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Australia's economy shrinks in first quarter, signals first recession in 30 years – TheChronicleHerald.ca

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By Swati Pandey

SYDNEY (Reuters) – Australia’s economy shrank last quarter, setting the scene for what will be the country’s first technical recession in three decades as entire business sectors were shut down to fight the coronavirus.

Wednesday’s data from the Australian Bureau of Statistics (ABS) showed the A$2 trillion ($1.39 trillion) economy contracted 0.3% in the quarter ended March, the first decline in nine years.

That took the annual growth to 1.4%, the slowest since the 2009 global financial crisis, as the economy was hit by the worst bushfire season in living memory, a prolonged drought and a pandemic that shut down businesses and left many without jobs.

Following the data release, the Australian dollar eased from a five-month high of $0.6982 and the benchmark share index .AXJO> slipped to 5,835.1 points from 5,902.2.

Australia’s gross domestic product is expected to fall even more sharply in the current quarter. Two consecutive quarters of contraction would mean Australia would suffer its first technical recession since the early 1990s, ending one of the world’s longest growth streaks.

Household consumption was the biggest drag on growth last quarter with massive falls in spending on clothing, cars, transport, recreation, hotels, cafe and restaurant.

Net exports and government spending supported the economy in the quarter.

The economic fallout deepened in Australia as the number of local coronavirus cases surged from less than 100 in early March to more than 7,000 now, forcing the government to shut borders and restrict large gatherings.

The central bank stepped in by cutting the cash rate to a record low 0.25% and launching an unlimited bond buying programme. The government, meanwhile, unleashed a large fiscal stimulus plan, including a A$60 billion wage subsidy scheme.

The Reserve Bank of Australia (RBA) has recently sounded less gloomy about the economy even though the country is in the midst of its worst downturn since the Great Depression as better health outcomes have led to an earlier-than-expected re-opening of businesses.

“Although the immediate outlook is better than anticipated a couple of months ago, the economy still faces challenges,” said Sarah Hunter, Chief Economist for BIS Oxford Economics.

“The size and speed of the decline are unprecedented,” Hunter added.

“The outlook for investment is also highly uncertain, with the construction sector pipeline and capital goods imports data suggesting that spending will slow markedly in the second half of the year.”

($1 = 1.4391 Australian dollars)

(Reporting by Swati Pandey; Editing by Himani Sarkar and Sam Holmes)

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UK economy risks shrinking 14% this year, budget forecasters warn – TheChronicleHerald.ca

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LONDON (Reuters) – Britain’s economy could shrink by more than 14% this year and government borrowing risks approaching 400 billion pounds ($500 billion) if there is lasting damage from the coronavirus, government budget forecasters warned on Tuesday.

The Office for Budget Responsibility said its central scenario, with only moderate scarring, showed a 12.4% fall in output, with a 14.3% decline if scarring is deeper.

Under an ‘upside scenario’ – which it said was an update of the sole scenario it presented in April – output would fall by 10.6%, while government borrowing would be limited to 263 billion pounds.

(Reporting by David Milliken, editing by Andy Bruce)

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Return of North American economy will negate need for tariffs, PM tells Trump – CP24 Toronto's Breaking News

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WASHINGTON – Prime Minister Justin Trudeau urged Donald Trump to think twice Monday before imposing new tariffs on Canadian aluminum, saying the sector is emerging from the pandemic-induced production stance that prompted the White House to consider such measures in the first place.

Trudeau, who said in a news conference he had spoken to the U.S. president earlier in the day, told him that with the North American economy getting back up to speed, Canada’s aluminum smelters would soon be back producing value-added specialty products for the American auto sector.

The spectre of new tariffs emerged last month after Canadian producers, unable to shut down production and with their usual customers hamstrung by the impact of COVID-19, were forced to make a more generic form of aluminum and ship it to warehouses in the United States.

That alarmed certain U.S. smelter owners and operators, who have been urging the U.S. trade representative’s office to slap fresh levies on imports from Canada.

The pandemic “caused certain disruption in the aluminum sector that is starting to realign itself, given the economies are starting up again and manufacturing is getting going,” Trudeau said after his call with Trump.

“I impressed upon him that it would be a shame to see tariffs come in between our two countries at a time where we’re celebrating NAFTA and at a time where we want our businesses and our manufacturers to get going as quickly as possible.”

Canada has been on the outside looking in when it comes to the coming into force of NAFTA’s successor, the U.S.-Mexico-Canada Agreement, which took shape in 2017 and 2018 before a backdrop of steadily worsening relations between Trump and Trudeau.

While Trump welcomed Mexico’s President Andres Manuel Lopez Obrador to a celebratory event at the White House last week, Trudeau kept his distance, citing the tariff dispute and the ongoing COVID-19 pandemic among his reasons. A readout from Monday’s call said the prime minister “expressed regret” for being unable to attend.

The U.S. trade representative reportedly gave Canada a deadline of July 1 to impose export restrictions – the very day the USMCA took effect. That deadline has come and gone without a hint from either the White House or U.S. trade ambassador Robert Lighthizer about what happens next.

Trudeau said he and Trump also discussed the Canada-U.S. border, where non-essential travel has been curtailed since March in an effort to limit the spread of the novel coronavirus. The 30-day bilateral agreement to limit discretionary cross-border travel without restricting trade or essential workers has been extended three times and is now set to expire July 21.

Since the last extension, however, the public health crisis in the U.S. has exploded.

