California’s new lockdown could be brutal for U.S. and global economy

Nation/world

The state of California is shutting down again — a huge blow to the fragile recovery logged in recent months.

The latest: As Covid-19 cases surge, Gov. Gavin Newsom ordered the closure of all indoor restaurants, wineries, movie theaters, zoos, museums and bars. Los Angeles and San Diego said their kids would start the new school year online only.

On its own, California is the fifth largest economy in the world, according to World Bank data. That means fresh lockdown measures in the state are a huge blow to the economic outlook, both in the United States and globally.

The governor’s announcement weighed on stocks Monday. The S&P 500 at one point was up 1.6% and briefly turned positive for 2020, but sank about 0.9% by market’s close.

Still, the decline seems muted when considering California’s heft. US stocks ticked up again in premarket trading, and the S&P 500 remains 41% above its March low.

Not just California: Restrictions are also being tightened in other US states, including Oregon and New Mexico. And they’re returning in Hong Kong, where Disneyland is closing again as the government tightens social-distancing measures.

In the United Kingdom, GDP data for May disappointed, with growth remaining extremely depressed. Economic output rose just 1.8% following a record contraction of more than 20% month-over-month in April.

Kallum Pickering of Berenberg Bank notes that there’s no need to panic yet — large parts of the UK economy remained locked down in May, as the country’s reopening lagged behind Europe. But the data is a warning that policymakers need to “remain aggressive in their efforts to stimulate demand,” he said.

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