B.C. Premier John Horgan will outline plans to reopen the provincial economy on Wednesday in what his government hopes is the end of the beginning of the pandemic.
His minority government has held power, against the odds, since the summer of 2017, with an agenda that focused on climate action, Indigenous reconciliation and social justice. On Wednesday he will have to pivot to an agenda designed to rebuild an economy being hammered by a domestic lockdown and a looming global recession.
In February, just as the very first cases of COVID-19 were being detected in British Columbia, the B.C. government delivered a Throne Speech that celebrated its efforts to increase affordable housing, open new child-care spaces and improve public transit.
In March, the government declared a state of emergency and 132,000 jobs were lost because businesses were shuttered by government or physical distancing measures encouraged British Columbians to stay home.
The Business Council of B.C. forecasts the province’s economy will contract by somewhere between 7 and 12 per cent this year. The best-case scenario envisions that most businesses resume operations by the fall. In the worst-case scenario, the pandemic surges again in the fall, leading to another round of restrictions and closings. In any event, more job losses are yet to come: B.C. could lose between 180,000 and 300,000 jobs this year.
Still, British Columbia did not shut down the economy to the same extent as Quebec, Alberta and Ontario. Many B.C. businesses were declared essential, and major sectors including manufacturing and construction have continued with physical distancing measures in place. This week, the government declared that the spread of COVID-19 has been contained enough to allow for an easing of its restrictions.
Mr. Horgan’s government has set aside a $1.5-billion recovery fund, and will now have to make a choice: Will that money be spent trying to repair the economy that was, or will the government seek to lay a different foundation?
Economist Jock Finlayson, chief policy officer at the Business Council of B.C., said the recovery will require the government to find a new focus.
“Digging out from the huge crater our economy and job market have fallen into will be a Herculean challenge for the next couple of years. Among other things, it will require a different approach to priority-setting by the Horgan government,” he said.
Mr. Finlayson said B.C.’s New Democratic Party government has taken the economy and the job market for granted, while putting its energy into files such as affordability, climate change and reconciliation. “That will have to change now, as we slowly and hesitantly emerge from the worst economic slump in modern times.”
However, Mr. Horgan’s minority government rests on the support of the B.C. Green Party caucus. Interim Green leader Adam Olsen said the government cannot put reconciliation or climate action on the back burner. “I don’t see a world in which you can set those aside,” he said.
Rather, Mr. Olsen said, the pandemic has created an opportunity to rebuild a better province based on the province’s existing climate action plan, called Clean BC.
“We’ll be judged on the decisions that are made in the next couple of months,” he said. “Clean BC outlines a needed transition in our economy. I think it would be wrong to take a step back.”
Merran Smith, executive director at environmental think tank Clean Energy Canada, agreed. “Our climate action plan is a great blueprint for shovel-worthy projects,” she said. She expects the government to use some of its pandemic recovery fund to expand Clean BC programs.
“Whether its electrifying more in our cities so that there’s less pollution or getting people back to work by accelerating housing retrofits, or building more social and affordable housing that’s energy efficient – these are all great opportunities for us to build a better-than-normal economy.”
Laird Cronk, president of the BC Federation of Labour, said the government does not need to move away from its pre-COVID-19 agenda to rebuild the economy.
“There’s an opportunity through all the difficult times for a reset of what we want this province to look like,” he said.
Most of the job losses have been in the private sector and he said it is expected that money will flow to help rebuild those businesses.
“But it’s also an opportunity for government to play a significant role in putting people back to work and using government stimulus to restart the economy, consistent with their values and goals.”
'No-deal' Brexit threat looms over pandemic-ravaged UK economy – BNNBloomberg.ca
The threat of a no-deal Brexit is back — and with it the risk that the U.K. economy’s shaky recovery from the coronavirus pandemic will be hobbled.
As British and European Union negotiators head into the last round of talks scheduled before a key summit this month, chances are growing that the U.K. will end the post-Brexit transition period on Dec. 31 without a free trade agreement in place — spelling turmoil for businesses.
Instead of postponing its final parting with the bloc because of the coronavirus, the U.K. government has so far ruled out any delay. That may be, critics say, because Brexiters calculate the cost of leaving without a deal will be obscured by the far more extensive damage wreaked by the virus.
To Sanjay Raja, an economist at Deutsche Bank AG, a no-deal Brexit would halve the pace of growth next year to 1.5 per cent. The U.K. in a Changing Europe, a research group, estimates gross domestic product could be crimped by eight per cent over 10 years as trade barriers and a reduction in productivity hit output.