More than 100,000 new COVID-19 cases were identified over the weekend, particularly in southern states that reopened early, with Florida emerging as the new epicentre. Canada has had 108,000 confirmed cases in total, compared with more than 3.3 million cases and 135,000 deaths in the U.S. to date.

Hospitals in major urban centres across the United States are again nearing capacity and health care workers face another critical shortage of personal protective equipment like masks and respirators.

Recent polls suggest Canadians remain unequivocally opposed to reopening the border any time soon – a predictable symptom of the accelerating crisis in the U.S., said Kathryn Friedman, a University at Buffalo law professor and Wilson Center global fellow.

But there could be other lingering foreign-policy irritants at play, she added.

“I wonder if the United States had treated our dear neighbour, friend and ally a little bit better over the last three-and-a-half or so years, if the reaction would be as harsh,” Friedman said. “Maybe people are just like, ‘Well, too bad, I don’t care if you want to open the border.”’

Friedman is among several Canada-U.S. experts, border community leaders, northern state lawmakers and others who want to see a plan for when the time comes to lift the restrictions.

“I think we have to have this conversation,” she said. “I think we have to engage the right people now, so that when the border restrictions are eased, whenever that’s going to be, they are done so responsibly.”

It’s less a question of when and more a question of how, Friedman said – what sort of controls, testing and screening measures and other tools will need to be in place even after the emergency has passed.

“I’m more concerned that the climate will change, and some relevant government officials won’t have given any thought to how this border opening is going to take place,” she said.

“We have to get our act together and really think more clearly about how we’re going to handle these kinds of situations in the future, and really use science-based data – an evidence-based, science-based approach – to health screenings when it comes to border restrictions and border policies.”

Trudeau demurred Monday when asked whether this time, Canada and the U.S. might negotiate a closure that lasts longer than the standard 30-day window.

“We will be discussing with our American partners what the next steps should be, and I think this is a situation that is evolving rapidly and we need to keep responding to the situation on the ground.”

This report by The Canadian Press was first published July 13, 2020.

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China's economy seen growing 2.5% in second quarter as lockdowns end, stimulus kicks in: Reuters poll – TheChronicleHerald.ca

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By Kevin Yao

BEIJING (Reuters) – China’s economy likely returned to modest growth in the second quarter after a record contraction, as lockdown measures ended and policymakers announced more stimulus to combat the shock from the coronavirus crisis, according to a Reuters poll.

The world’s second-largest economy likely grew 2.5% in April-June from a year earlier, reversing a 6.8% decline in the first quarter – the first contraction since at least 1992 when official quarterly gross domestic product (GDP) records started, the poll showed.

But the expected growth rate would still be the weakest expansion on record.

Forecasts by 55 analysts polled by Reuters ranged from a

3.1% contraction in gross domestic product (GDP) to a 4.0% expansion in the second quarter, reflecting uncertainty over the pace of recovery.

China’s services sector, which is dominated by smaller companies, has not rebounded as quickly as industrial production, though there are some signs that consumer confidence is gradually improving.

On a quarterly basis, GDP is expected to have grown 9.6% in April-June, compared with a decline of 9.8% in the previous

quarter.

The government has rolled out a raft of measures, including more fiscal spending, tax relief and cuts in lending rates and banks’ reserve requirements to revive the virus-hit economy and support employment.

Still, analysts say the recovery remains fragile, as rising coronavirus inflections in some countries overshadow improved demand for Chinese exports while heavy domestic job losses and lingering health concerns have kept consumers cautious.

Data on Tuesday showed the country’s imports in June rose for the first time this year as stimulus boosted demand for building materials, while exports also edged up as overseas economies reopened after lockdowns.

While China’s economy is showing a steady recovery, a hard battle still lies ahead as the situation remains severe both at home and abroad, state radio quoted Premier Li Keqiang as saying on Monday.

China releases second-quarter GDP data on Thursday (0200 GMT), along with June factory output, retail sales and fixed-asset investment.

Analysts polled by Reuters expect industrial output to grow 4.7% in June from a year earlier, quickening from a 4.4% rise in May, while retail sales were seen rising 0.3%, versus a 2.8% fall in May. Retail sales have slumped for five months in a row.

Fixed-asset investment is forecast to fall 3.3% in the

first six months from a year earlier, easing from a 6.3%

slide in the first five months, according to the poll.

POLICY SUPPORT STILL NEEDED

Central bank governor Yi Gang has said China would keep financial system liquidity ample in the second half but would need to consider withdrawing support at some point, raising questions among investors over when it may start dialing down stimulus.

Still, analysts expect policymakers to maintain support for the economy for a while longer to ensure the recovery remains on track, despite a rise in overall debt levels.

Tang Jianwei, senior economist at Bank of Communications, expected the central bank to dole out 1-2 more targeted reserve requirement cuts and another 20 basis points of cuts in the interest rate on the medium-term lending facility in the second half.

Credit growth is also expected to remain strong. New bank lending hit a record 12.09 trillion yuan ($1.72 trillion) in the first half of the year.

Moreover, China has allowed local governments to issue 3.75 trillion yuan in special bonds to fund infrastructure projects, up from 2.15 trillion yuan last year, and issue 1 trillion yuan in special treasury bonds to spur activity.

Tang expected the economy to grow around 2.5% this year.

The International Monetary Fund has forecast an expansion of 1.0% for China for the full year, the only major economy expected to report growth in 2020.

($1 = 7.0092 Chinese yuan renminbi)

(Polling by Shaloo Shrivastava in Bengaluru and Jing Wang in Shanghai; Reporting by Kevin Yao; Editing by Kim Coghill)

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