Many economists have cut their GDP forecasts. The 2020 consensus forecast for GDP growth is currently negative and many predict a recession.

Unemployment rates are expected to rise in all major economies. The International Labour Organization estimates 25 million job losses worldwide.

$1bn

Funding allocated to purhases under the Defense Production Act in the US

With the US’s activation of the Defense Production Act (DPA) last week to force GM to produce ventilators, focus now shifts to the full provisions of the act, which have so far not been utilised. They include financial assistance to scale up production, as well as potential control over distribution.

1,000

Number of staff hired by Lockheed Martin in the US in the past two weeks

Meanwhile, Boeing announced worker buyouts with the expectation of layoffs in the near term. Production is halted at a Boeing facility in Pennsylvania, impacting production of the H-47 and V-22.

585

Number of sailors onboard USS Theodore Roosevelt who tested positive for coronavirus

The captain of the aircraft carrier was dismissed after making an urgent public plea for assistance in tackling a Covid-19 outbreak on his vessel, arguing the US Navy was not doing enough. Many warships are unable to follow CDC quarantining guidance while at sea due to space limitations.

Response to supply chain concerns

The US Department of Defense has initiated steps to keep cash flowing, specifically via the acceleration of payments through prime contracts and expediting payments to subcontractors. The Australian Department of Defense and UK Ministry of Defence have also instigated similar measures to support their own supply chains.

Short-term impact: temporary closure of shipyards and cash-flow issues through the supply chain.

Longer-term impact: A reduction in programme funding as a consequence of the recession resulting from the Covid-19 pandemic will hit defence budgets and reduce programme spending in many cases. 

This impact will, to a degree, be mitigated by the fact that security imperatives dictate the continuation of many of these programmes. The US’s perception of China as its primary adversary dictates that US naval programmes must continue at pace, given naval expansion is a core component of China’s strategy.