You must believe in spring

America’s economic recovery no longer looks so strong

A difficult winter looms



Editor's note (December 4th): Since publication of this article the latest data release shows that jobs growth in America has slowed sharply. The economy added 245,000 jobs in November, down from a monthly average of 1.9m during the summer and autumn.


In the summer and autumn America’s economy roared back. After peaking at nearly 15% of the labour force, unemployment fell like a stone, while in the third quarter gdp bounced from its lockdown-induced slump. 

The recovery of the world’s largest economy seemed oddly impervious to a second and then a third wave of coronavirus infections, even as economic activity in other parts of the world took a hit.

Yet there are growing concerns that the run of surprisingly good economic news is over, at least until a vaccine becomes widely available. In congressional testimony on December 1st Jerome Powell, the chairman of the Federal Reserve, said the recovery was slowing, while the decision on the same day by a bipartisan group of senators to release a proposal for a stimulus package reflects the same fears. 

The jobs report for November, which was to be released shortly after The Economist went to press, will probably be a downbeat one by recent standards—and whatever it shows, it is old news, since the surveys for the report were taken some weeks ago. 

More up-to-date figures show that the recovery has lost steam. That is bad news for the millions who remain out of work, as well as the rapidly growing share of Americans who are living in poverty.

Official statistics tend to be produced with long lags. So during the pandemic economists have turned to “high-frequency” data, largely produced by the private sector and generated by consumers’ and firms’ transactions, to measure the economy in real time. Wall Street banks now routinely provide clients with updates on everything from weekly electricity consumption to daily hotel bookings. 

The high-frequency data do not map onto the official kind perfectly. But they are useful for finding turning-points. They pinpointed the start of the downturn in March long before the official statistics could.

America is at another turning-point. str, a data provider, finds that in the week ending November 21st hotels were running at 40% occupancy, down from 50% only weeks ago. The number of diners in restaurants has sharply declined in recent weeks, suggest data from OpenTable, a booking platform, with the fall even steeper in the states hardest hit by the virus. A recovery in air-passenger numbers appears to have ground to a halt as well.

Other real-time measures capture economic activity more broadly. The share of small firms which have temporarily closed is probably rising. 

Consumer spending in the week ending November 22nd was down by 5% compared with the one before, according to Cardify, a data provider. Using mobility data from Google, The Economist has constructed an economic-activity index measuring visits to workplaces, transport hubs and places of retail and recreation. 

After rising steadily during the autumn, the index has fallen back—though America still looks better than Europe, where the economic-activity index has crashed as governments have imposed another round of lockdowns. jpMorgan Chase, a bank, produces an estimate of monthly American gdp growth from a range of real-time data. In a report published on December 2nd, it suggests that output stopped growing in November.

Three factors explain the slowdown. To some extent it was inevitable. Loosening lockdowns had allowed millions of people to return to work and start spending again. But there was no comparable loosening of coronavirus restrictions after that. So it was never realistic for America to repeat the 7.4% quarter-on-quarter gdp growth that it saw in July to September.

Fiscal policy is the second factor. 

Another reason the economy bounced back so quickly in the summer was the enormous generosity of the stimulus packages agreed by Congress in the spring, worth some $3trn (or 14% of GDP). 

Yet Congress has so far failed to agree to another one, even though the most bullish forecasters still reckon a package worth over $500bn is required to help the economy back to some semblance of normality. 

A programme set up by President Donald Trump to raise unemployment-insurance (UI) payments by $300 a week, which had boosted aggregate household incomes by 1.5%, wound down in October. 

States and local governments, facing a severe budget crunch, cut over 1m jobs in the first six months of the pandemic, more than they lost even during the financial crisis of 2007-09.


The third and most important reason for the slowdown is the virus itself. Until recently many Americans, especially in Republican-leaning areas, seemed oddly happy to go about their business as normal. 

In South Dakota in September and October, for instance, visitors to sites of retail and recreation were 1.5% higher than usual for that time of year, even as coronavirus infections surged. 

Analysis by The Economist, drawing on Google data and work by Mark Muro and colleagues at the Brookings Institution, a think-tank, found that in the summer and autumn people in pro-Trump areas were half as likely to avoid public places as people living in areas that had voted for Joe Biden (see chart 1).


But now even people in the most pro-Republican areas appear to be getting skittish, too. In the week before Thanksgiving attendance at South Dakotan recreation-and-retail was 8% lower than normal. The continued increase in coronavirus cases may partially explain this, but a rise in death rates may be more significant. 

