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Healing the Pandemic’s Economic Scars Demands Prompt Action

Challenges facing emerging market workers and students everywhere could turn to long-term damage.

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By Mehdi Benatiya Andaloussi, Lone Engbo Christiansen, Ashique Habib and Davide Malacrino

Challenges facing emerging market workers and students everywhere could turn to long-term damage.

The Group of Twenty economies continue their recoveries from the pandemic, but the unprecedented shock could still leave long-lasting scars that reduce economic prospects compared with their pre-crisis trends.

Pandemic-induced losses for both economic output and employment will be significant in coming years, as discussed in our April World Economic Outlook. Emerging market economies are likely to endure greater losses because they had relatively less access to vaccines and their pandemic-support packages were smaller. For many economies, the outbreak of the war in Ukraine is adding to the challenges.

Our new analytical work finds that, among the key causes of scarring from the pandemic are the prospective weak labor market recoveries in emerging market economies and the severe disruptions to schooling over the past two years across both advanced and emerging economies. Policymakers must act promptly to repair the damage from the crisis and prevent decades of diminished economic output from lost human capital.

Recessions often have lasting impacts on workers who lose jobs at the depths of the downturn. They may find it hard to find a new position during the recovery and may lose some skills from prolonged joblessness. Such losses harm not only affected workers but also reduce overall economic output.

This time around, the prospects for such job market scarring look very different between G20 advanced and emerging market economies. In fact, advanced economies have experienced strong labor market recoveries, thanks to robust policy support and widespread vaccination. Moreover, initial worries that the pandemic would create large-scale mismatch between workers’ skills and employers’ labor demand—due to persistent shifts in activity across sectors, for example—haven’t materialized so far.

However, workers in many G20 emerging market economies face a very different outlook, with employment rates remaining below pre-pandemic projections due to weaker economic recoveries. We also see a marked impact on the extent of informal work—which is widespread in many of these economies. In fact, informal work fell sharply at the peak of the crisis when contact-intensive sectors, which tend to have higher shares of informal employment, were hit hard by social distancing efforts.

Since then, however, informal employment rebounded much more than formal employment in several G20 emerging market economies, including Brazil, Indonesia, Mexico, and South Africa, with the share of informal work relative to total employment exceeding pre-pandemic levels for some economies by late 2021.

As contact-intensive sectors continue to recover, the share of informal employment could rise even further. Moreover, as informal workers often earn lower wages and enjoy less access to social safety nets, this increase in informality could weigh on incomes for the affected workers if it becomes persistent.

The unprecedented school closures during the pandemic have hurt students’ learning across many G20 economies, but particularly students in emerging market economies. Within countries, that impact was more severe for children from poorer families.

The effects are already becoming apparent. For example, the share of students in the United States performing below grade level in mathematics has risen, especially for those in lower grades and from lower-income households. If these learning losses aren’t addressed, affected students could experience a lifetime of depressed earnings.

And, as our research shows, today’s students will account for close to 40 percent of the combined working-age populations across G20 economies for decades.

Such long-lasting impacts on the labor force will significantly affect economies. While much is still unknown, our simulations show that, once all such students are in the labor market, gross domestic product for advanced G20 economies could be as much as 3 percent lower in the long run relative to the baseline scenario. And with poorer households suffering the worst learning losses, their prospects could be particularly diminished, further widening income inequality.

In addition to the challenges in the labor market and from schooling disruptions, there are other channels for scarring as well. For example, the increase in corporate debt and vulnerabilities in the industries hit hardest by the pandemic could also contribute to scarring by weighing on investment and productivity for years to come, according to new research presented in the IMF’s April World Economic Outlook.

Policies to heal scars

Many economies face mounting challenges as the war in Ukraine comes atop a continuing pandemic, and room for policy action is increasingly constrained as elevated debt and rapid inflation make further support difficult. Even so, policymakers can minimize the pandemic’s scars—if they act decisively.

