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Britain's economy won't reach pre-pandemic size for at least two years: Reuters Poll – TheChronicleHerald.ca

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By Jonathan Cable

LONDON (Reuters) – Britain’s economy will not fully recover from its current historic downturn for at least two years, a Reuters poll of economists found, but there is only a slim chance the Bank of England will use negative interest rates to boost the upswing.

Britain has suffered the highest death toll from the novel coronavirus in Europe, leading to criticism of the government’s response to the pandemic.

Last quarter, when a lockdown to quell the spread of the virus was at its tightest, the economy shrank a record 20.4%. But as many restrictions have been lifted, it was expected to expand 15.1% this quarter, the Aug. 14-19 poll showed.

“The severity of the slump was chiefly a by-product of the very long lockdown in the UK, necessitated by the government’s laissez-faire attitude in the early days of the pandemic, which meant the virus spread more widely than in other countries,” said Samuel Tombs at Pantheon Macroeconomics.

Earlier this month the BoE said the economy would not recover to its pre-pandemic size until the end of 2021, but 20 of 23 economists who responded to an extra question said it would be at least two years before that happened. Only three said within two years.

After contracting 9.7% this year – more than most of its peers and more than the 9.1% forecast last month – the economy will expand 6.2% in 2021, the poll of nearly 70 economists predicted. In a worst case scenario, it will contract 14.2% this year.

“Unlike BoE chief economist Andy Haldane, who thinks it is now time to see the economic glass as ‘half-full’, recent data outturns have made us more pessimistic about the lasting economic impact,” said Elizabeth Martins at HSBC.

To support the economy the government has ramped up spending to record amounts, the centrepiece of which was to pay 80% of wage bills if staff were put on leave rather than let go.

But that scheme is due to finish at the end of October, and all respondents to an extra question said the risk that the job market will worsen significantly before this year draws to a close was high or very high.

“Evidence of job losses is already mounting and the planned phasing out of the Coronavirus Job Retention Scheme in the autumn will make things worse,” said Peter Dixon at Commerzbank.

The economic slump has pushed firms to slash thousands of jobs. While the unemployment rate unexpectedly held at 3.9% in June it was seen peaking at 8.0% in the fourth quarter, the poll found.

STAY POSITIVE

For its part, the Bank of England has chopped borrowing costs to 0.10% and restarted asset purchases.

BoE Governor Andrew Bailey has said that negative interest rates, used by the European Central Bank and the Bank of Japan, were part of the Bank’s toolbox but that it did not have any plans to use them for now.

Bank Rate was expected to remain at 0.10% until 2023 at least, forecasts showed, and when asked about the chance of negative interest rates, economists gave just a 22.5% median probability. Only two economists polled had sub-zero rates as their base case scenario somewhere in the forecast horizon.

Meanwhile, Britain faces the added task of trying to agree a trade deal with the European Union before a transition period following its departure from the bloc finishes at the end of this year.

Reuters polls have consistently predicted that the two sides would agree a deal, and the latest survey gave only a 30% chance that no agreement would be reached before the transition period ends.

“The UK economy faces a trifecta of risks this winter, stemming from possibly renewed COVID-19-related restrictions, an economically difficult Brexit, and significant labour market weakness,” said Stefan Koopman at Rabobank.

(For other stories from the Reuters global long-term economic outlook polls package:)

(Reporting by Jonathan Cable; Polling by Mumal Rathore and Manjul Paul; Editing by Ross Finley)

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Swedish government promises $12 billion to kick-start economy in 2021 budget – The Journal Pioneer

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By Simon Johnson

STOCKHOLM (Reuters) – Sweden’s government will pump 105 billion crowns ($12 billion) into the economy in 2021 through tax cuts and spending in a record giveaway aimed at getting the economy back on its feet after the coronavirus pandemic-induced slump.

