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Bond Rout Shows Risk of Uneven Recovery in World's Top Economies – BNN

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(Bloomberg) — The U.S. economy appears primed to recover from the Covid-19 slump much faster than others, causing havoc on bond markets this week and potentially exacerbating the kind of imbalances that caused trouble after the last crisis.The prospect that the U.S. recovery could decouple from developed-world peers and the implication of that for global currencies and trade is likely to figure high on the agenda when finance ministers and central bankers from the Group of 20 major economies meet online later today.“A multi-speed rebound in the global economy continues with a strong U.S., a moderating China and a choppy euro-area,” said Catherine Mann, chief economist at Citigroup Inc. “For 2021 at least, the U.S. as global locomotive is back on track.”

The speed differences are the result of economic policy choices as well as variance in the severity of virus outbreaks, rules for containing them and rollout of vaccination programs. If the gaps persist for too long, it could stir up tensions over trade and currencies like the ones that followed the financial crisis — as well as deepening inequality between countries.The U.S., where President Joe Biden is pushing another $1.9 trillion in pandemic relief measures through Congress, appears most committed to running its economy hot. U.S. officials are calling on others to keep their foot on the gas too.“I urge G-20 countries to continue to take significant fiscal and financial policy actions and avoid withdrawing support too early,” Treasury Secretary Janet Yellen wrote to fellow attendees before today’s meeting. “Together, our efforts will be greater than the sum of our individual responses.”

The U.S. will expand 6.2% this year, recouping all its 2020 losses and then some, JPMorgan economists forecast. By contrast, the euro area, Japan and the U.K. aren’t expected to reach their pre-Covid GDP until 2022.While all major economies boosted government spending to shore up growth in 2020, hardly any except the U.S. will be running expansionary fiscal policy this year, according to JPMorgan’s calculations.

In the near term, everyone gets a lift out of rapid growth in the U.S. –- because it’s the world’s biggest importer.For countries that have weaker economies or are less willing to stimulate them, “it basically means more external demand,” said Alicia Garcia Herrero, chief Asia-­Pacific economist at Natixis SA in Hong Kong.She sees no problem for the rest of the world if the U.S. embarks on a big stimulus, provided it doesn’t trigger the kind of inflation that would lead investors in dollar assets rushing for the exit. “That is the big if,” she says.In the longer run, the perception that other economies were taking advantage of the U.S. role as consumer of last resort can fuel trade conflicts, like it did with China under President Donald Trump. Even before that, in the early 2010s, U.S. officials would complain that Europe was running too-tight policy and not contributing enough to global growth.The same kind of tensions could await in a post-Covid world if policy support is withdrawn “in an uncoordinated or haphazard manner,” wrote Neil Shearing, chief economist at Capital Economics, in a Chatham House paper published last week.“Countries that under-stimulate their economies must rely on demand from the rest of the world,” he wrote. “There are already ominous signs that the recovery has become unbalanced,” like growing current-account surpluses in China, Vietnam and Taiwan, and deficits in the U.S.

Currencies may be another cause of contention. The dollar has been declining steadily after a spike early in the pandemic, causing anxiety among countries that don’t want their exports to become less competitive. Yellen has said the U.S. will let markets determine the greenback’s value.“The U.S. is likely to push back against other countries’ intervention in foreign exchange markets to weaken their currencies, despite other major advanced economies being in worse economic straits,” said Eswar Prasad, a professor at Cornell University.Australia’s central bank has argued the local dollar would be stronger if it weren’t for its latest stimulus measures. In Japan, Prime Minister Yoshihide Suga said he’s watching foreign exchange rates more closely than any other financial or economic indicator.

China’s yuan has gained about 10% against the dollar since June, spurring the government to consider relaxing restrictions on taking money out of the country in order to take the pressure off. Bloomberg Economics’ yuan stress indicators suggest the currency’s strength is set to continue in the near term.As well as addressing the uneven recovery in their own economies, G-20 leaders are also under pressure to prevent the gap with the world’s poorest nations from widening further. Those countries haven’t been able to ramp up government spending to fight the virus like their wealthier peers did, and they struggle to obtain vaccines.The G-20 has been working on a debt forgiveness plan that would involve private creditors. Yellen praised the effort in her letter, though she said implementation would be the real test. She also signaled support for boosting the International Monetary Fund’s lending power.“Without further international action to support low-income countries, we risk a dangerous and permanent divergence in the global economy,” Yellen said.

©2021 Bloomberg L.P.

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Restarting a sustainable, export-oriented economy – Business in Vancouver

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Clean, sustainable products and services will be key to B.C.’s economic recovery | Chung Chow

This column was originally published in BIV Magazine‘s Trade issue.

As B.C. looks to restart its economy, the demand for our province’s clean and sustainable products and services is surging across a variety of sectors, demonstrating the key role that trade will play in our economic recovery.

Exports increased 24% year-to-date for April – that’s up $3 billion over the same time last year. It’s a big boost for the provincial economy, with a majority of our exports being commodities in great demand. Our stringent environmental standards in wood exports, burgeoning clean tech sector and high standards in labour protections mean that when other markets buy from us, they’re also contributing to a cleaner and more socially responsible global economy.

B.C. was committed to international trade long before the pandemic. It creates new opportunities for businesses, and more importantly, it creates good jobs and prosperity for people in B.C. When businesses export, they are more resilient. Access to more markets means they have a more diverse customer base and aren’t as impacted by fluctuations in their local economies.

