interventions, health check-ups, and nutrition can be particularly high for children in poor families, adversely affecting their human capital development and earning potential.
  • Limited savings and lack of access to insurance. This, in the absence of adequate safety nets, can force the poor to rely on coping strategies with potential long-lasting negative effects, such as the sale of productive assets or diminished investments in human capital.

The experience of affected countries suggests that the incidence and impacts of COVID-19 can vary significantly across space and over time, with urban areas being the hardest hit initially.  Stringent health containment measures have brought a large share of economic activity to a halt, leaving many urban poor and vulnerable without a way to make a living. The risk of disruptions to the food supply and markets could also be higher in urban areas, while and the ability of households to deal with potential shortages or prices hikes for food and other necessity items could be lower.

At the same time, governments’ capacity to quickly provide income support to affected households in these areas is limited. Existing safety net programs largely target rural areas, and support for businesses probably will only benefit those in the formal sector. As a result, many of the new poor will likely be found in cities, while rural areas, which tend to be poorer to start with, will experience a deterioration in living conditions and a deepening of poverty. 

"Emerging data from affected countries suggests that the poverty and distributional impacts of COVID-19 are materializing fast, with dire consequences."

Emerging data from affected countries suggests that the poverty and distributional impacts of COVID-19 are materializing fast, with dire consequences. One of the first available rapid phone surveys that assessed the impacts on livelihoods took place in China’s rural areas. It found that about half of the villages surveyed experienced income losses averaging 2000-5000 RMB ($282-$704) per family over the previous month. Villagers are reducing their spending on food as a result, with significant consequences for nutrition and long-term human capital development.

Similarly, phone surveys in Bangladesh in March show that 93 percent of individuals interviewed experienced income losses averaging 75 percent over the previous month, and around 72 percent lost their jobs or saw their economic opportunities reduced. As a consequence, the number of respondents living under the national poverty line has increased from 35% to 89%.

Policies needed to mitigate poverty and distributional impacts will have to respond to each country’s context and circumstances. Having said that, the numbers above suggest that across affected countries:

  • An effective response in support of poor and vulnerable households will require significant additional fiscal resources. A back-of-the-envelope calculation can illustrate this. Providing all the existing and new extreme poor with a cash transfer of $1/day (about half the value of the international extreme poverty line) for a month would amount to $20 billion —or $665 million per day over 30 days. Given that impacts are likely to be felt by many non-poor households as well and that many households are likely to need support for much longer than a month, the sum needed for effective protection could be far higher.
  • Any support package will need to quickly reach both the existing and new poor. While existing safety net programs can be mobilized to get cash into the pockets of some of the existing poor relatively quickly, this is not the case for the new poor. In fact, the new poor are likely to look different from the existing poor, particularly in their location (mostly urban) and employment (mostly informal services, construction, and manufacturing).
  • Decision-makers need timely and policy-relevant information on impacts and the effectiveness of policy responses. This can be done using existing, publicly available data to monitor the unfolding economic and social impacts of the crisis, including prices, service delivery, and economic activity, as well as social sentiment and behaviors. In addition, governments can use mobile technology to safely gather information from a representative sample of households or individuals. Phone surveys can collect information on health and employment status, food security, coping strategies, access to basic services and safety nets and other outcomes closely related to the risk of falling (further) into poverty.

The World Bank Group is helping countries respond in all these ways and more, by providing governments with data, policy advice, and financial resources so they can effectively protect households and firms from the social and economic impacts of COVID-19 and build resilience.

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The World Bank Group and COVID-19

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كارولينا سانشيز بارامو

Carolina Sánchez-Páramo

World Bank Group Global Director, Poverty

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Airline, travel companies face Chapter 11 bankruptcy, default risk

New data from Creditsafe shows that three big-name brands face significant cash issues.

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It's actually fairly rare that a company files for Chapter 11 bankruptcy without throwing off signs that it's in deep financial trouble. Observant customers sometimes see the signs.

You might notice lower staffing levels or poor inventory in a retail setting. Restaurants facing financial troubles might drop the quality of their ingredients, cut portion sizes, or find other ways to cut corners.

Related: Fast-food chain closes restaurants after Chapter 11 bankruptcy

It's generally impossible to cut your way to a good financial position unless you were making huge mistakes in the first place. A company might find some savings by examining its operations and focuing on waste in areas customers don't see, but giving people less almost never works.

