(Bloomberg) — Australia’s economy contracted in the first three months of the year, setting up an end to the nearly 29-year run without a recession as an even deeper slowdown looms for the current quarter.
Gross domestic product fell 0.3% from the final three months of 2019, the first quarterly drop since 2011, compared with a forecast 0.4% decline, statistics bureau data showed in Sydney Wednesday. From a year earlier, it expanded 1.4%, matching estimate
The result sets up an end to Australia’s record run of avoiding two consecutive quarters of negative GDP, having dodged recessions during the 1997 Asian Financial Crisis, the Dot Com Bubble and the 2008 global financial crisis. The current quarter will see a deep contraction, with almost 600,000 jobs lost in April alone and much of the economy in lockdown to contain the coronavirus.
Fiscal and monetary policy are working in tandem to rebuild the economy. The Reserve Bank of Australia has taken the cash rate near zero and lowering the cost of borrowing with its 0.25% bond yield target. The government has injected tens of billions of dollars into the economy to help tide businesses and households through the lockdown.
With the containment of the health crisis allowing activity to resume, how quickly businesses can get back on their feet, workers regain employment and households resume spending is the critical question.
“The rate of new infections has declined significantly and some restrictions have been eased earlier than was previously thought likely,” RBA Governor Philip Lowe said Tuesday after keeping borrowing costs unchanged.
“However, the outlook, including the nature and speed of the expected recovery, remains highly uncertain and the pandemic is likely to have long-lasting effects on the economy,” he said. “In the period immediately ahead, much will depend on the confidence that people and businesses have about the health situation and their own finances.”
©2020 Bloomberg L.P.
Does the Trudeau government have a plan to end the pandemic economy? – CBC.ca
In a normal year, the federal government tables a budget in the spring and then an economic statement or fiscal update in the fall.
But this is not a normal year. The budget that was supposed to be presented in March was pushed back and then completely swamped by the first wave of COVID-19, the economic shutdown that resulted and the federal aid that soon followed.
Some opposition MPs and economists subsequently pushed for a fiscal update. The Liberal government contended, with some justification, that making long-term projections in a time of such incredible uncertainty would be — to use Prime Minister Justin Trudeau’s words — “an exercise in invention and imagination.”
What’s being released this afternoon is being described instead as a fiscal “snapshot” — a status report on where things stand after four months of the pandemic.
It should provide some insight into what the last four months have meant for the federal government’s balance sheet and Canada’s economy. Ideally, it also would offer some sense of what the future might look like — at least the near future.
The deficit is going to be alarming
Finance Minister Bill Morneau’s presentation is not expected to offer new policy announcements, but it could further quantify both the economic disruption and the government’s response to that shock. That undoubtedly will include the projection of a large deficit for the current fiscal year.
The exact number might be new, but it’s already clear that the deficit likely will be in excess of $250 billion.
Last fall, months before the first cases of COVID-19 were detected in China, Morneau projected that the deficit for 2020-2021 would be $28.1 billion. Since then, a lot has changed.
This spring’s pause in economic activity and employment meant a drop in the revenue the government receives from taxes. Meanwhile, more money has been going out in the form of government support measures to help individuals and businesses get through the shutdown.
Since April, the Liberal government has provided bi-weekly updates on its relief spending to the finance committee of the House of Commons. The most recent tally, provided on June 25, showed $174.1 billion in direct support for individuals and businesses and $19.4 billion in federal funding for health and safety measures.
The office of the Parliamentary Budget Officer also has provided a regularly updated “scenario analysis” that projects the broad economic and fiscal implications. In its most recent analysis, released on June 18, the PBO projected a deficit of $256 billion for 2020-2021.
As a percentage of Canada’s GDP, a deficit of that size would be the largest for the federal government since the Second World War.
There has been little to no debate about the need to spend the money on emergency relief; if anything, the Liberals have been under political pressure to spend more and faster. Recent analysis by Scotiabank found that failing to provide that relief would have led to much worse economic results and an only slightly lower level of federal debt.
But after any deficit-related sticker shock wears off, the next question will be how well the government is positioned to manage that accumulated debt.
Governments are not like households — a government can effectively carry debt in perpetuity — so their primary goal is to manage that debt rather than pay it off outright. Most of the fiscal analysis of government debt focuses on its size in comparison to the national economy.
The PBO estimated that the federal debt-to-GDP ratio will reach 44.4 per cent, while Scotiabank projects that the ratio will be closer to 48 per cent.
It’s bad — but it’s been worse
Either number would be a significant increase over what Morneau projected last fall, when the Liberals forecast a debt-to-GDP ratio of 31 per cent in 2020-2021, declining annually thereafter.
But something around 45 per cent also would still be well below Canada’s historic peak of 66.6 per cent back in 1995-1996. That debt ratio, coupled with high interest rates and nervous international markets, led Jean Chrétien’s government to make drastic cuts to balance the budget and get the national debt under better control.
If the federal debt-to-GDP does increase to 45 per cent, it will be back to where it was in 2001.
But the fiscal story of COVID-19 will be only partly about what has happened over the last four months. It also will be about what happens over the next few months — and then several years after that.
Where do we go from here?
It’s not clear how far into the future the Liberal government is willing to look, but there are a number of questions it could start trying to answer.
What are the potential pathways for economic recovery? How much longer might the temporary relief measures be needed? How much more new spending might be necessary? And how does Morneau see the recovery and the debt being managed?
“There will be significant unemployment across Canada for the duration of the recovery,” Rebekah Young, director of fiscal and provincial economics at Scotiabank, told CBC’s Power & Politics on Tuesday.
