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A Global Conundrum: How to Pause the Economy and Avoid Ruin – The Wall Street Journal

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The coronavirus has produced something new in economic history. Never before have governments tried to put swaths of national economies in an induced coma, artificially maintain their vital organs, and awaken them gradually.

Some past societies, such as medieval Europe, abandoned economic activities as people tried to escape plagues, and suffered heavy disruptions to their social order. In other pandemics, such as the flu of 1918, economic interactions continued with only limited quarantine measures, as authorities accepted contagion and deaths as the price of continuity.

Today, many nations are more willing—or feel more able—to try to have it both ways. Their hope is to press pause on the economy, save lives, and then press play again. If it works cleanly, it will be a testament to the flexibility of modern capitalism and the ingenuity of modern government. More likely, much will go wrong.

“We’re in unknown territory. Inevitably there’s a lot of guesswork,” said Simon Tilford, an economist at Forum New Economy, a Berlin think tank.

Number of confirmed cases around the world

Source: Johns Hopkins Center for Systems Science and Engineering

The problem is that the economy has no pause button. Social-distancing measures, such as telling people to stay home and businesses to close unless essential, can suspend the buying and selling of most goods and services. But many costs keep on running. Households have rent or mortgages to pay, as well as bills for food and other necessities. Businesses have payrolls, debts and other fixed overheads. Banks owe money and so must collect it.

The conundrum of how to pay wages, rents and interest in the absence of sales has three kinds of answer.

People and businesses could live off their savings until the restrictions end. But many don’t have enough reserves. The longer the health emergency lasts, the more people will run out of money.

The private sector could cut its outlays to match the commerce that is still permitted. But that raises the specter of mass unemployment and bankruptcies, the destruction of countless normally viable businesses, the scattering of workforces, and perhaps a lasting depression.

“There’s a clear common societal interest in preserving jobs and companies from this external shock,” said Christian Odendahl, chief economist at the Centre for European Reform, a think tank. “Our economic structure is a very complex machine, and its organization, the match between workers and firms, is difficult to replicate once it’s gone.”

Empty streets around a department store in Wolverhampton, central England.



Photo:

Nick Potts/Zuma Press

To avoid such armageddon, the government can substitute for sales for a while, sending or lending enough money to cover wages, interest and other fixed costs. In theory, the state could preserve today’s companies and jobs for months on end, provided it can borrow or print enough money and target the aid perfectly, and that people trust normality will return.

In practice, the outcome in many countries is likely to involve a mix of savings, slump and subsidies.

Government packages of fiscal and liquidity support are already huge: $2 trillion in the U.S. and hundreds of billions of dollars in Germany, the U.K. and France. European countries are focusing on subsidizing payrolls so that companies don’t lay off their workers. The U.S. is offering forgivable loans to businesses that hold on to staff, but also expanding unemployment benefits and sending one-time checks to households. Many countries are delaying taxes and encouraging or paying banks to accept late payments on loans.

But politics has inevitably meant disagreement about how to target the aid, and how far to go in subsidizing the private sector. The U.S.’s aid package came too late to avoid a sudden jump in job losses last week.

“We’re seeing unprecedented liquidity support in many countries, but the collapse of private consumption is so big that many firms will go under,” said Mr. Tilford.

In the U.S. and Europe, there is debate over which sectors and companies deserve handouts, which parts of the private sector should be asked to absorb some of the cost themselves, and how to avoid pumping money into ailing companies that would have gone bust anyway.

There is also reluctance in some countries to borrow too much, only a decade after the global financial crisis pushed up public debts. That concern in particularly acute in Italy, which has both the world’s deadliest coronavirus outbreak and fragile finances.

Italy’s fiscal and liquidity measures of around €25 billion ($27.8 billion) are small compared with those of most other big European economies. Yet Italy’s lockdown is among the most stringent outside central China, where the pandemic began, and is already weighing heavily on an economy that never fully recovered from the last financial crisis.

Rome’s cautious economic response reflects its high national debt and fragile bond market, which in bad times relies on investors’ trust that the European Central Bank would intervene to stop a rout. Italy, wanting more protection, is pushing for joint borrowing by eurozone members, but countries led by Germany and the Netherlands reject that.

A commuter waits for a bus in front of a boarded-up store in Chicago.



Photo:

Scott Olson/Getty Images

Bringing economies out of their induced comas will be slow. Countries don’t want resurgent coronavirus outbreaks to force a second bout of lockdowns. Nobody knows yet how many months will pass before normal commercial activity resumes in full. For countries with large tourism sectors, such as Italy and Spain, losing the summer to continued restrictions would be another heavy blow.

If the operation succeeds, there will be the question of what to do about the large additional public and private debts. Forgiving loans to businesses that held on the workers could help the private sector to recover, but add to public costs.

The coronavirus pandemic is disrupting the global economy. WSJ’s Greg Ip explains what the Federal Reserve can do to stem the damage. Illustration: Carlos Waters/WSJ

High public debts, however, are nothing new in history. Experience suggests they are usually dealt with in several ways, from central banks buying and sitting on them, to forcing private banks and savers to lend cheaply to the government, to eroding their value through inflation.

A decade ago, European countries tried to pay down high public debts after the financial crisis with fiscal austerity. The economic pain and political backlashes felt around the continent had still not fully subsided when the pandemic struck, making a repeat less likely.