Research by Austan Goolsbee and Chad Syverson, both of the University of Chicago, finds that local deaths from coronavirus have a big impact on a local economy, perhaps because they bring home the seriousness of the situation. 

Deaths lag behind cases, and the share of American counties with at least one death from coronavirus in the previous week is soaring (see chart 2). Surveys suggest that a growing share of people worry about catching the virus.

The economy will rise again once a vaccine becomes available. Roughly 40% of the country should be vaccinated by March, suggests a recent paper by Goldman Sachs, a bank, putting America behind only Britain in terms of the speed of the rollout. And the vaccine-induced boost could be bigger than many expect. 

So far the pandemic has left surprisingly few scars on America’s economy. Business bankruptcies and the number of people in long-term unemployment remain lower than during the financial crisis of 2007-09.

Until then there will be further drags on the economy. Two further provisions related to UI, one which expanded eligibility to include the self-employed and gig workers, and one which provided extra weeks of benefits for recipients, are due to expire at the end of the year. 

A number of emergency lending programmes are also likely to end at that time. 

And the pandemic remains out of control. 

America, and especially its poorest folk, face a tough winter.

Europe is right to risk a double ‘no deal’

The consequences of bad agreements over Brexit and with Poland and Hungary would last decades

Gideon Rachman

     © James Ferguson


The proposed agenda for a summit of EU leaders later this week presents a picture of an orderly world. 

There are soothing words on Covid-19, climate change and the US presidential election. 

Left off the agenda are the two elephants that will be clattering around outside the conference chamber: Brexit, and a confrontation with Poland and Hungary over the rule of law.

But the reality is that, if compromises are not found soon, the EU could soon be looking at a double “no deal” — with the British, and with the Poles and Hungarians. That would mean a breakdown in trading relations with the UK from January 1 — leading to the imposition of tariff barriers, long queues of lorries at the borders and possible confrontations between fishing fleets.

The consequences of no deal with Poland and Hungary would be that the EU fails to agree a budget for the first time in decades — leading to a disruption in financial flows and a stand-off with Warsaw and Budapest that could conceivably culminate in two further departures from the EU.

No sane EU leader would happily embrace these outcomes. So why are EU leaders prepared to run the risk? 

The preferred narratives in London, Warsaw and Budapest are that arrogant European bureaucrats, spurred on by the French, are trying to push around the three sovereign nations.

The reality is that no one in the EU wants a double “no deal”. But European negotiators know that concluding two bad deals would be even worse for the bloc’s long-term future.

For the EU, a bad Brexit deal would involve granting the British unfettered market access, while leaving open the possibility that businesses based in the UK could undercut their European competitors by operating under laxer regulations. That is why the EU is so insistent on a “level-playing field” on regulations, as a condition for a trade deal.

The British argue that Canada was not held to similar standards as a condition for its deal with the EU. But Canada did not get completely tariff and quota-free access to the European single market. And the UK is right on the EU’s doorstep, and so potentially poses a much bigger competitive challenge.

European governments know that if they get this wrong, they could sustain long-term economic and political damage at home. The fear of stoking domestic Euroscepticism also lies behind France’s hardline position on fishing in the Brexit negotiations. 

The last thing that President Emmanuel Macron needs, ahead of a presidential election in 2022, is to devastate fishing communities in a region that is already trending towards the far-right.

A bad deal with Hungary and Poland would be potentially even more drastic in its consequences. These two important EU countries have been drifting towards authoritarianism for some years. The proposal to tie future EU funding to respect for the rule of law represents perhaps the last proper opportunity for Brussels to put pressure on the Polish and Hungarian governments to change course.

If that effort fails, the EU may have to accept that its claim to be a club of law-governed democracies has lost credibility. That failure would be all the more galling, given that the Poles and Hungarians would continue to receive lavish funding from the EU budget.

Getting the Hungarian and Polish issue right is ultimately more important than Brexit. When Clement Beaune, France’s Europe minister, was interviewed on the Arte television channel last week, the first half of the interview was about Hungary and Poland; Brexit was only issue number two. 

But Mr Beaune made it clear that he saw a connection between the two subjects. In both cases, the EU needs an agreement — but not at the cost of sacrificing its fundamental interests.

The irony is that it is also in the interests of the populations of the UK, Hungary and Poland to get a deal — largely along the lines currently proposed by the EU.

The pursuit of unfettered sovereignty is an important principle for some British Conservatives. But the government of Prime Minister Boris Johnson claims that it has no intention of undercutting EU environmental or labour regulations. So it would be very odd to rupture economic relations with the EU in defence of a right that the UK will not use. 