Time is short for limiting learning losses because education is cumulative, each year building on the last. To minimize enduring harm, countries must quickly assess setbacks to learning and implement the appropriate measures to help students. This could include, for example, additional tutoring or a longer school year.

In addition, pandemic-era support measures for firms and workers that helped limit pandemic scarring, such as credit guarantees and job retention policies, will need to be scaled back as recoveries strengthen. Doing so will help avoid holding back the reallocation of workers and resources to their most productive uses as the pandemic eases, and help foster productivity growth.

Instead, policies could shift to helping people to adjust to changing labor markets, such as through well-targeted job-search programs and additional support for training to build new skills. Moreover, to limit elevated pockets of corporate distress turning into significant business failures or investment slumps, it’s also crucial to ensure well-functioning mechanisms for corporate insolvency and out-of-court restructuring.

While the challenges are many, by taking appropriate action now, G20 policymakers can repair the damage and set the stage for strong and inclusive recoveries in the world’s largest economies.

 

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Visualizing A Decade Of Population Growth And Decline In US Counties

Visualizing A Decade Of Population Growth And Decline In US Counties

There are a number of factors that determine how much a region’s population…

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Visualizing A Decade Of Population Growth And Decline In US Counties

There are a number of factors that determine how much a region’s population changes.

If an area sees a high number of migrants, along with a strong birth rate and low death rate, then its population is bound to increase over time. On the flip side, as Visual Capitalists Nick Routley details below, if more people are leaving the area than coming in, and the region’s birth rate is low, then its population will likely decline.

Which areas in the United States are seeing the most growth, and which places are seeing their populations dwindle?

This map, using data from the U.S. Census Bureau, shows a decade of population movement across U.S. counties, painting a detailed picture of U.S. population growth between 2010 and 2020.

Counties With The Biggest Population Growth from 2010-2020

To calculate population estimates for each county, the U.S. Census Bureau does the following calculations:

      A county’s base population → plus births → minus deaths → plus migration = new population estimate

From 2010 to 2020, Maricopa County in Arizona saw the highest increase in its population estimate. Over a decade, the county gained 753,898 residents. Below are the counties that saw the biggest increases in population:

Phoenix and surrounding areas grew faster than any other major city in the country. The region’s sunny climate and amenities are popular with retirees, but another draw is housing affordability. Families from more expensive markets—California in particular—are moving to the city in droves. This is a trend that spilled over into the pandemic era as more people moved into remote and hybrid work situations.

Texas counties saw a lot of growth as well, with five of the top 10 gainers located in the state of Texas. A big draw for Texas is its relatively affordable housing market. In 2021, average home prices in the state stood at $172,500$53,310 below the national average.

Counties With The Biggest Population Drops from 2010-2020

On the opposite end of the spectrum, here’s a look at the top 10 counties that saw the biggest declines in their populations over the decade:

The largest drops happened in counties along the Great Lakes, including Cook County (which includes the city of Chicago) and Wayne County (which includes the city of Detroit).

For many of these counties, particularly those in America’s “Rust Belt”, population drops over this period were a continuation of decades-long trends. Wayne County is an extreme example of this trend. From 1970 to 2020, the area lost one-third of its population.

U.S. Population Growth in Percentage Terms (2010-2020)

While the map above is great at showing where the greatest number of Americans migrated, it downplays big changes in counties with smaller populations.

For example, McKenzie County in North Dakota, with a 2020 population of just 15,242, was the fastest-growing U.S. county over the past decade. The county’s 138% increase was driven primarily by the Bakken oil boom in the area. High-growth counties in Texas also grew as new sources of energy were extracted in rural areas.

The nation’s counties are evenly divided between population increase and decline, and clear patterns emerge.

Pandemic Population Changes

More recent population changes reflect longer-term trends. During the COVID-19 pandemic, many of the counties that saw the strongest population increases were located in high-growth states like Florida and Texas.

Below are the 20 counties that grew the most from 2020 to 2021.

