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Brazil's economy pulling through worst of crisis, officials say – Financial Post

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BRASILIA — Brazil appears to be emerging from the worst of its coronavirus-driven economic downturn and is ready to resume the government’s agenda of privatizations, deregulation and fiscal reforms in the next two or three months, officials said on Wednesday.

Speaking in separate online events, Economy Minister Paulo Guedes said reforms will be accelerated within 60 to 90 days, and Treasury Secretary Mansueto Almeida said it appeared the biggest hits to economic activity occurred in April and May.

Guedes told the U.S.-based Acton Institute that the “self-provoked” recession due to anti-coronavirus social isolation measures could turn into a depression if not tackled properly. A return to economic and fiscal reforms will be essential, he said.

Earlier on Wednesday, data showed that Brazil’s service sector, which accounts for more than two-thirds of all economic activity, shrank at a record pace in April and is now 27% smaller than it was in 2014.

Newspaper O Globo reported on Wednesday that Guedes plans to bring forward four major privatizations, including Eletrobras , to this year in order to raise cash and reinvigorate private-sector investment.

Meanwhile, Almeida stressed the need to resume the fiscal adjustment as soon as possible, warning that the projected primary budget deficit of some 700 billion reais ($133 billion) could reach 800 billion reais if the government is not careful.

He repeated his view that even tighter control will have to be exerted if the government is to adhere to its spending cap rule beyond 2022. That rule limits growth in public expenditure and investment to last year’s inflation rate.

He also said overhauling the tax system should probably be the government’s priority from an economic growth perspective, but admitted it may be difficult to get political consensus on a wide-ranging reform. (Reporting by Jamie McGeever, Gabriel Ponte and Isabel Versiani; Editing by Jonathan Oatis and Paul Simao)

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Ontario Introduces Legislation to Protect Public Health as Economy Reopens – Government of Ontario News

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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.

Quick Facts

  • 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.

Additional Resources

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William Watson: My hunch is the economy will bounce back quickly when this ‘Great Compression’ ends – Financial Post

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George Santayana meet Milan Kundera. Santayana (1863-1952) was the Spanish-born American philosopher most famous for saying: those who cannot remember the past are condemned to repeat it. Kundera (1929-) is a Czech-born French writer whose best-known work, “The Unbearable Lightness of Being,” holds that individual experience is “light” because it is not repeated. So its capacity to teach is limited. Which thinker, I wonder, is the best guide to the COVID economy?

The economists Robert Hall of Stanford University and Marianna Kudlyak of the San Francisco Federal Reserve Bank have recently discovered a remarkable regularity about the 11 postwar U.S. recessions: however high the unemployment rate rises it pretty much always declines at the rate of 0.85 percentage points per year.

In 2020, that is terrible news. As they write, with the unemployment rate about “nine percentage points above normal … it would take 11 years (nine divided by 0.85) to work off the pandemic’s bulge of unemployment as it currently stands.” (Granted, that was before the rate fell 2.2 points from May to June alone.)

The saving grace is that the current recession is like no other in American — or Canadian — history

We only just completed a long labour market recovery from the crash of 2008 (though we did complete it, with unemployment rates hitting long-term lows). No one wants another 10-year slog back to full employment. As three economists from the C.D. Howe Institute show elsewhere on this page, if the recovery does turn out to be slow, then in terms of accumulated lost output the current downturn will at least rival and may even “blow past” the other big recessions of recent memory (1982 and 1990).

The saving grace is that the current recession is like no other in American — or Canadian — history. (Take that, Santayana!) In fact it’s not so much a recession, with economic activity ebbing for reasons that often seem mysterious, as it is a compression. The Great Compression, you might call it. For reasons everyone understands though not everyone agrees with, the government hammered the economy shut for a couple of months by either literally outlawing many normal economic interactions or at least strongly discouraging them.

Will the recovery from such an unprecedented shutdown follow the pattern of previous recoveries (i.e., slow but inevitable) or will it go more quickly? My hunch is that when the compression does end the economy will bounce back relatively quickly. Hall and Kudlyak at least hold out that possibility, pointing to data showing that the overwhelming majority of today’s unemployed “anticipate being recalled to jobs from which they have been temporarily laid off, within the coming six months.” In the best-case scenario, these workers “return to their existing jobs rapidly without sacrificing their job-specific human capital” or going through the normal try-it-and-quit, try-it-and-quit search for a job that finally fits.