Sweden’s economy will shrink around 4.6% this year, the minority coalition said its budget on Monday, a milder hit than many other European countries, some of which are being forced to re-impose COVID restrictions after a surge in new cases.

“Economic policy is going into a new phase,” Finance Minister Magdalena Andersson told reporters. “It is about a record-large budget to restart the Swedish economy: 100 billion so that we can work our way out of the crisis.”

The Social Democrat and Green coalition said the budget would focus would be on boosting jobs, welfare and supporting the switch to a carbon-free future.

Most measures, agreed with two small, centre-right parties which help keep the coalition in power, were already known.

Individuals and companies will get a tax cut and local authorities and welfare services more cash while around 10 billion crowns will go toward fighting climate change.

The budget is expected to create around 75,000 jobs.

LONG TERM WINNERS

While Sweden looks to have got off relatively lightly economically in the short term, analysts caution that it is too early to pick the longer term winners and losers from the pandemic.

Much will depend on how government largesse, including Europe’s 750 billion euro recovery find, is spent.

Sweden also faces a number of structural challenges, not least in the labour market where unemployment among young people and immigrants is uncomfortably high.

A dysfunctional housing market also threatens long-term economic stability while funding the country’s comprehensive welfare model as society as a whole ages will require a huge increase in productivity.

The government has promised to keep the taps open, at least for the next few years – tax cuts and spending will boost the economy by 85 billion in 2022.

But with a general election due that year, longer term policies remain unclear. The last national vote resulted an a virtual stalemate between the centre-left and centre-right blocs and there is little evidence that voters are any clearer about what they want now.

(Reporting by Simon Johnson, additional reporting by Johan Ahlander; Editing by Niklas Pollard and Toby Chopra)

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US household wealth hits record even as economy struggles – CKPGToday.ca

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By Canadian Press

Sep 21, 2020 9:07 AM

WASHINGTON — Americans’ household wealth rebounded last quarter to a record high as the stock market quickly recovered from a pandemic-induced plunge in March. Yet the gains flowed mainly to the most affluent households even as tens of millions of people endured job losses and shrunken incomes.

The Federal Reserve said Monday that American households’ net worth jumped nearly 7% in the April-June quarter to $119 trillion. That figure had sunk to $111.3 trillion in the first quarter, when the coronavirus battered the economy and sent stock prices tumbling.

Since then, the S&P 500 stock index has regained its record high before losing some ground this month. It was up 2.8% for this year as of Friday. The tech-heavy Nasdaq has soared more than 20% this year.

The full recovery of wealth even while the economy has recovered only about half the jobs lost to the pandemic recession underscores what many economists see as America’s widening economic inequality. Data compiled by Opportunity Insights, a research group, show that the highest-paying one-third of jobs have almost fully recovered from the recession, while the lowest-paying one-third of jobs remain 16% below pre-pandemic levels.

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US household wealth hits record even as economy struggles – meadowlakeNOW

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By Canadian Press

Sep 21, 2020 10:06 AM

WASHINGTON — Americans’ household wealth rebounded last quarter to a record high as the stock market quickly recovered from a pandemic-induced plunge in March. Yet the gains flowed mainly to the most affluent households even as tens of millions of people endured job losses and shrunken incomes.

The Federal Reserve said Monday that American households’ net worth jumped nearly 7% in the April-June quarter to $119 trillion. That figure had sunk to $111.3 trillion in the first quarter, when the coronavirus battered the economy and sent stock prices tumbling.

Since then, the S&P 500 stock index has regained its record high before losing some ground this month. It was up 2.8% for this year as of Friday. The tech-heavy Nasdaq has soared more than 20% this year.

The full recovery of wealth even while the economy has recovered only about half the jobs lost to the pandemic recession underscores what many economists see as America’s widening economic inequality. Data compiled by Opportunity Insights, a research group, show that the highest-paying one-third of jobs have almost fully recovered from the recession, while the lowest-paying one-third of jobs remain 16% below pre-pandemic levels.

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