The Bank of Canada kept its key interest rate on hold Wednesday as it said the country’s economy won’t recoup the losses from COVID-19 until 2022, with the road to recovery dependent on the path of the pandemic.
In July, the Bank of Canada said it believed the country had been spared from a worst-case scenario.
The bank’s updated outlook in its monetary policy report said the rebound over the summer was stronger than expected as the country reversed about two-thirds of the decline seen in the first half of the year.
Officials estimate the economy will shrink by 5.7 per cent this year, but grow by 4.2 per cent next year, and 3.7 per cent in 2022, meaning gross domestic product won’t rebound to pre-pandemic levels for another two years.
In his opening remarks at a late-morning press conference, governor Tiff Macklem said it will take quite some time for the economy to fully recover from the COVID-19 pandemic, and the path will be “uneven across sectors and choppy over time.”
“We know the pandemic is reducing investment and is likely to cause long-lasting damage to some people’s job prospects. These forces will reduce Canada’s economic potential,” Macklem said.
The report forecasts annual inflation at 0.6 per cent this year, 1.0 per cent next year, and 1.7 per cent in 2022.
The bank held its overnight rate target at 0.25 per cent on Wednesday, which is where it will stay until the economy has recovered and inflation is back on target.
The bank also announced Wednesday that it intended to buy more longer-term bonds because those have a “more direct influence on the borrowing rates that are most important for households and businesses.”
James Laird, co-founder of Ratehub.ca said the outlook suggests low interest rates until at least 2023, which is the earliest the bank anticipates the economy would be able to handle higher rates.
The projections for growth and inflation mark a return to the bank’s usual practice of giving a longer view for the economy in its quarterly monetary policy report.
The report said the six months of experience with containment measures and support programs, as well as more information on medical developments like vaccines, has given the bank a better foundation to make a base-case forecast.
Underpinning the bank’s outlook are two major assumptions: That widespread lockdowns won’t be utilized again and that a vaccine or effective treatment will be widely available by mid-2022.
The country has recouped about two-thirds of the three million jobs lost in March and April. Emergency federal aid has replaced lost wages for millions of workers, and provided loans and wage subsidies to struggling businesses.
The recuperation from the drop earlier this year has been uneven, the report notes. The hardest hit sectors, such as restaurants, travel and accommodations, continue to lag.
Workers in those sectors, as well and youth and low-wage workers, continue to face high levels of unemployment, the report says.
All may be hit hard again by any new rounds of restrictions, the report notes. Some areas of the country have already imposed such public health restrictions in the face of rising COVID-19 case counts.
“The breadth and intensity of re-imposed containment measures, including impacts on schools and the availability of child care, could lead to setbacks,” the report says.
“Long breaks in employment have the potential for longer-term impacts on the income prospects of vulnerable groups.”
The report said government aid has played a key role in providing a financial lifeline to individuals and businesses.
Changes to employment insurance and new benefit programs will increase households’ disposable income, officials write, adding that the bank expects government aid to “provide important support to the economy throughout the recovery.
This report by The Canadian Press was first published Oct. 28, 2020
Reimagining the global economy for a post-COVID-19 world – Brookings Institution
When the COVID-19 pandemic sent the global economy into a deep recession, it exposed structural weaknesses in economic institutions and highlighted the need for reform. The challenges countries face today are daunting, but this moment should be recognized as an opportunity to build back more sustainable and inclusive economies. David Dollar is joined by three Brookings experts—Eswar Prasad, Marcela Escobari, and Zia Qureshi—to discuss their forward-looking policy proposals for a post-COVID-19 world.
Prasad, Escobari, Qureshi, and Dollar are all contributors to a new report, “Reimagining the global economy: Building back better in a post-COVID-19 world.”
Singapore upgrades third-quarter GDP, sees economy returning to growth next year – TheChronicleHerald.ca
SINGAPORE (Reuters) – Singapore’s economy contracted much less than initially estimated in the third quarter due to gradual easing of COVID-19 lockdown measures and authorities expect the city-state to bounce back to growth next year from its worst recession.
Gross domestic product (GDP) fell 5.8% year-on-year in the third quarter, the ministry of trade and industry said on Monday, versus the 7% drop seen in the government’s advance estimate.
Analysts expected a 5.4% contraction, according to the median of 10 forecasts.
The government said it now expects full-year GDP to contract between 6.5% and 6% versus its prior forecast for a 5% to 7% decline. The country is still facing the biggest downturn in its history.
The economy is expected to grow 4% to 6% next year.
“The recovery of the Singapore economy in the year ahead is expected to be gradual, and will depend to a large extent on how the global economy performs and whether Singapore is able to continue to keep the domestic COVID-19 situation under control,” the MTI said in a statement.
The economy grew 9.2% from the previous three months on a seasonally adjusted basis, compared with the 13.2% contraction in the second quarter. The bounce marked the end of a “technical recession”, as it followed two preceding quarterly contractions.
(Reporting by Chen Lin and Aradhana Aravindan; Editing by Sam Holmes)
Best scenario for economy is still bleak | News | ekathimerini.com – www.ekathimerini.com
The government faces the daunting task of trying to prop up the economy in December. Given the likelihood of the lockdown being extended beyond the end of November, the effort will focus on the second half of the last month of the year.
Success will mean that the economy will shrink “just” 10.5% in 2020, bringing Greece’s gross domestic product back to 2002 levels. However, to achieve even this bleak result, December earnings cannot afford to drop far below the 2019 level of 30 billion euros. It has already been accepted that this year’s figure will be €6-8 billion lower, resulting in a total drop in earnings of between €50-52 billion for the year.
Authorities are focusing on commerce, both wholesale and retail. Last year, this sector had €11 billion in earnings, plus an estimated €2-3 billion that were not documented in receipts. A decline of 20% in earnings will mean a nominal drop of €2.5 billion, or 1.5% of GDP.
There is little hope for hotels, which are already reeling from a disastrous summer, on the heels of the spring lockdown. In any case, December was never a month they were counting on to increase their earnings substantially.
The outlook is also poor for restaurants, cafes, bars and nightclub, as well as the whole entertainment and arts industry. Even without a lockdown, it is certain that the operation of these businesses will be limited by strict rules as to the number of customers allowed and authorities will be on the lookout for any infractions.
Manufacturing and telecoms are two other important sectors for earnings, but there is less certainty about their late-year performance.
The government is doing what it can to inject liquidity into the economy, but consumers, so far, are preferring to hoard money rather than spend it – bank account balances are swelling – and it is unlikely this trend will be reversed before a coronavirus vaccine is widely available.
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