“It may be less politically costly for the U.K. to do no deal in the midst of a pandemic, but economically I’m not sure about that at all,” said Jonathan Springford, deputy director of the Centre for European Reform. “It might be that they’re able to get away with it — but I don’t think it changes the view that no deal would impose quite sizable economic costs.”
Citigroup Inc. says the size of the shock could even force the Bank of England to take the controversial move of cutting interest rates below zero because fiscal policy and other tools may not be enough.
Companies now have to think of how to prepare for Brexit while dealing with the fallout from coronavirus. Many are shuttered, indebted and struggling to pull through the lockdown.
The additional debt firms are carrying will make adjusting to Brexit more difficult, according to Alan Winters, director of the U.K. Trade Policy Observatory at the University of Sussex.
The re-introduction of trade barriers with the EU and changes to trading relationships with other countries will require a major re-orientation of exports, he wrote late in May. Heavily indebted firms are less likely to invest in developing new export markets.
“It’s a tense conversation at the moment,” said Allie Renison, head of Europe and trade policy at the Institute of Directors. “Companies are struggling with their survival, and there’s not a narrative yet from government saying to prepare, but they are saying the transition is ending.”
While both the U.K. and the EU insist a deal is still their preferred outcome, the deadlocked talks and the limited time left available mean risk no agreement will be reached is rising: analysts at Eurasia Group now put the odds of that outcome at 55%. EU Trade Commissioner Phil Hogan told RTE last month that the U.K. “can effectively blame Covid for everything.”
If the sides can’t strike a deal by the year-end, the U.K. will default to trading with the bloc on terms set by the World Trade Organization. That means British manufacturers of goods such as cars, pharmaceuticals, plastics, and precision tools could face new costs and significant disruptions to their just-in-time supply chains in Europe.
For Patrick Minford, chair of the pro-Brexit group Economists for Free Trade, leaving on anything but WTO terms would mean Britain would “lose the gains of free trade with the rest of the world.” It’s also better that the U.K. stays out of the EU’s expensive coronavirus recovery plan, he said. “When you add them both up, it’s pretty serious, really, and we’re much better off leaving.”
The fracturing of supply chains due to the coronavirus is one wake-up call to the upheaval that could be on the way. More than 80% of small and medium-sized manufacturers say the pandemic has affected their supply chains, and while some say contingency plans for Brexit have proved useful in preparing for the situation, others are facing shortages.
The pandemic has also led to discussion of bringing supply chains closer to home, particularly as the U.K. struggled to fly in emergency supplies while factories were closed and most workers stayed away.
U.K. Cabinet Office minister Michael Gove last week touted the “phenomenon of re-shoring” and said “we’re seeing how countries can increase resilience.”
But moves to shorten supply chains further could likely lead to goods becoming more expensive, according to Springford of Centre for European Reform. What is more, the U.K.’s geographical proximity to the EU means it’s likely to stay an important trade partner.
Philip Hammond, a former U.K. finance minister who campaigned to stay in the bloc, said last week that the government should at least seek a temporary trade deal to protect jobs.
Since the U.K. is such an open economy, “we will be more exposed than most developed economies to any headwinds in international trade during the recovery,” he said. “We really can’t afford to layer on top of that, during a very difficult recovery period, a sort of self-inflicted shock.”
Global shares gain on hopes for regional economies reopening – CTV News
Global shares are higher Tuesday on optimism about moves to reopen economies from shutdowns to contain the coronavirus pandemic.
France’s CAC 40 jumped 1.9% in early trading to 4,851.37, while Germany’s DAX surged 3.2% to 11,961.53. Britain’s FTSE 100 added 0.9% to 6,219.95. U.S. shares were set to climb with Dow futures gaining 0.4% to 25,576.00. The S&P 500 future contract added 0.4% to 3,064.88.
Investors have been balancing cautious optimism about the reopening of businesses against worries that widespread protests in the U.S. over police brutality could disrupt the economic recovery and widen the virus outbreak.
Japan’s benchmark Nikkei 225 rose 1.2% to finish at 22,325.61, and Hong Kong’s Hang Seng gained 0.8% to 23,912.07. South Korea’s Kospi added 1.1% to 2,087.42. Australia’s S&P/ASX 200 rose nearly 0.3% to 5,835.10, while the Shanghai Composite edged up 0.1% to 2,918.94.
In Southeast Asia, where shutdowns are beginning to ease, Indonesia’s benchmark jumped nearly 2.0% and Singapore’s surged 2.3%.
Despite the bright mood across the region, fears persist about a possible resurgence in coronavirus outbreaks.
There were 34 new confirmed cases in Tokyo on Tuesday, seeming to reaffirm growing risks as people begin to mingle more in crowded commuter trains with the reopenings of more offices, schools, restaurants and stores. The daily numbers had dropped below 20 recently.