“The [employment insurance system] was not and is not sufficient to cover all Canadians that will be out of work, but the [Canadian Emergency Response Benefit] clearly is too expensive for that duration. So I think … we would like to see some signals that they have a plan for the next 18 months in terms of addressing his persistent shock that the economy will be facing.”
In an email, Young said she thinks Wednesday’s “snapshot” could set up a fall budget that lays out longer-term plans.
“In addition to an updated statement of transactions, the country needs a fiscal plan from the federal government,” said Kevin Page, the former parliamentary budget officer who is now president of the Institute of Fiscal Studies and Democracy at the University of Ottawa. “We need a fiscal plan to understand what role federal fiscal policy will play to support the recovery.”
A proper plan, Page said, would boost consumer confidence and investor confidence and mitigate the possibility of further downgrades to Canada’s credit rating.
Finance officials might be quick to note the unprecedented amount of uncertainty at the moment, but Page said a plan could be debated and adjusted.
“A ‘snapshot’ that is only backward-looking would be a major missed opportunity,” he said.
In the midst of managing a national response to a pandemic, it’s important to not get ahead of yourself — to focus on the crisis in the here and now.
But sooner or later, the federal government will need to confront the future.
French economy seen rebounding 19% in third quarter, 3% in fourth quarter: INSEE – TheChronicleHerald.ca
PARIS (Reuters) – The French economy is set to rebound sharply in the second half of the year after an unprecedented slump in the first half due to the coronavirus lockdown, the INSEE statistics agency said on Wednesday.
The euro zone’s second-biggest economy likely contracted 17% in the second quarter from the previous three months, unchanged from a June forecast and already on the heels of a 5.3% slump in the first quarter, INSEE said.
The economy was set to rebound 19% in the third quarter and a further 3% in the fourth quarter with activity seen 1-6% below pre-crisis levels by December, it added.
Over the course of the year, INSEE estimated that the economy was set to contract 9%, France’s worst recession since modern records began in 1948 but not as bad as the 11% slump the government forecast in its last revision to the 2020 budget.
The government put France under one of the strictest lockdowns in Europe in mid-March, but the economy saw a “gradual, but sharp recovery” in the weeks after the government began lifting restrictions on May 11, INSEE said.
(Reporting by Leigh Thomas; Editing by Tom Hogue and Andrew Heavens)
Ontario Introduces Legislation to Protect Public Health as Economy Reopens – Government of Ontario News
Proposed Bill Would Provide Flexibility to Address the Ongoing Threat of COVID-19
TORONTO — Today, the Ontario government introduced proposed legislation that, if passed, would give the province the necessary flexibility to address the ongoing risks and effects of the COVID-19 outbreak. The proposed legislation is part of the government’s plan for the continued safe and gradual reopening of the province once the declaration of emergency ends.
Details about the proposed legislation were provided today by Premier Doug Ford, Christine Elliott, Deputy Premier and Minister of Health, and Solicitor General Sylvia Jones.
“If passed, the proposed legislation would allow us to chart a responsible path to economic reopening and recovery without putting all the progress we’ve made in fighting this virus at risk,” said Premier Ford. “Even as we continue certain emergency orders under the proposed legislation to protect public health, we will always be a government accountable to the people of Ontario. That’s why I will ensure ongoing updates are provided and that a report is tabled within four months of the anniversary of this proposed Act coming into force.”
“While the declaration of emergency may come to an end shortly, the risk posed by COVID-19 is likely to be with us for some time to come,” said Solicitor General Sylvia Jones. “This new legislation would provide the government with the necessary flexibility to ensure select tools remain in place to protect vulnerable populations, such as seniors, and respond to this deadly virus.”
The Reopening Ontario (A Flexible Response to COVID-19) Act, 2020 would, if passed, ensure important measures remain in place to address the threat of COVID-19 once the provincial declaration of emergency has ended. Specifically, the legislation would:
- Continue emergency orders in effect under the Emergency Management and Civil Protection Act (EMCPA) under the new legislation for an initial 30 days.
- Allow the Lieutenant Governor in Council to further extend these orders for up to 30 days at a time, as required to keep Ontarians safe.
- Allow the Lieutenant Governor in Council to amend certain emergency orders continued under the EMCPA if the amendment relates to:
- labour redeployment or workplace and management rules;
- closure of places and spaces or regulation of how businesses and establishments can be open to provide goods or services in a safe manner;
- compliance with public health advice; or
- rules related to gatherings and organized public events.
- Not allow new emergency orders to be created.
- Allow emergency orders to be rescinded when it is safe to do so.
The ability to extend and amend orders under the new legislation would be limited to one year, unless extended by the Ontario legislature. Appropriate oversight and transparency would be ensured through regular, mandated reporting that provides the rationale for the extension of any emergency order. The legislation would include the same types of provisions on offences and penalties as set out under the EMCPA to address non-compliance with orders.
- The termination of the provincial emergency declaration under the EMCPA, or the passage of the proposed Act, would not preclude a head of council of a municipality from declaring under the EMCPA that an emergency exists in any part of the municipality or from continuing such a declaration.
- The termination of the provincial emergency declaration under the EMCPA, or the passage of the proposed Act, would not preclude the exercise of the powers under the Health Protection and Promotion Act by Ontario’s Chief Medical Officer of Health or local medical officers of health.
- The Government of Ontario declared a provincial declaration of emergency under s.7.0.1 of the EMCPA on March 17, 2020. The declaration has been extended under s.7.0.7 of the EMCPA and is in place until July 15, 2020, allowing the province to continue to make new emergency orders or amend existing orders under the EMCPA until that date.
- On June 26, 2020, emergency orders then in effect that were made under section 7.0.2 of the EMCPA were extended to July 10.
- A full list of current emergency orders in effect under the EMCPA can be found on the e-Laws website under the EMCPA and at Ontario.ca/alert.
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