The last few data points from the U.S. are encouraging in this regard, with unemployment claims falling and employment and growth expectations rising faster than forecast.

What could go wrong? A second wave of the virus, obviously — though future lockdowns will be more targeted and therefore less costly economically.

Beyond that, there are three main problems.

First, the lucky among us have been working and earning as usual but spending less, either because things we like to spend on simply haven’t been available or because we fear our jobs are at risk, too. That creates a classic Keynesian problem of underconsumption. But figuring ways to encourage consumption shouldn’t be a problem for our tax policy people. Over the years they’ve devised all sorts of gimmicks to encourage this or that. Egging on ordinary consumption would be a novel challenge for them but one they can overcome. And it doesn’t require building new transportation systems or massive new solar arrays.

Second, we’ve got a structural problem: no one wants to fly, stay at hotels, ride the subway, dine out or go to movies or shows until doing so is safe again. There’s no Keynesian solution for that. The people in the affected industries either have to figure out ways to make it safe or find something else to do, whether for a time or for good. Travel agents, good with phones, could become contact-tracers. Pilots could operate heavy equipment. Chefs, projectionists, actors, salespeople and countless others? Jobs building infrastructure likely won’t help.

Our third big problem is government getting in the way. Relief money phases out too slowly. Infrastructure programs — probably the wrong answer anyway — take too long to come on line (they always do!). “Stimulus packages” get devoured by rent-seekers and the government’s pet projects.

With a leadership vacuum at the top the U.S. seems likely to have a ramshackle, unplanned recovery. But its first shoots are bright green and very promising. My bet is we in Canada take a much more scientific, planned and deliberate approach and, as a result, recovery takes a lot longer — especially if, looking down our noses at southern-state infection rates, we keep the border closed into the fall.

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Stocks slide from one-month high on economy jitters – BNN

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European stocks dropped from a one-month high as officials warned the economy will take longer to recover and Germany reported weaker-than-expected industrial data. U.S. futures slid and the dollar advanced.

All but one of the 19 industry groups in the Stoxx Europe 600 Index fell, with real estate and technology shares bearing the brunt of the selling. Bayer AG lost 5.5 per cent after its plan for handling future Roundup cancer claims hit a snag. Treasuries edged higher alongside most European bonds.

In Asia, Chinese stocks powered ahead for a sixth day, although at a slower pace. Iron ore futures jumped and the offshore yuan briefly strengthened through the 7 per dollar level for the first time since March.

Investors are catching their breath after a ferocious rally that pushed the Nasdaq Composite to a record high. While recent reports show that global economy could be past the worst of the slump, it’s a long road back to pre-crisis levels.

The European Commission gave its starkest warning yet about the impact of the pandemic, with the divergences between richer and poorer countries opening up even further than projected two months ago. Officials now forecast a contraction of 8.7 per cent in the euro area this year, a full percentage point deeper than previously predicted.

Here are some key events coming up:

  • The EIA crude oil inventory report comes Wednesday.
  • All eyes will be on the U.S. weekly jobless claims report on Thursday.
  • Singapore holds its general election on Friday.
  • Rate decisions in Australia and Malaysia Tuesday.

These are the main moves in markets:

Stocks

  • Futures on the S&P 500 Index declined one per cent as of 10:45 a.m. London time.
  • The Stoxx Europe 600 Index sank 1.1 per cent.
  • The MSCI Asia Pacific Index declined 0.7 per cent.
  • The MSCI Emerging Market Index sank 0.7 per cent.

Currencies

  • The Bloomberg Dollar Spot Index jumped 0.5 per cent.
  • The euro decreased 0.4 per cent to US$1.1266.
  • The British pound fell 0.2 per cent to US$1.2469.
  • The onshore yuan weakened 0.1 per cent to 7.025 per dollar.
  • The Japanese yen weakened 0.4 per cent to 107.73 per dollar.

Bonds

  • The yield on 10-year Treasuries declined one basis point to 0.67 per cent.
  • The yield on two-year Treasuries climbed less than one basis point to 0.16 per cent.
  • Germany’s 10-year yield declined one basis point to -0.44 per cent.
  • Britain’s 10-year yield fell one basis point to 0.192 per cent.
  • Japan’s 10-year yield increased one basis point to 0.046 per cent.

Commodities

  • West Texas Intermediate crude sank 1.5 per cent to US$40.04 a barrel.
  • Brent crude fell 1.2 per cent to US$42.60 a barrel.
  • Gold weakened 0.5 per cent to US$1,776.29 an ounce.

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