And fishing — while symbolically important — is a tiny industry. Under any conceivable deal, the UK will get a larger share of the catch. There is no British national interest involved in poisoning relations with France to secure some extra herring.

As for Poland and Hungary, the EU’s core concerns are Polish and Hungarian laws that undermine the independence of the judiciary — not imposing a “LGBTQ ideology”, as the government in Warsaw claims. Independent courts are awkward for authoritarians. 

But they are obviously in the interests of ordinary Poles and Hungarians, since they represent the best guarantee against corruption and arbitrary rule.

Poles and Hungarians also continue to benefit massively from membership of the EU — both in terms of funding and in the freedom to live and work across the region.

A double “no deal” — in the midst of the coronavirus pandemic — would get the EU off to the worst possible start to 2021. But the consequences of two bad deals would last for decades.

In Ukraine, the UK Finds a Timely Ally

Overtures with Kyiv hint at London’s behavior on the world stage after Brexit.

By: Ridvan Bari Urcosta


An unexpected and overlooked consequence of the Russian annexation of Crimea in 2014 was that it brought Ukraine militarily closer to the United Kingdom. Over the past few months alone, they signed several important documents concerning political and military cooperation, the most notable of which suggested a mutual readiness for the U.K to build a naval base in Ukraine.

What may seem like an odd pairing actually makes geopolitical sense. As the United Kingdom approaches the final stage of Brexit, it is trying to figure out a strategy for its new place in the world. 

As then-Prime Minister Theresa May pointed out in 2016, that new strategy must be global, and being global requires new relationships or, in some cases, new formats of older relationships. 

Either way, it looks as though a fundamental element of post-Brexit U.K. strategy will be to isolate Russia from the rest of Eurasia. Ukraine can be a means to all those ends.

In fact, the U.K. is Ukraine’s second most important partner after the United States, and in some ways is even more brazen in its support (whether on its own or through NATO). 

It has introduced a comprehensive strategy toward Ukraine that boasts several components: a naval presence, massive military exercises and trainings, and, in the future, joint construction of warships for Kyiv’s navy. 

Moreover, London also provides roughly 10 million pounds ($13.3 billion) in funding to Kyiv annually. For now, it appears as though the two will focus largely on high-speed patrol boats – larger vessels such as frigates are wildly expensive, and Kyiv is unable to foot the bill – but London has said future construction depends on the Ukrainian government, leaving open the possibility that they could build more vessels in the future.

A Brief History of Cooperation

Bilateral military cooperation began in earnest more than 10 years ago, roughly after the Russian invasion of Georgia in 2008. Suspecting that somewhere such as Crimea could be next, the U.K. and Ukraine signed an agreement whereby London would help prepare and train military personnel according to NATO standards. 

The real breakthrough came after the events in Crimea and Donbass, in eastern Ukraine, when the U.K., per Kyiv’s request, sent specialists to train the Ukrainian army. After the incident in the Kerch Strait, London decided to extend its military defense assistance to Ukraine, this time extending the mission to include naval forces. 

By January 2019, London sent members of the navy and the marines for even more training. Since 2015, more than 18,100 Ukrainian Armed Forces personnel and nearly 4,000 military instructors have been trained by the mission. 

By August 2020, the British Embassy in Ukraine reported that more than 2,500 British military personnel had conducted more than 400 training courses. This mission won’t end until March 2023.


But it doesn’t stop there. Also in August, the British government announced that it would lead a multinational maritime training initiative for the Ukrainian navy to improve combat preparedness in the Black Sea. 

The initiative will comprise military instructors from the U.K., Sweden, Canada and Denmark and will cover navigation, operational planning, military diving, sea surveillance, firefighting and damage control. 

Furthermore, in September, more than 200 British paratroopers from the 16 Air Assault Brigade conducted joint exercises in southern Ukraine near Crimea, the purpose of which was to gain experience quickly deploying from air to land, to reaffirm Britain's commitment to Ukraine and to British partners in the Black Sea and around world, and to demonstrate the U.K.’s ability to send soldiers far afield at a moment’s notice.

All of these efforts, however, are less important than the most recent agreements signed between London and Kyiv – most notably the Political, Free Trade and Strategic Partnership Agreement, inked on Oct. 8, 2020, during an official presidential visit to London. 

The document covers a free trade regime, outlines the new-and-improved nature of their relationship and, critically, defines future military cooperation, which includes: managing regional threats, cooperation between defense industries, helping to make Ukraine’s defense industry meet NATO standards, developing national military doctrines, advising on defense policy and management, participating in joint exercising, military intelligence-sharing, and so on. 