In many businesses, especially when companies are publicly traded, signs of upcoming financial trouble are obvious. 

Public companies have to report their financial results and when there's more money going out than coming in, and cash balances get low, observant analysts can see a company likely to default on its bills that may be headed for bankruptcy well before it happens.

CreditSafe Head of Brand Ragini Bhalla recently shared her company's Financial & Bankruptcy Outlook: Transportation Report and some comments on it with TheStreet. 

The report shows that three big-name companies in the travel/transportation space are facing significant financial risk, which is reflected in their stock prices. Bhalla gave some color as to why companies in those markets are struggling.

Air travel has bounced back from the covid pandemic.

Image source: Shutterstock

The transportation industry faces a crisis  

Bhalla shared her thoughts on what Creditsafe found.

"We are reflecting on the current challenges faced by transportation companies and the total industry outlook. During the pandemic, M&A activity in the industry soared, as transportation players and investors made deals to extend capabilities and acquire high-performing assets. To that end, deal values soared from $51 billion in 2020 to more than $150 billion in 2021, before it dipped to $95 billion in 2022," she said in an email to TheStreet.

Bhalla said she sees a different pattern in 2024.

"While M&A activity in the transportation industry cooled down in 2023, industry insiders are projecting that 2024 will be the year of consolidation. If that’s the case, then it will be more important than ever for both sides (sellers and buyers) to do their due diligence," she wrote.

Not every company that would benefit from being acquired will survive the M&A scrutiny.

"This should include various elements, such as running business credit checks on potential acquisitions to make sure they would be a good investment and aren’t in dire financial straits. It should also include running comprehensive compliance checks to make sure potential acquisitions aren’t violating sanctions, haven’t been convicted of regulatory violations, and aren’t involved in unethical practices like bribery, corruption, fraud, and the use of child/forced labor," she added.

One airline, two rental cars are at risk

Spirit Airlines  (SAVE) has been on unofficial bankruptcy watch since the company's merger with JetBlue  (JBLU)  fell apart. There are real questions as to whether the super-low-cost airline model works, and Creditsafe sees a real risk of the airline ending up filing for Chapter 11 bankruptcy.

"Earlier this year, Spirit Airlines said it was looking to refinance its debt and hopes to refinance $1.1 billion of debt due in 2025," according to Creditsafe. "To make matters worse, the airline doesn’t have a stable track record of paying bills on time."

Not paying bills on time is often a sign that a company is running out of cash.

"Late payments increased over several months in 2023. For example, the number of late payments (1-30 days) rose from 7.00% in September 2023 to 30.87% in October 2023. A similar pattern occurred soon after when the number of late payments (1-30 days) rose from 6.37% in November 2023 to 30.54% in December 2023 and then again to 51.08% in January 2024," Creditsafe data showed.

Investors are shying from the stock. Shares were at $4.29 down 73.8% on the year as of Friday.

Two rental car companies, Avis Budget Group  (CAR) and Hertz (HTZ) are facing similar woes.

"Avis Budget Group's long-term debt has consistently increased for the last three years, and how late the company paid its bills spiked drastically from 8 days late in March to 31 days in April and remained high until September 2023," Creditsafe shared.

Hertz has been following a similar path.

"The company’s number of delinquent payments (91+ days) increased consistently during the second half of 2023. For instance, the number of delinquent payments (91+ days) rose from 4.64% in August to 6.90% in September, then rose again to 10.73% in October 2023, indicating it is having trouble paying its bills," according to Creditsafe.

Avis Budget closed Friday at $107.70 and are down 39.2% this year. Hertz finished Friday at $7.58, down 25.7% on the year.

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Default: San Francisco Four Seasons Hotel Investors $3 Million Late On Loan As Foreclosure Looms

Default: San Francisco Four Seasons Hotel Investors $3 Million Late On Loan As Foreclosure Looms

Westbrook Partners, which acquired the San…

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Default: San Francisco Four Seasons Hotel Investors $3 Million Late On Loan As Foreclosure Looms

Westbrook Partners, which acquired the San Francisco Four Seasons luxury hotel building, has been served a notice of default, as the developer has failed to make its monthly loan payment since December, and is currently behind by more than $3 million, the San Francisco Business Times reports.

Westbrook, which acquired the property at 345 California Center in 2019, has 90 days to bring their account current with its lender or face foreclosure.