Many of these counties are located next to large cities, reflecting a shift to the suburbs and larger living spaces. However, as COVID-19 restrictions ease, and the pandemic housing boom tapers off due to rising interest rates, it remains to be seen whether the suburban shift will continue, or if people begin to migrate back to city centers.

Tyler Durden Sat, 07/02/2022 - 21:00

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Tesla EV deliveries fall nearly 18% in second quarter following China factory shutdown

Tesla delivered 254,695 electric vehicles globally in the second quarter, a nearly 18% drop from the previous period as supply chain constraints, China’s…

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Tesla delivered 254,695 electric vehicles globally in the second quarter, a nearly 18% drop from the previous period as supply chain constraints, China’s extended COVID-19 lockdown and challenges around opening factories in Berlin and Austin took their toll on the company.

This is the first time in two years that Tesla deliveries, which were 310,048 in the first period this year, have fallen quarter over quarter. Tesla deliveries were up 26.5% from the second quarter last year.

The quarter-over-quarter reduction is in line with a broader supply chain problem in the industry. It also illustrates the importance of Tesla’s Shanghai factory to its business. Tesla shuttered its Shanghai factory multiple times in March due to rising COVID-19 cases that prompted a government shutdown.

Image Credits: Tesla/screenshot

The company said Saturday it produced 258,580 EVs, a 15% reduction from the previous quarter when it made 305,407 vehicles.

Like in other quarters over the past two years, most of the produced and delivered vehicles were Model 3 and Model Ys. Only 16,411 of the produced vehicles were the older Model S and Model X vehicles.

Tesla said in its released that June 2022 was the highest vehicle production month in Tesla’s history. Despite that milestone, the EV maker as well as other companies in the industry, have struggled to keep apace with demand as supply chain problems persist.

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Airline stocks have been beset by external problems but could now be a good time to invest in a sector many think is in crisis?

It’s fair to say it has been a tough couple of years for the commercial aviation sector and investors in airline stocks. In 2019 the sector enjoyed record…

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It’s fair to say it has been a tough couple of years for the commercial aviation sector and investors in airline stocks. In 2019 the sector enjoyed record passenger numbers and 2020 was expected to be better yet. Low cost airlines were expanding aggressively, as they had been for years, and national carriers, in response, had made strides in cutting costs and introducing other efficiencies.

Then the Covid-19 pandemic struck, devastating the sector. Over the early part of the pandemic when international travel was severely restricted, airlines operated skeleton schedules. Severely reduced capacity, and schedules regularly interrupted by new lockdowns and shifting government policies bedevilled the sector for the next two years.

Even over the past few months which have seen most pandemic-related travel restrictions drop, a spate of new problems has hampered the sector’s recovery. Staff shortages, the result of a combination of the continuing need for those that become infected with Covid-19 to isolate and a tight labour market, have been a major headache. London-listed easyJet recently cut its capacity forecasts as a result of staffing issues.

And last week over 700 Heathrow airport staff voted to strike over the peak summer period, which promises chaos, and hundreds of cancelled flights, if an agreement can’t be reached over pay in the meanwhile. Staff at three Spanish airports are also calling for industrial action this summer and strikes are a threat elsewhere around Europe’s favourite holiday destinations.

Sky high fuel costs will also put pressure on margins this summer and potentially well into next year and a growing cost of living crisis sparked by inflation levels at 40-year highs will not help demand.

Airline share prices have predictably slumped since the onset of the pandemic. EasyJet’s valuation is down over 50% in the past year and over 75% since summer 2018. Its shares haven’t been worth as little as they currently are since early January 2012.

easyjet plc

Hope on the horizon?

But despite the fact the immediate future still looks tough for airlines, there are a number of reasons why investors might consider dipping into their stocks now or in the months ahead.

