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Canada to go big on budget spending as pandemic lingers, election looms

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By Julie Gordon

OTTAWA (Reuters) – Canada‘s Liberal government will deliver on its promise to spend big when it presents its first budget in two years next week amid a fast-rising third wave of COVID-19 infections and ahead of an election expected in coming months.

Finance Minister Chrystia Freeland has pledged to do “whatever it takes” to support Canadians, and in November promised up to C$100 billion ($79.8 billion) in stimulus over three years to “jump-start” an economic recovery in what is likely to be a crucial year for her party.

Prime Minister Justin Trudeau’s Liberals depend on the support of at least one opposition group to pass laws, and senior party members have said an election is likely within months as it seeks a clear majority and a free hand to legislate.

Furthermore, by September, all Canadians who want to be vaccinated will be, Trudeau has said.

Freeland has said the pandemic created a “window” of opportunity for a national childcare plan, and that will be reflected in next Monday’s budget along with spending to accelerate Canada‘s shift toward a more sustainable economy.

“It will be a green and innovative recovery plan aimed at creating jobs,” said a government source who declined to comment on specific measures. The budget will aim to help those “who have suffered most” the effects of the pandemic, the source said.

Critics say the government would be better to hold off on blockbuster spending because the economy has shown it is poised to bounce back, and to prevent the country from racking up too much debt.

“Clearly a garden-variety stimulus package is the last thing we need. This is pile-on debt,” said Don Drummond, an economist at Ontario’s Queen’s University.

“The risk is that at some point interest rates are going to go up and we’re going to be in trouble,” he said, pointing to the mid-1990s when Canada‘s debt-to-GDP ratio skyrocketed, leading to rating agency downgrades and years of austerity.

The Bank of Canada cut its benchmark interest rate to 0.25% to counter the economic fallout of the COVID-19 crisis and has said rates will not rise until labor market slack is absorbed, currently forecast for into 2023. That may change when it releases new projections on April 21.

EXPANDING ECONOMY

More than 3 million Canadians lost their jobs to the pandemic. As of March, before a third wave forced new lockdowns, only 296,000 remained unemployed because of COVID.

Despite still-high unemployment levels in hard-hit service sectors, the economy has expanded for nine straight months even as provinces have adjusted health restrictions to counter waves of infections.

“Once we see sustained reopening, we do think that the recovery will have quite a bit of momentum on its own,” said Josh Nye, a senior economist at RBC Economics.

“We think Canada‘s economy will be operating pretty close to full capacity by this time next year,” he said.

Economists surveyed by Reuters expect Freeland to project a deficit in the range of C$133 billion to C$175 billion for fiscal 2021/22, up from the C$121.2 billion ($96.7 billion)

deficit forecast in November. https://tmsnrt.rs/3wSJPcm

The deficit for fiscal 2020/21 ended in March is forecast by the government to top a historic C$381.6 billion ($304.5 billion).

Canada announced on Monday a C$5.9 billion ($4.7 billion) aid package for the country’s largest airline carrier, Air Canada, and said talks were ongoing with No. 2 carrier WestJet Airlines Ltd and others.

 

(Reporting by Julie Gordon in Ottawa; Additional reporting by Fergal Smith in Toronto; Editing by Steve Scherer and Peter Cooney)

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Vietnam PM promises economy will rebound from COVID-19 hit | Saltwire – SaltWire Network

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HANOI (Reuters) – Vietnam’s exports are likely to rise 10.7% in 2021, with annual inflation expected below 4%, the prime minister said on Wednesday, promising lawmakers that economic revival lay ahead.

Pham Minh Chinh told the national assembly that Vietnam, consistently one of Asia’s fastest-growing economies, had been badly hit by the coronavirus, which disrupted its supply chains and hit workers in key industries.

Vietnam’s gross domestic product (GDP) contracted 6.17% in the third quarter of 2021 from a year earlier as the containment measures hit, the sharpest quarterly decline on record.

Chinh said he expected GDP to expand 6.0% to 6.5% next year, with the government aiming to cap inflation at 4%.

“Realising 2022 targets is a heavy task, but we definitely will revive our economy,” he said, despite the pandemic having put macroeconomic stability at risk.

“Inflation is facing upward risks and there have been disruptions in the supply chains … workers’ lives have been badly hit.”

Although Vietnam had largely reined in COVID-19 until May, a fast-spreading outbreak of the Delta variant in its economic hub of Ho Chi Minh City led to wide curbs on movement and commerce, hitting key manufacturing provinces nearby.

This month, the government said Vietnam would miss its garment exports target this year, by $5 billion in the worst case, hit by curbs and a shortage of workers.

It expected $34 billion of textile exports, shy of the targeted $39 billion, and a shortage of 35% to 37% of factory workers by year-end, it said.

Ho Chi Minh City has suffered a mass exodus of workers since lockdowns eased last month, on worries they would get stuck again if there was another wave of infections.

(Writing by Martin Petty; Editing by Kim Coghill)

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Opinion | Evergrande Isn’t China’s Only Economic Worry – The New York Times

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Crushed by $300 billion in debt, Evergrande, one of China’s biggest property developers, is sliding toward bankruptcy. This has prompted fears of a wider property crash or even a financial crisis.

But this is hardly the only crisis besieging the government of Xi Jinping. An unexpected electricity shortage threatens to slow down manufacturing. And for the past year, the government has waged a fierce campaign to regulate China’s vibrant internet companies, spurring hundreds of billions of dollars in investor losses.

