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US Economy Suffers Contraction of 4.8%, Worst Since Great Recession

Professor of Financial Economics and Part-time Value Investor, Transfin.
May 1, 2020 3:42 AM 5 min read
Editorial

The world’s largest economy has gone negative. US GDP shrank by 4.8% in the first quarter of this year amidst the coronavirus pandemic, the first contraction since 2014 and the severest contraction since the Great Recession. Glenmark Pharmaceuticals has received approval from the Drug Controller General of India (DCGI) to conduct clinical trials of Favipiravir antiviral tablets for COVID-19 patients. Electricity demand in India during the current financial year is seen falling for the first time in at least 36 years, ratings agency Moody's unit ICRA reported. The International Energy Agency (IEA) has forecasted a 6% drop in energy demand this year amid the COVID-19 pandemic, in what it called the biggest shock since World War Two. 

 

 

COVID UPDATE

Glenmark receives DCGI approval to conduct clinical trials of Favipiravir antiviral tablets for COVID-19 patients. 

Get, Set, Go

Glenmark Pharmaceuticals has received approval from the Drug Controller General of India (DCGI) to conduct clinical trials on Favipiravir antiviral tablets for COVID-19 patients.

 

Favipiravir, which is an antiviral medication that was initially developed to treat influenza in Japan, has reportedly shown positive results when used in experiments against the coronavirus.

 

Glenmark said it is the first pharmaceutical company in India to be given an approval by the regulator to start the trial on COVID-19 patients. [The Hindu]

 

Startup Association of India requests Government to create a ₹25,000cr ($3,343m) fund.

Noah's Ark

The Startup Association of India (SAI) has requested the Government to create a ₹25,000cr ($3,343m) fund to help the digital ecosystem tide over cash crunch in the wake of the pandemic. 

 

SAI has written to the Government suggesting that the proposed Startup India Fund should be set up on a priority basis, with the Government contributing ₹15,000cr ($2,006m).

 

An existing ₹10,000cr ($1,337m) fund-of-funds, which is currently being administered by the Small Industries Development Board of India (SIDBI), should also be rolled into it. [ET Tech]

 

EARNINGS

Tech Mahindra reports nearly 30% drop in Q4 profits. 

Red Arrow, Pointing Down

Tech Mahindra today reported its earnings for the quarter ended March 31st. It reported a net profit of ₹803cr ($106.58m), a fall of nearly 30% QoQ.

 

The Mumbai-based company also said its income of operations stood at ₹9,490cr ($1.25bn) in the final quarter of FY20. [NDTV Profit]

 

Waiting for Trends

The shadow of the pandemic might dampen Reliance Indistries Ltd's earnings call today. The conglomerate is expected to take a hit in its refinery and retail segments, although its telecom business might offset some of the damage. Here's what to look out for in RIL's Q4 results today. [ET Markets]

 

Tesla reports $16m profit. 

Good News, Bad News

Tesla has revealed its Q1 results and reported a $16m profit. But the electric car maker also recorded negative free cash flow of $895m and walked back previous guidance. It also said near-term profit guidance is “currently on hold”. [CNBC]

 

While We’re On Tesla...

CEO Elon Musk recently used some colourful words to describe the coronavirus lockdowns in the US. He called them unconstitutional, outrageous, fascist and a couple of other expletive-laden phrases. [NPR]

 

Microsoft reports growth in sales and profits. 

On a High

Q1 results were largely positive for Microsoft, which is benefiting from more people using the internet and cloud computing services. The tech giant said sales rose 15% in January-March to $35bn and it generated net profit of $10.75bn. [WSJ]

 

TELECOM

SC approves marginal tax refund of ₹733cr ($98m) for Vodafone Idea. 

Glass Half Full, Half Empty

The Supreme Court has asked the Income Tax department to refund ₹733cr ($98m) within four weeks to telecom giant Vodafone Idea for assessment year (AY) 2014-15. 

 

FYI

Vodafone Idea had sought ₹4,759cr ($631m) in tax refund for AYs 2014-15, 2015-16, 2016-17 and 2017-18, but the court refused for the three years following AY 2014-15 as scrutiny of tax filings are outstanding. [Financial Express]

 

DoT warns BSNL of disciplinary action with regard to the 4G telecom equipment tender.   

Favouring the Other

The Department of Telecommunications (DoT) has warned Bharat Sanchar Nigam (BSNL) of disciplinary action with regard to the terms and conditions of its contentious tender floated on March 23rd for 4G telecom equipment. 

 

Action will be taken for not conforming to Centre's Make in India norms for next-generation equipment purchase and imposing restrictive conditions against domestic manufacturers in a “malafide” fashion. [ET Telecom]

 

NO POWER

 India's electricity demand seen falling for the first time in at least 36 years.  

Lights Out

Electricity demand in India during the current financial year is seen falling for the first time in at least 36 years, ratings agency Moody's unit ICRA reported.

 

ICRA expects annual electricity demand to fall 1% during the year ending March 2021 due to the nationwide lockdown. 

 

ICRA said it expected losses at state-run electricity distribution utilities (DISCOMs) to rise two-thirds to $6.61bn. Lower demand would also hurt Coal India Ltd, the state-run near monopoly miner which produces over four-fifths of India's coal. [ET Energyworld.com]

 

Global energy demand expected to decline by 6% this year.

Into the Dark

The International Energy Agency (IEA) has forecasted a 6% drop in energy demand this year amid the COVID-19 pandemic, in what it called the biggest shock since World War Two. 

 

In absolute terms this is the largest on record. Percentage wise, it’s the steepest decline in 70 years.

 

Meanwhile, the only energy source expected to grow this year is renewables. [CNBC]

 

US

US economy suffers contraction of 4.8%, worst since Great Recession.

Nobody Said It Was Easy

The world’s largest economy has gone negative. US GDP shrank by 4.8% in the first quarter of this year amidst the coronavirus pandemic, the first contraction since 2014 and the severest contraction since the Great Recession.

 

And this may just be the beginning of a long-drawn crisis – the lockdowns that stifled economic activity only began sometime in March, towards the end of the quarter. [BBC News]

 

Tip of the Iceberg

Economic indices have been hinting at pandemonium for some time now. More than 26m people in the US have filed for unemployment as business activity and consumer confidence have fallen to historic lows. Meanwhile, the government has tried to cushion the fallout with nearly $3trn in spending and the Federal Reserve has cut interest rates to near-zero levels.

 

But it may be too late, too little: analysts expect the American economy to contract 30% or more in the coming quarter. 4.8% contraction was the worst growth in a decade - what follows could be the "worst in our lifetime". [NYT]

FIN.

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