Apr 7, 2021

Axios Markets

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🎙 “In my mind, I've always been an A-list Hollywood superstar. Y'all just didn't know yet.” - See who said it and why it matters at the bottom.

1 big thing: More spending is coming

Photo: Samuel Corum/Bloomberg via Getty Images

Unprecedented government borrowing and spending helped cushion the global economy from the coronavirus pandemic and will need to stay in place for some time to ensure a healthy recovery, according to top economists at the IMF's spring meetings.

What it means: Even with a world growing at a record pace and global debt-to-GDP reaching 356% in 2020 with total global debt rising to $281 trillion, much more is coming.

Why it matters: The approach being advocated by policymakers now is much different than what was instituted following the global financial crisis in 2008, when leaders in advanced economies reduced spending and imposed fiscal austerity measures to balance budgets.

  • Economists argue that choked off the recovery and led to the anemic growth in industrialized countries seen since then, but others also note that it likely helped contain the inflationary impulses of central banks' extreme monetary policies.

Driving the news: At the opening of its spring meetings on Tuesday the IMF again revised up its forecast for global growth this year, now projecting the world will see 6% GDP growth, the highest since the 1970s.

  • The improved outlook is thanks to "additional fiscal support in a few large economies, the anticipated vaccine-powered recovery in the second half of 2021, and continued adaptation of economic activity to subdued mobility," IMF economists said in their latest World Economic Outlook report.

The big picture: Big spending by governments and historically loose monetary policy by central banks moderated the economic hit of the pandemic significantly, the IMF noted in its analysis, estimating that "the contraction could have been three times as large if not for extraordinary policy support."

What they're saying: Treasury Secretary Janet Yellen said during an interview at the meetings that it is the responsibility of advanced economies like the U.S. to continue to provide economic support through government spending to ensure that progress is not reversed.

  • "We are going to be careful to learn the lessons of the financial crisis, which is: ‘Don’t withdraw support too quickly,'" Yellen said.
  • "And we would encourage all those developed countries that have the capacity... to continue to support a global recovery for the sake of the growth in the entire global economy."

Don't sleep: "High uncertainty surrounds the global economic outlook, primarily related to the path of the pandemic," IMF wrote.

Bonus chart: Geographical diversity of outcomes
Data: IMF World Economic Outlook; Chart: Will Chase/Axios

"Economic recoveries are diverging across countries and sectors, reflecting variation in pandemic-induced disruptions and the extent of policy support," IMF chief economist Gita Gopinath wrote in the fund's outlook report.

  • "The outlook depends not just on the outcome of the battle between the virus and vaccines—it also hinges on how effectively economic policies deployed under high uncertainty can limit lasting damage from this unprecedented crisis."

What it's saying: The chart above shows growth projections for various countries from their 2019 growth, while the IMF's projections are versus 2020 growth.

2. Catch up quick

President Biden says he has not spoken with Fed chair Jerome Powell and has been "very fastidious" about not talking to the U.S. central bank at all, asserting that he is "not going to do the kinds of things that have been done in the last administration." (Axios)

The dollar's share of global reserves fell to its lowest level since 1995, standing at 59% of global reserves as of December 2020 — a 1.5 percentage point decline from the previous quarter. (WSJ)

Amazon CEO Jeff Bezos backed Biden's proposal to increase the tax rate for U.S. businesses and said he supports the president's infrastructure push. (WSJ)

The world's leading economies are close to agreeing on a set of principles that would make it difficult for multinationals to shift profits around the world. (FT)

Coinbase generated $1.8 billion in revenue for Q1 2021 — more than it brought in for all of 2020, ahead of its expected direct listing next week. (Axios)

3. Small business owners are shifting worries from COVID to inflation

A new poll of more than 10,000 small business owners finds that even as nearly half (48%) are earning less than 50% of their monthly, pre-pandemic revenues, their worries are moving from COVID-19 to the increasing cost of goods and supplies.

What's happening: The latest survey from Alignable finds "a newfound optimism that expedited vaccine distribution in the U.S. has kick-started the beginning of a recovery for some industries and groups, while others still suffer."

By the numbers: While 75% of small and medium-sized businesses still report negative effects from the pandemic, the percentage claiming they've seen a "significant negative impact" has dropped 20% from last month to 38%.

  • "This marks the first time in a year that this number has dipped below 40%," the survey's authors note.

Details: 62% of small businesses are now fully open, reversing a five-month decline and showing a 17% increase over last month.

  • Hiring for small businesses has been flat for months, but owners now predict that 98% of pre-pandemic employees will be back on payrolls by August. 
  • Small business owners said their top concern was that fresh government shutdowns would begin again given the surge in new COVID-19 case counts.

What to watch: An increasing percentage of small business owners "list skyrocketing prices of supplies as a major concern, sounding the alarm about inflation," Alignable notes.

  • Over the past two months, concern about the cost of supplies has jumped to the highest level in the short history of the survey.
  • A total of 17% of business owners listed rising prices as their top concern. That number has almost doubled from where it was in February (9%) and more than tripled from November (6%).
4. PG&E faces 33 criminal charges for 2019 wildfire

Axios' Laurin-Whitney Gottbrath writes: A California prosecutor on Tuesday filed 33 criminal charges against Pacific Gas & Electric for the 2019 Kincade Fire, which injured six firefighters, destroyed hundreds of homes and forced nearly 200,000 people to evacuate.

Driving the news: Cal Fire concluded that the October 2019 fire was caused by a jumper cable on a PG&E transmission tower that broke due to high winds. PG&E on Tuesday acknowledged that its transmission line caused the fire, but the company did not agree that a crime was committed.

Details: The Sonoma County district attorney charged PG&E with five felony and 28 misdemeanor counts, including unlawfully causing a fire that resulted in great bodily injury and unlawfully causing a fire that resulted in the burning of inhabited structures.

PG&E said in a statement that "in the spirit of working to do what’s right for the victims, we will accept CAL FIRE’s finding that a PG&E transmission line caused the fire, even though we have not had access to the agency’s report or the evidence it gathered."

  • "However, we do not believe there was any crime here. We remain committed to making it right for all those impacted and working to further reduce wildfire risk on our system.”

The big picture: Last year, the utility company pleaded guilty to 84 felony counts of involuntary manslaughter for its role in starting the 2018 Camp Fire.

  • The company was fined $4 million, but no one went to prison.
  • "PG&E emerged from bankruptcy protection shortly after those guilty pleas after negotiating a series of settlements to cover the damages caused by its fraying grid," AP noted. Those included a $13.5 billion fund to help victims of wildfires.

The bottom line: "The Sonoma case shows that PG&E, nearly a year removed from a Chapter 11 bankruptcy driven by wildfire liabilities, continues to struggle with fire risk and its legal consequences," the Sacramento Bee wrote.

Thanks for reading!

Quote: “In my mind, I've always been an A-list Hollywood superstar. Y'all just didn't know yet.”

Why it matters: On April 7, 1987, then known as the Fresh Prince and DJ Jazzy Jeff, Will Smith and Jeff Townes released their debut album, "Rock the House," featuring the hit "Girls Ain't Nothing but Trouble."

  • The pair's second album, "He's the DJ, I'm the Rapper" won the first-ever Grammy Award for hip-hop music and Smith went on to become an A-list Hollywood superstar.

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