We have a program perfectly designed to help small businesses get their goods and services to new markets. It’s called Export Navigator. This program offers businesses free expert guidance on exporting. Businesses get connected with an expert advisor who will help “navigate” them through the export process. It’s hugely beneficial, helping businesses reach new customers for the first time and making the process a lot easier along the way.

We continue to support B.C. businesses in other ways as well. For example, we developed a series of grant programs to meet their unique needs, making over half a billion dollars available in direct supports. The Launch Online program helps businesses improve their online presence to attract and keep customers and meet demand as online shopping hit new heights during the pandemic. The Supply Chain and Value-Added Manufacturing grant helps B.C.-based manufacturers in the aerospace, shipbuilding, food processing and forestry sectors recover and grow, supporting them to seek efficiencies to continually keep goods flowing into the marketplace.

From natural resources and agrifoods to manufactured goods and high-tech goods and services, B.C. has a lot to offer to the world. We are a responsible, low-carbon producer of natural resources and manufactured goods, and we are working hard to make sustainability a larger part of B.C.’s brand and our global competitive advantage. Our priority is to help B.C.-based businesses start up, scale up, access global markets and succeed in the highly competitive world marketplace. The more we export, the more new dollars we bring into B.C. and generate revenue that supports government investments in health care, education and critical infrastructure.

We stand behind the high-quality goods that B.C. has to offer to the world. Globally, companies large and small are increasingly applying environmental, social and governance filters to their investment decisions. We are committed to growing our economy in a sustainable way, and are working on a new trade diversification strategy that will provide us with the opportunity to develop an updated, forward-looking and ambitious approach that aligns closely with these principles, while ensuring that our exporting businesses are maximizing the opportunities afforded to them through Canada’s existing free trade agreements. Our recently announced Mass Timber Demonstration Program is an example of how we are advancing technologies that can showcase to the world the possibilities of building with a more sustainable and environmentally friendly product from B.C.

The pandemic leaves behind many lessons and creates a once-in-a-generation opportunity for B.C. to redefine itself. We know the pandemic is not impacting everyone equally, with women and visible minorities being disproportionately impacted. This is why we are committed to continuing to grow strong, robust industries that can provide good jobs for all of B.C.’s diverse populations.

Growth in trade will be a big part of our economic recovery, and as we transition through our restart plan, we will continue to engage with businesses, industry and key stakeholders to ensure we’re supporting their efforts to expand globally.

Our goal is to diversify our trade sectors to include not just our natural resources, but clean tech, high tech, agritech and advanced manufacturing. We need to support our exporters and encourage new exporters to expand our opportunities in global markets and strengthen our resilience.

We’re committed to invest in people and in businesses to restore economic growth and we are confident that the entrepreneurial spirit of B.C.’s business community will rise to the challenge as we work together to build a better future with meaningful jobs and a strong, sustainable economy for all. 

Ravi Kahlon is B.C.’s minister of jobs, economic recovery and innovation. George Chow is the province’s minister of state for trade.

This column was originally published in the July 2021 issue of BIV Magazine. The digital magazine can be read in full here.

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ECB Lifts Restrictions on Bank Dividends as Economy Rebounds – Bloomberg

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The European Central Bank said it will lift a cap on how much lenders can return to shareholders with dividends and share buybacks, while urging them to remain cautious given uncertainty in the pandemic.

The ECB “decided not to extend beyond September 2021 its recommendation that all banks limit dividends,” the central bank said in a statement on Friday. “Instead, supervisors will assess the capital and distribution plans of each bank as part of the regular supervisory process.”

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Reopening economy buoys B.C.’s job market – Business in Vancouver

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B.C.’s labour market outperformed most of the country in June with a 1.6% (42,100-person) monthly gain and outpaced the national increase of 1.2%.

The province moved through steps 1 and 2 of its restart plan, highlighted by the reopening of restaurant in-house dining and larger organized events, travel and other recreation. The labour market has fully recovered employment losses from the previous two months, exceeding pre-pandemic levels by 0.6%. The latter marks the best performance among all Canadian provinces, reflecting shallower economic restrictions from the pandemic, solid performances in the commodities and technology sectors and a robust housing market.

However, full-time work has similarly lagged, with levels 1.6% lower than in February 2020, while part-time work rose 9%. B.C.’s unemployment rate fell to 6.6% from 7% in May and marked the lowest level since the pandemic began.

Metro Vancouver performance was consistent with employment growth of 1.5%, although unemployment remained higher at 7.4% of the labour force.

There was strong rehiring for accommodation/foodservices (up 12%) employees as dining restrictions were largely lifted. This contributed half of the net monthly increase. Significant gains were also recorded in finance/insurance/real estate (up 4.1%), health care/social assistance (up 3%) and business/building/other support (up 5%). Gains align with broader business and office reopenings. A drop in resource employment and construction were partial offsets to services-driven growth.

Hiring momentum will continue with Stage 3 of the restart plan underway, which allows for larger events, fairs and trade shows, reopenings of casinos and normalization of fitness classes and gyms, while domestic tourism partly offsets international travel restrictions.

The Lower Mainland’s housing frenzy continued to cool through June as affordability erosion and satiation of demand pulled forward by the pandemic cut sales. Meanwhile, both buyers and sellers are likely taking a step back to pivoting attention to other activities as social restrictions ease.

Multiple Listing Service sales spanning Metro Vancouver and Abbotsford- Mission (Lower Mainland) reached 6,007 units last month. While still up a lofty 46% from a year ago, this is compared with a 217% increase in May. •

Bryan Yu is chief economist at Central 1 Credit Union.

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