Critics had said Japan’s relaxation of its pandemic precautions was premature, and Japanese media reported that Tokyo Gov. Yuriko Koike plans to announce a “Tokyo Alert” requesting residents of the capital to try harder at social distancing.
Despite such concerns and the widespread unrest erupting in many U.S. cities, hopes for a quick recovery from the worst global downturn since the 1930s have spurred recent rallies.
The protests that have rocked American cities for days have so far not had much impact on financial markets. But the violence and damage to property may hinder the re-opening of the economy. Crowds gathering to protest injustice and racism also could touch off more outbreaks.
But Robert Carnell, regional head of research for the Asia-Pacific region at ING, warned against too much optimism.
“How long can markets remain buoyant?” he asked. “The honest answer, and one that may save you five minutes is, `I don’t know.’ “
This week will provide market watchers more insight on the impact that the coronavirus is having on U.S. workers and employers. Payroll processor ADP issues its May survey of hiring by private U.S. companies on Wednesday. The next day, the government releases its weekly tally of applications for unemployment aid.
On Friday, the government reports its May labour market data. Analysts surveyed by FactSet expect the report will show the economy lost 9 million jobs last month.
In other trading, benchmark U.S. crude oil added 42 cents to US$35.86 a barrel in electronic trading on the New York Mercantile Exchange. It fell 5 cents to $35.44 a barrel on Monday. Brent crude oil, the international standard, gained 59 cents to $38.91 a barrel.
The U.S. dollar rose to 107.72 Japanese yen from 107.58 yen. The euro climbed to $1.1158 from $1.1136.
Australia central bank sees glimmer of hope as economy restarts after pandemic shutdown – The Guardian
By Swati Pandey
SYDNEY (Reuters) – Australia’s central bank held rates at all-time lows on Tuesday and sounded less gloomy as the economy gradually re-opens during what is likely to be the worst quarter since the Great Depression.
The Reserve Bank of Australia (RBA) left rates at 0.25% at its monthly policy meeting in a widely expected decision, and said the “accommodative approach will be maintained as long as it is required.”
In a short post-meeting statement Governor Philip Lowe said the RBA was prepared to scale up government bond purchases if needed to ensure three-year yields held around 25 basis points.
Australia’s A$2 trillion ($1.4 trillion) economy is experiencing its biggest contraction since the 1930s in the current quarter but “it is possible that the depth of the downturn will be less than earlier expected,” Lowe added.
A significant decline in new infections, earlier-than-expected easing of restrictions and signs that hours worked stabilised in early May auger well for a recovery.
“There has also been a pick-up in some forms of consumer spending,” Lowe added.
States and territories across Australia have been easing social distancing regulations at differing paces in recent weeks, slowly ending a partial lockdown ordered in March, having largely contained the COVID-19 pandemic.
Australia, which has about 7,200 coronavirus cases, has not reported a death from the disease for more than a week.
The country’s success in containing the virus has sent the Aussie dollar soaring to five-month highs. Yet, that is leaning against monetary stimulus and won’t be welcome by the RBA.
The central bank made no mention of the exchange rate in the statement.
Highlighting the depth of the pandemic-driven global economic downturn and the fallout on Australia, many economists expect interest rates to remain at record lows for at least two more years.
Some are even predicting negative interest rates, though Lowe has ruled it out.
“While we have also become more optimistic about the outlook for the economy in recent weeks, we still expect the unemployment rate to jump to nearly 9% by Q3,” said Capital Economics analyst Marcel Thieliant.
He expects the central bank to announce an expansion of its government bond buying programme at its August policy meeting.
“And we only expect the unemployment rate to fall below 7% by 2022. That would leave it far above the RBA’s estimate of the natural rate of 4.5%, underlining that the RBA will miss its full employment mandate for years to come.”
Q1 GDP MAY DODGE CONTRACTION
Official data out earlier showed Australia boasted a record current account surplus last quarter as firm export prices and a fall in imports provided a timely boost to growth.
Other data out on Tuesday showed government spending also added to growth in the March quarter, while companies reported better sales and profits than many expected.
The figures led analysts to upgrade their forecast for first-quarter gross domestic product due Wednesday with some saying the economy might not have shrunk in the quarter as previously feared.
GDP had been forecast to show output contracted 0.3%, the first fall since early 2011.
“A small positive print cannot be ruled out,” said Su-Lin Ong, chief economist at RBC Capital Markets.
“But the likely collapse in activity in the current quarter and accompanying impact on the labour market…is a sharp and deep shock through the whole economy with likely lasting ramifications.”
(Reporting by Swati Pandey; Editing by Shri Navaratnam)
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