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As SF Gate notes, downtown San Francisco hotel investors have had a terrible few years - with interest rates higher than their pre-pandemic levels, and local tourism continuing to suffer thanks to the city's legendary mismanagement that has resulted in overlapping drug, crime, and homelessness crises (which SF Gate characterizes as "a negative media narrative).

Last summer, the owner of San Francisco’s Hilton Union Square and Parc 55 hotels abandoned its loan in the first major default. Industry insiders speculate that loan defaults like this may become more common given the difficult period for investors.

At a visitor impact summit in August, a senior director of hospitality analytics for the CoStar Group reported that there are 22 active commercial mortgage-backed securities loans for hotels in San Francisco maturing in the next two years. Of these hotel loans, 17 are on CoStar’s “watchlist,” as they are at a higher risk of default, the analyst said. -SF Gate

The 155-room Four Seasons San Francisco at Embarcadero currenly occupies the top 11 floors of the iconic skyscrper. After slow renovations, the hotel officially reopened in the summer of 2021.

"Regarding the landscape of the hotel community in San Francisco, the short term is a challenging situation due to high interest rates, fewer guests compared to pre-pandemic and the relatively high costs attached with doing business here," Alex Bastian, President and CEO of the Hotel Council of San Francisco, told SFGATE.

Heightened Risks

In January, the owner of the Hilton Financial District at 750 Kearny St. - Portsmouth Square's affiliate Justice Operating Company - defaulted on the property, which had a $97 million loan on the 544-room hotel taken out in 2013. The company says it proposed a loan modification agreement which was under review by the servicer, LNR Partners.

Meanwhile last year Park Hotels & Resorts gave up ownership of two properties, Parc 55 and Hilton Union Square - which were transferred to a receiver that assumed management.

In the third quarter of 2023, the most recent data available, the Hilton Financial District reported $11.1 million in revenue, down from $12.3 million from the third quarter of 2022. The hotel had a net operating loss of $1.56 million in the most recent third quarter.

Occupancy fell to 88% with an average daily rate of $218 in the third quarter compared with 94% and $230 in the same period of 2022. -SF Chronicle

According to the Chronicle, San Francisco's 2024 convention calendar is lighter than it was last year - in part due to key events leaving the city for cheaper, less crime-ridden places like Las Vegas

Tyler Durden Sun, 03/17/2024 - 18:05

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Correcting the Washington Post’s 11 Charts That Are Supposed to Tell Us How the Economy Changed Since Covid

The Washington Post made some serious errors or omissions in its 11 charts that are supposed to tell us how Covid changed the economy. Wages Starting with…

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The Washington Post made some serious errors or omissions in its 11 charts that are supposed to tell us how Covid changed the economy.

Wages

Starting with its second chart, the article gives us an index of average weekly wages since 2019. The index shows a big jump in 2020, which then falls off in 2021 and 2022, before rising again in 2023.

It tells readers:

“Many Americans got large pay increases after the pandemic, when employers were having to one-up each other to find and keep workers. For a while, those wage gains were wiped out by decade-high inflation: Workers were getting larger paychecks, but it wasn’t enough to keep up with rising prices.”

That actually is not what its chart shows. The big rise in average weekly wages at the start of the pandemic was not the result of workers getting pay increases, it was the result of low-paid workers in sectors like hotels and restaurants losing their jobs.

The number of people employed in the low-paying leisure and hospitality sector fell by more than 8 million at the start of the pandemic. Even at the start of 2021 it was still down by over 4 million.

Laying off low-paid workers raises average wages in the same way that getting the short people to leave raises the average height of the people in the room. The Washington Post might try to tell us that the remaining people grew taller, but that is not what happened.

The other problem with this chart is that it is giving us weekly wages. The length of the average workweek jumped at the start of the pandemic as employers decided to work the workers they had longer hours rather than hire more workers. In January of 2021 the average workweek was 34.9 hours, compared to 34.4 hours in 2019 and 34.3 hours in February.

This increase in hours, by itself, would raise weekly pay by 2.0 percent. As hours returned to normal in 2022, this measure would misleadingly imply that wages were falling.

It is also worth noting that the fastest wage gains since the pandemic have been at the bottom end of the wage distribution and the Black/white wage gap has fallen to its lowest level on record.

