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How sharply has China’s economy contracted?

As the coronavirus pandemic grows, investor attention has largely shifted from backward-looking indicators that confirm the severity of the economic shutdown to more frequently updating trackers of activity. But this week will see the biggest of all Chinese economic readings, due for release on Friday, once again take centre stage.

China’s first-quarter GDP is all but certain to have shrunk. The only question is how sharply. The worse Friday’s reading, the slimmer the chances that Beijing can deliver on the “V-shaped” recovery it has assured the world is coming. 

Tao Wang, head of economic research at UBS, predicts a 10 per cent contraction, which would indicate a devastating impact on employment.

UBS estimates 50m-60m people in the services sector may be without work, with another 20m jobless workers in the industrial and construction sectors. But Ms Wang added that “as economic activities normalise and with the help of policies supporting [small and medium enterprises], we expect these numbers to decline quickly and substantially in the coming quarters”.

UBS estimates that job losses may narrow to fewer than 50m by the end of the first half of 2020. Yet other readings on economic activity are not encouraging. The FT’s own China Economic Activity index shows backsliding after some upward momentum last month, with activity still down close to 40 per cent from pre-outbreak levels. Hudson Lockett

Will more bad news strengthen the US dollar?

The mostly optimistic mood in financial markets will be tested on Tuesday when IMF chief economist Gita Gopinath outlines the latest global economic outlook at the start of the organisation’s two-day meeting. 

In early March, the IMF set aside $50bn to help coronavirus-hit countries. The move was made as it warned that the outbreak would force it to cut its global economic growth forecast to below the 2.9 per cent rate recorded last year.

This week’s meeting comes as the Australian dollar and the UK pound — two currencies that plumbed historic lows against the US dollar in March — have recovered some lost ground. But analysts are divided over whether the pullback in the US dollar is temporary or a sign that the worst of the crisis is over.

Analysts at Generali Investments think that coming to terms with coronavirus will allow investors to re-establish riskier positions and damp demand for the dollar.

“With more visibility on the fallout and the global shutdown to be gradually eased, safe-haven demand for the greenback is likely to recede,” said Thomas Hempel, an analyst at the European asset manager Generali Investments. 

But Goldman Sachs strategist Zach Pandl said the dollar’s behaviour so far this year mirrored that of 2008-09, suggesting that further falls in equity prices would push the US currency higher again.

“We expect the dollar to remain firm as long as risky assets remain weak,” he said. Eva Szalay

Will more US companies reduce dividends and share buybacks?

US-listed companies are facing renewed pressure to curb the amounts they spend on dividends and share repurchases, as economic activity slows.

Already, 13 companies in the S&P 500 have cut dividends, Goldman Sachs said in a note to clients last week, adding that total payouts could fall 25 per cent below 2019 levels. Share buybacks will fare worse, Goldman said, halving to $371bn.

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Part of the reason stems from limits on dividend and buyback payments for companies receiving money through the $2tn US government spending package to support the economy.

“The bill stipulates that any company that borrows money from the Treasury may not repurchase stock or pay a dividend until 12 months after the loan is repaid,” Goldman analysts wrote. Airlines including Delta and Air Alaska and aircraft manufacturer Boeing are among the companies to already scrap dividend and share buybacks.

Share buybacks have boomed in recent years, reaching a record $806bn in 2018, the first year after the corporate tax cuts ushered in by President Donald Trump. 

The popularity of buybacks has made US companies the largest block of stock purchasers in the market, and a reduction in activity removes a key pillar of support for stock prices after the most volatile period since the 2008 financial crisis. Richard Henderson

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