The common feature of these crises: All were triggered by government policies. In the eyes of Beijing, these policies are meant to fix deep structural problems in the economy and lay more solid foundations for future growth. To many outsiders, they represent a dispiriting retreat from the market-oriented reforms of the past and signal the end of China’s long economic boom. But forecasts of China’s doom are most likely mistaken, as they have so often been.

True, in the latest quarter, economic growth slowed to a crawl, growing by just 0.2 percent compared with the previous quarter. The next several months will be rockier still. Slower growth in China is unwelcome news for a global economy struggling to regain its footing after the disruptions of the Covid-19 pandemic. But over the next few years, China is likely to regain momentum — in part because of the hard work it is doing now.

The biggest immediate worry is the collapse of Evergrande. Like most Chinese property developers, it relies on two key funding sources: deposits paid by home buyers before construction and huge amounts of debt.

Evergrande’s woes result from a government campaign begun last year to force property developers to reduce their liabilities. It is the latest move in a five-year effort to bring the country’s debt under control. According to the Bank for International Settlements, China’s gross debt level, at 290 percent of G.D.P., has doubled since 2008. While that level is comparable with that of rich countries with well-developed financial systems, it is high for a middle-income country. China’s leaders know that to avoid a financial crisis or avoid a repeat of Japan’s stagnation of the 1990s — the aftermath of a big debt-fueled property bubble — growth in the future must be far less reliant on debt than it has been.

Aly Song/Reuters

The problem is that by attacking debt in the property sector, regulators risk shutting off a powerful engine that directly or indirectly affects as much as a quarter of China’s economic growth. Problems are spreading beyond Evergrande. Other developers are having trouble repaying their debts. And the sales and construction of new housing are both falling.

The drive to cut real estate debt will almost certainly depress China’s growth in the coming quarters. But it will not lead to a “Lehman moment,” when the implosion of a single heavily indebted company triggers a broader financial or economic collapse: The country has an enormous pool of savings. And the government is now adept at managing meltdowns of major companies, including the private conglomerates HNA and Anbang, Baoshang Bank and Huarong, a huge state-owned asset manager.

The larger question is whether China can maintain a dynamic economy when its government, under Mr. Xi, seems increasingly intent on meddling in the market. The answer: Despite a desire for more state discipline, China has not rejected markets — dynamism will continue.

Some of this state meddling is prudent. The property crackdown is part of a serious drive to cure the economy’s addiction to debt. Similarly, the power shortages that have plagued much of industrial China are due largely to efforts to slash the country’s reliance on coal. China has said that its carbon emissions should peak by 2030 and then decline, with a goal of reaching carbon neutrality by 2060.

One response to the energy shortage has been a long-overdue deregulation of electricity prices. This has allowed generators to pass on some of the impact of higher coal prices to end users. So it is not true that Mr. Xi’s government is implacably anti-market. Beijing, as it has for decades, will continue relying on a combination of state guidance and market forces: The state sets the direction for investment, with day-to-day outcomes dictated by the market.

A more serious concern is the yearlong offensive against privately owned big tech companies, notably e-commerce and the financial technology giant Alibaba, and the ride-hailing company Didi. It’s unclear whether China can ever become a true leader in innovation if it insists on squashing its most successful entrepreneurial businesses.

Yet even here, the story is not black-and-white. The internet crackdown is not really about crushing private enterprise: Private companies in many sectors, including tech hardware, are doing just fine. Rather, the crackdown addresses — in a very authoritarian way — the same anxieties about big tech that governments around the world are grappling with: unaccountable power, monopolistic practices, shoddy consumer protection and the tendency of a tech-heavy economy to drive income inequality.

One final worry is that these moves toward greater state discipline are driven not by economic motives but by Mr. Xi’s desire to reinforce his power, ahead of a Communist Party conference in late 2022 where he expects to gain a third term as the country’s leader. In the long run there is a risk that overly centralized power could degrade the government’s ability to manage the economy. But Mr. Xi also recognizes that his power will not be worth much unless the economy keeps growing.

China will never run its economy in a way that pleases free-market purists. But it has come up with a mixed model that works. And despite the stresses of the moment, it will keep on working.

Arthur Kroeber is a partner and the head of research at Gavekal Dragonomics, a China-focused economic research firm.

The Times is committed to publishing a diversity of letters to the editor. We’d like to hear what you think about this or any of our articles. Here are some tips. And here’s our email: letters@nytimes.com.

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Britain’s Royal Mint to extract gold from discarded electronics

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Britain’s Royal Mint said on Wednesday it planned to build a plant in  Wales that could reclaim hundreds of kilograms of gold and other precious metals from electronic waste such as mobile phones and laptops.

Gold and silver are highly conductive and small quantities are embedded in circuit boards and other hardware, along with other precious metals.

Most of this material is never recovered, with discarded electronics often dumped in landfill or incinerated.

The more than 1,100-year old mint said it had partnered with a Canadian start-up called Excir which has developed chemical solutions to extract the metals from the circuit boards.

“It’s able to selectively pull out precious metals with a high degree of purity,” said Sean Millard, the mint’s chief growth officer.

He said the mint was currently using the process at small scale while designing a plant that “would look to process hundreds of tonnes of e-waste per annum, generating hundreds of kilograms of precious metals”.

The plant should be up and running “within the next couple of years”, he said, declining to say how much it would cost.

A kilogram of gold is worth around $55,000 at current prices.

 

(Reporting by Peter Hobson; Editing by Jan Harvey)

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