Saving Rates

The third chart shows the saving rate since 2019. It shows a big spike at the start of the pandemic, as people stopped spending on things like restaurants and travel and they got pandemic checks from the government. It then falls sharply in 2022 and is lower in the most recent quarters than in 2019.

The piece tells readers:

“But as the world reopened — and people resumed spending on dining out, travel, concerts and other things that were previously off-limits — savings rates have leveled off. Americans are also increasingly dip into rainy-day funds to pay more for necessities, including groceries, housing, education and health care. In fact, Americans are now generally saving less of their incomes than they were before the pandemic.

This is an incomplete picture due to a somewhat technical issue. As I explained in a blogpost a few months ago, there is an unusually large gap between GDP as measured on the output side and GDP measured on the income side. In principle, these two numbers should be the same, but they never come out exactly equal.

In recent quarters, the gap has been 2.5 percent of GDP. This is extraordinarily large, but it also is unusual in that the output side is higher than the income side, the opposite of the standard pattern over the last quarter century.

It is standard for economists to assume that the true number for GDP is somewhere between the two measures. If we make that assumption about the data for 2023, it would imply that income is somewhat higher than the data now show and consumption somewhat lower.

In that story, as I showed in the blogpost, the saving rate for 2023 would be 6.8 percent of disposable income, roughly the same as the average for the three years before the pandemic. This would mean that people are not dipping into their rainy-day funds as the Post tells us. They are spending pretty much as they did before the pandemic.

 

Credit Card Debt

The next graph shows that credit card debt is rising again, after sinking in the pandemic. The piece tells readers:

“But now, debt loads are swinging higher again as families try to keep up with rising prices. Total household debt reached a record $17.5 trillion at the end of 2023, according to the Federal Reserve Bank of New York. And, in a worrisome sign for the economy, delinquency rates on mortgages, car loans and credit cards are all rising, too.”

There are several points worth noting here. Credit card debt is rising, but measured relative to income it is still below where it was before the pandemic. It was 6.7 percent of disposable income at the end of 2019, compared to 6.5 percent at the end of last year.

The second point is that a major reason for the recent surge in credit card debt is that people are no longer refinancing mortgages. There was a massive surge in mortgage refinancing with the low interest rates in 2020-2021.

Many of the people who refinanced took additional money out, taking advantage of the increased equity in their home. This channel of credit was cut off when mortgage rates jumped in 2022 and virtually ended mortgage refinancing. This means that to a large extent the surge in credit card borrowing is simply a shift from mortgage debt to credit card debt.

The point about total household debt hitting a record can be said in most months. Except in the period immediately following the collapse of the housing bubble, total debt is almost always rising.

And the rise in delinquencies simply reflects the fact that they had been at very low levels in 2021 and 2022. For the most part, delinquency rates are just getting back to their pre-pandemic levels, which were historically low.  

 

Grocery Prices and Gas Prices

The next two charts show the patterns in grocery prices and gas prices since the pandemic. It would have been worth mentioning that every major economy in the world saw similar run-ups in prices in these two areas. In other words, there was nothing specific to U.S. policy that led to a surge in inflation here.

 

The Missing Charts

There are several areas where it would have been interesting to see charts which the Post did not include. It would have been useful to have a chart on job quitters, the number of people who voluntarily quit their jobs during the pandemic. In the tight labor markets of 2021 and 2022 the number of workers who left jobs they didn’t like soared to record levels, as shown below.

 

The vast majority of these workers took other jobs that they liked better. This likely explains another item that could appear as a graph, the record level of job satisfaction.

In a similar vein there has been an explosion in the number of people who work from home at least part-time. This has increased by more than 17 million during the pandemic. These workers are saving themselves thousands of dollars a year on commuting costs and related expenses, as well as hundreds of hours spent commuting.

Finally, there has been an explosion in the use of telemedicine since the pandemic. At the peak, nearly one in four visits with a health care professional was a remote consultation. This saved many people with serious health issues the time and inconvenience associated with a trip to a hospital or doctor’s office. The increased use of telemedicine is likely to be a lasting gain from the pandemic.

 

The World Has Changed

The pandemic will likely have a lasting impact on the economy and society. The Washington Post’s charts captured part of this story, but in some cases misrepr

The post Correcting the Washington Post’s 11 Charts That Are Supposed to Tell Us How the Economy Changed Since Covid appeared first on Center for Economic and Policy Research.

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