The first is that the bulk of the problems that have crushed airline valuations over the past couple of years have been external factors outwith control and unrelated to the underlying quality of companies. They are also all problems that are expected to be temporary and will ease in future. Covid-19 restrictions are, with the notable exception of China, no longer a big issue and hopefully won’t return. And even China recently reduced its mandatory quarantine period for anyone arriving in the country from two weeks to seven days.

That’s still problematic but a sign that an end to the dark cloud of the pandemic may finally be in sight. Most airlines were forced to either take on significant new debt or raise cash through equity issues that diluted existing shareholders, or through mechanisms such as selling and leasing back aircraft.

It will take time for that gearing to be unwound and balance sheets brought back to health. But the sector will eventually recover from the pandemic which should see higher valuations return, providing a buying opportunity at current depressed levels.

Airlines that have come out of the pandemic in the strongest positions will also likely gain market share from weaker rivals, improving their future prospects. British Airways owner IAG, for example, currently has access to more than £10 billion in cash after raising capital to cover losses over the pandemic. EasyJet has access to £4.4 billion. That means both should be well placed to cover any continuing short term losses until passenger numbers return to 2019 levels and push their advantage over less well-capitalised rivals.

Both IAG and easyJet have also seen their passenger capacity improve significantly in recent months. Over the all-important summer quarter to September, the latter expects its passenger capacity to reach 90% of 2019 levels despite the ongoing operational challenges. IAG expects to return to 90% of 2019 capacity over the last quarter of the year.

A full recovery to 2019 levels is possible by next year even if higher costs are likely to mean ticket price increases are inevitable. That does pose a risk for near-term leisure travel demand but there is confidence that remaining pent-up demand from the pandemic period will help soften the impact on discretionary spending on international travel that might have otherwise been more pronounced. Western consumers have also, the pandemic period apart, become so accustomed to taking foreign holidays that some analysts now question if they should still be considered discretionary spending rather than a staple.

Despite the transient and external nature of the problems that have hit easyJet’s valuation, not all analysts are convinced the current share price offers good value even despite its depressed level. They still look relatively expensive given the risks still facing the sector at a forward price-to-earnings ratio of close to x160.

iag

IAG could offer better value, currently trading at a price-to-earnings ratio of just x5.8 for next year. It is also expected to reverse return to a healthy profit by 2023. The company also has exposure to the budget airline market through Vueling and Aer Lingus and while it abandoned its move to take over Air Europa late last year it shows it has ambitions to further expand in this area. And it has plenty of capital available to it to make major acquisitions that could fuel growth when the sector recovers.

IAG’s cheap valuation does reflect the risks it faces over the next couple of years but for investors willing to take on a little more risk the potential upside looks attractive.

A dollar-denominated airline stock play

On the other side of the Atlantic, American airlines also suffered during the pandemic but are now recovering strongly. For British investors, dollar-denominated U.S. stocks also offer the attraction of potential gains in pound sterling terms as a result of a strengthening U.S. dollar. The Fed’s more aggressive raising of interest rates compared to the ECB or Bank of England is boosting the dollar against the pound and euro and it is also benefitting from its safe haven status during a period of economic stress.

One U.S. airline that looks particularly interesting right new is Southwest Airlines, the world’s largest low cost carrier. The USA’s domestic travel market has recovered so strongly this year that Southwest expects its Q2 revenues to be 10% higher than those over the same three months in 2019. It’s already profitable again and earnings per share are forecast to come in at $2.67 for 2022 and then leap to $3.84 in 2023. It’s a much more profitable operator than easyHet.

It also, unusually for an American airline, hedges a lot of its oil. That’s expected to see it achieve much better operating margins this year, predicted to reach 15.5% in Q2,  than other airlines being hit by much higher fuel costs. The company isn’t immune to the risk of the impact the inflationary squeeze could have on leisure travel but is seen as one of the most resilient airlines in the sector. It could be a better bet than either of its two London-listed peers.

The post Airline stocks have been beset by external problems but could now be a good time to invest in a sector many think is in crisis? first appeared on Trading and Investment News.

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