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Write to Marcus Walker at marcus.walker@wsj.com

Copyright ©2019 Dow Jones & Company, Inc. All Rights Reserved. 87990cbe856818d5eddac44c7b1cdeb8

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NWT says its economy is weathering Covid-19 better than others – Cabin Radio

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Published: July 10, 2020 at 4:27pmJuly 10, 2020


The NWT’s economy will come out of Covid-19’s initial months damaged but in better shape than other parts of Canada, the territory said on Friday.

The territorial government is forecasting a 3.3-percent contraction in its economy this year, which it says is “significantly less than the national average of 8.2 percent forecast by the Conference Board of Canada,” an economic think-tank.

Despite steep declines in the tourism and transportation industries, the territory said “steps taken to keep the diamond mines and the public sector active” had softened the pandemic’s blow.

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Mining and government are by far the territory’s largest employers. The Ekati mine has suspended activities but the Gahcho Kué and Diavik mines remain fully operational.

The private sector is in worse shape. A GNWT-commissioned survey of businesses showed that 81 percent of NWT companies had experienced a “significant decrease” in revenues.

Tourism and transportation industries were the hardest-hit, telling the government they saw revenues drop by an average of 71 percent.

On the other hand, more than 90 percent of businesses surveyed by the territory in April and May reported they expected to make it through the pandemic.

Consumer spending and small business spending has rebounded since May, the territory said, and 71 percent of NWT residents surveyed were planning to travel within the territory in the next six months.

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The Department of Industry, Tourism, and Investment said the results of third survey – carried out in June to examine the impact on consumer demand – is coming soon.

According to the territory, the various surveys are “part of … ongoing work to better understand the effects of Covid-19 on the NWT and how best to respond to them.”

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Saskatchewan economy adds 30,000 jobs in June as businesses open up again: Statistics Canada – CBC.ca

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Saskatchewan added more than 30,000 new jobs in June as businesses began to open back up from the COVID-19 pandemic.

Saskatchewan’s unemployment rate dipped to 11.6 per cent in June from a high in May of 12.5 per cent, according to a Statistics Canada report on Friday. 

At the national level Canada added almost one million jobs in June.

The national jobless rate fell to 12.3 per cent, down from the record-high of 13.7 in May. There are still 1.8 million fewer jobs in Canada today than there were in February.

Jason Childs, an associate professor of economics at the U of  R, said he was pleasantly surprised by the employment gains.

“To be gaining 30,000 jobs provincially and nearly a million jobs nationally is some unexpected good news, which is nice for a change,” he said.

Employment is rebounding as more businesses open up across Canada. (Statistics Canada, Labour Force Survey)

The growth in Saskatchewan was split between 22,000 full-time jobs and 10,000 part-time jobs.

Childs cautioned that the jobless rate in the province is still more than six per cent higher than it was at this time last year, when it was 5.2 per cent, and there still about 40,0000 fewer jobs than before the pandemic.

“[Some people] don’t appreciate how deep the hole we’re in is and this is not a hole we’re going to get out of quickly,” Childs said. “[Unemployment] has more than doubled from this time last year.”

All those job losses have not been evenly distributed throughout the population.

Young workers are taking the brunt of the job losses in the province.

One in five people 15 to 24 years old are without a job, compared to 8.6 per cent of workers over the age of 25.

University of Regina associate professor of Economics Jason Childs says we have a long way to go to get back to pre-pandemic economic levels. (CBC)

Unemployment among First Nations is 18.4 per cent and the Métis jobless rate is 17.3 per cent.

Childs said both those groups already have higher unemployment and they will have a harder time getting back in the workforce.

“People looking for that first job are going to have a really tough time right now because anything that opens up you’re probably going to be competing with somebody who’s got a lot more experience,” he said.

The one sector hit hardest by the pandemic is food and accommodation, where an estimated 400,000 workers across the country are still without a job.

Employment increased in all provinces in June, but it remains below February levels. (Statistics Canada, Labour Force Survey)

Childs said those jobs are dependent on consumer spending and tourism, and that people’s financial habits have changed during the pandemic.

“I still think we’re going to see a drag [on the economy] as we get what’s called the Paradox of Thrift,” Childs said.

“As people begin to save for their own protection we may see that drag on economic activity as consumption falls off.”

He said people are beginning to cut back on ‘luxuries’ like going out to eat or grabbing a cup of coffee.

“That’s a place where you can cut back fairly easy,” he said.

“People are dealing with a massive amount of uncertainty right now and uncertainty breeds caution and doesn’t breed spending.”

Childs said no amount of fiscal stimulus is going to solve this crisis without consumer confidence.

“You need to get people back to a place where they feel comfortable and safe spending in order to return to the previous level of economic activity,” he said. “Or we’re just gonna have to get used to this.”

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Jason Kenney sees supply shortage in oil and gas when global economy rebounds from COVID-19 – Edmonton Journal

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COVID-19 has put Canada in a “deep fiscal hole,” and the only way to get out of it is to spark the oil and gas sector, Premier Jason Kenney said Friday.

Noting the federal government’s announcement Wednesday it expected to post a $343-billion deficit, Kenney expressed optimism that demand for oil would bolster Alberta’s recovery.

“When the global economy comes back from COVID, when demand returns for oil and gas, we are going to see something of a supply shortage, because of the upstream exploration that has been cancelled,” he said at a Friday news conference.

“So we’ll see prices go up, and that will be a great opportunity for Alberta especially as we make progress on pipelines,” Kenney said.

At Friday’s market close, West Texas Intermediate crude was priced at just over US$40.

TC Energy’s Keystone XL pipeline, which the government of Alberta has committed $7 billion in financial support, faced a legal hurdle this week when the U.S. Supreme Court refused to let construction begin on the project.

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