Other documents signed Oct. 8 were several memorandums of intent on cooperation in developing and enhancing the capabilities of Ukraine’s army and navy. 

London made a financial commitment to Ukraine to the tune of about 1.25 billion pounds for defense projects. Ukraine plans to build eight gunboats for its fleet, two of which would be built in British dockyards. (The rest would be built in Ukraine.)

Brexit as a Catalyst

But the most intriguing development is Ukraine’s decision to build new naval bases in the Sea of Azov and the Black Sea – with technical and financial assistance from the United Kingdom. 

Ukraine’s reason for doing so is clear: Russia, a much larger power, poses a direct threat to its territorial integrity, and it needs all the help it can get to defend its interests. 

The U.K.’s reasons are a little more arcane. It’s true that the U.K. is one of the most vocal proponents of freedom of navigation in the Black Sea and that British (and American) ships have been visiting its waters and Ukrainian ports since 2014 as a show of power and a deterrent to Russia. 

But the larger point is that London is searching for its own place in the changing global landscape after Brexit. Indeed, Brexit was a catalyst for the flurry of military cooperation efforts these past few months. 

The U.K. is returning to a traditional grand strategy in Eurasia of blocking and isolating Russia from Eastern Europe and the Near and Middle East. Ukraine is crucial in that regard. And Britain is trying to do this as an independent player that engages Ukraine as an independent player – that is, to the exclusion of NATO.

Russia is certainly bristling at the prospect, since it brings formidable Western powers even closer to Russia's borders. Moscow has already said that new bases would undermine regional stability. 

It will, of course, intensify its naval exercises in the Black Sea near Crimea, but there’s only so much it can do. The bases – and cooperation that spawned them – are unlikely to change the military balance between Russia and Ukraine, if for no other reason than that countering them could come at the expense of its ground game in eastern Ukraine.

Ultimately, though, Moscow's response will depend on whether it believes the U.S. and U.K are working together. On that, the jury is still out. The U.S has been funding and assisting in the building of the naval bases in the Sea of Azov, and Ukraine recently decided to relocate several bases from Odessa and Mykolaiv to the shores of the Sea of Azov.

It is too early to speak about the permanent presence of U.S. or British troops in Ukraine, but it’s trending in that direction. The fact that they are acting through NATO suggests they still want the appearance they are not acting alone. 

Either way, this kind of cooperation highlights London’s commitment to its geopolitical imperatives in the Black Sea and Eastern Europe, not to mention its commitment to its role in a post-Brexit world.

Aging China Must Work Longer and Invest Smarter

An aging population may finally force the government to face long-needed reform challenges head on

By Jacky Wong

China’s population is set to age quicker and at lower income levels than in many other countries. / PHOTO: WANGZHONGJU/ZUMA PRESS


China is getting older. That means the Chinese people will have to work longer. But deeper reforms will also be necessary to ensure income growth doesn’t stagnate.

The world’s most populous country has begun aging rapidly over the past decade, but the pace is going to pick up even more as tens of millions reach retirement age. 

The working population—people between the ages of 15 and 59—will drop by 65 million, or 5.5% of the total, in the next 10 years, according to United Nations projections. 

A graying population is a common problem in most developed countries but due to China’s one-child policy, which lasted for more than 30 years, its population will age quicker and at lower income levels than in many other countries. 

The problem looks even more unavoidable as China takes in only minimal numbers of immigrants.


That’s why Beijing floated the idea of raising the retirement age in the outline of its next five-year economic plan released last month. There are no concrete details yet, but the idea has already received angry pushback online, especially from people who are about to retire.

But postponing the retirement age will be inevitable. China’s retirement age—60 for men and 55 for women for civil servants and white-collar workers—is low compared with other countries. 

Lifting that to 65 could delay the aging problem by a decade or so. The 60 to 64 cohort is going to make up around 8% of China’s population in 2030, according to the U.N.

Even so, the elderly population of 65 or above will still double in the next 15 years. 

That means slower growth and that the government will have to shoulder a bigger burden to take care of its senior citizens, all while Chinese average incomes remain far below aging developed countries including the U.S. or South Korea.

On the bright side, the demographic time bomb may push the government to carry out some long-needed reforms like cleaning up China’s bloated state sector and the financial system that keeps feeding it. Fixing the health-care and social-welfare systems may also help boost consumption.

Many social and economic problems were swept aside when the Chinese economy was growing rapidly. An aging population may finally force the government to face those challenges head on.