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Canada's economy has ‘free money lying on the sidewalk’ and nobody is picking it up – Financial Post

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On the days the Bank of Canada sets policy, my inbox fills with commentary from various economists and sundry currency analysts.

This week’s commentariat included a new addition. Trevin Stratton, chief economist at the Canadian Chamber of Commerce, expressed dismay over the central bank’s revised outlook, which assumes the economy essentially stalled in the fourth quarter, and foresees only lacklustre growth of 1.6 per cent in 2020.

In a shift, Stephen Poloz, governor of the Bank of Canada, told reporters on Jan. 22 that interest-rate cuts might be necessary to offset deflationary pressures. For now, the central bank thinks the economy will pull out of this current soft patch, but the slope of the recovery will be gradual.

And that’s the problem. The central bank also raised its estimate of the economy’s non-inflationary speed limit to two per cent. The gap between that measure and the 2020 outlook suggests that Canada, despite its all-star potential, is performing like a third-liner.

“We have entered an era of low interest rates and sluggish growth as our economy has not been able to build any sustainable momentum,” said Stratton. “This is why the Canadian business community continues to press the government for a national economic strategy that can address our declining competitiveness.”

The biggest of the Big Business lobbies have upped their games over the past couple of months. In November, the Business Council of Canada, which represents the leaders of the country’s largest companies, released a report on what it thinks it will take to get the economy out of third gear. At the end of this month, the Chamber is hosting an “economic summit” in Toronto that will confront what it describes as “monumental transformation.”

Corporate leaders may have discovered what complacency gets you: nothing. Business was a non-entity in last year’s election campaign, meaning every member of Parliament has a mandate to ignore the concerns of the hiring class if he or she desires.

Another reading of Corporate Canada’s newfound urgency is that its members sense that the economy has drifted badly off course. “One month isn’t a trend,” said Goldy Hyder, head of the Business Council of Canada, when Statistics Canada reported a big drop in hiring in November, “but it’s important nonetheless to get ahead of things starting with having an actual economic plan for growth.”

One month wasn’t a trend; hiring rebounded in December.

Still, as the central bank observed, “job creation has slowed,” albeit at levels that are consistent with full employment. Poloz and his deputies also expressed concern over the trajectory of business investment, consumer confidence, and household spending. The momentum that resulted in the addition of more than one million jobs in Justin Trudeau’s first term as prime minister is petering out.

Bottom line: better-than-sluggish growth in 2020 is going to require stimulus of some kind. The question is, who should provide it?

In the fall, the Bank of Canada nudged finance ministers to do it. The Oct. 30 policy statement said officials would be paying particular attention to “fiscal policy developments.” If that was too ambiguous, Poloz told BNN Bloomberg later that day that $5 billion of fiscal stimulus was as good as a quarter-point cut in interest rates. The implication was that the central bank had been doing most of the work for years and that the time had come for others to help out.

Finance Minister Bill Morneau, for one, appears to have taken the hint. With interest rates already very low, the ability of central banks “to be effective in the face of challenges is different than it was in the last real challenge,” he told Bloomberg Television at the World Economic Forum in Davos, Switzerland, referring to the Great Recession. “That’s a reflection back on people like me,” Morneau added. “The world we’re in today is not the same as when rates were at a higher starting point.”

One of the first things Morneau did after the election was propose a modest income-tax cut worth about $6 billion per year once fully implemented. That sounded like it would take some pressure off the central bank, but rules of the thumb don’t always hold up in the real world. Poloz said the tax reduction probably will have only a modest impact on economic growth.

“It’s a targeted tax cut as opposed to a general fiscal stimulus,” he said.

At the same time, reduced spending in Ontario and Alberta will offset increased federal stimulus. The Bank of Canada said “fiscal tightening” in these provinces might partially explain weaker consumer confidence. Morneau probably also is near his limit, as the Parliamentary Budget Officer predicts he will struggle to keep his promise to shrink debt as a percentage of gross domestic product.

“There is zero net incremental fiscal stimulus in Canada,” said Derek Holt, an economist at Bank of Nova Scotia, which has been calling for lower interest rates since the fall. “The onus is on the BoC to step up to the plate if stimulus is needed.”

It might be possible to revive the economy without spending more money or tempting households to taken on more debt.

In the fall of 2018, the Trudeau government promised to ease the regulatory burden, in part by ordering regulators to take the economy into account when setting new rules. But little has happened since, and it’s not obvious that anyone in Ottawa cares. Ryan Greer, a policy director at the Chamber, said the sight of the federal government getting serious about de-regulation would be a “game-changer” for business investment.

The same goes for inter-provincial trade barriers. The International Monetary Fund estimates the free trade within Canada would increase per capita GDP by almost four per cent, massive stimulus that could be paid for with political capital, rather than more debt.

“That’s a huge number,” Poloz said at an event in Vancouver this month. “That’s free money, lying there on the sidewalk and everybody is refusing to pick it up.”

•Email: kcarmichael@postmedia.com | CarmichaelKevin

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Global stocks mixed after Wall St slips on economy worries – CTV News

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BEIJING —
European stock markets opened higher Friday while Asian prices followed Wall Street lower on worries economic recoveries might fade as coronavirus cases increase in the United States and some other countries.

London and Frankfurt gained in early trading and U.S. stock futures were lower. Shanghai, Tokyo, Hong Kong and Southeast Asia retreated a day after strong gains driven by the rise of U.S. tech stocks.

Global stock prices have recovered most of this year’s losses on optimism about a recovery from the coronavirus pandemic. But forecasters warn the rise might be too big and too fast to be supported by uncertain economic conditions.

“Stock markets just appear to be going through a consolidation phase in the run up to earnings season,” said Craig Erlam of OANDA in a report.

In early trading, the FTSE 100 in London gained 0.4% to 6,074.43 and Frankfurt’s DAX gained 0.4% to 12,544.91. The CAC 40 in France added 0.3% to 4,936.88.

On Wall Street, the future for the benchmark S&P 500 index rose 0.3%. That for the Dow Jones Industrial Average was 0.4% higher.

On Thursday, the S&P 500 index lost 0.6%. The Dow dropped 1.4%.

In Asia, the Shanghai Composite Index lost 1.9% to 3,383.32 and the Nikkei 225 in Tokyo shed 1.1% to 22,290.81. The Hang Seng in Hong Kong retreated 1.8% to 25,727.41.

The Kospi in Seoul lost 0.8% to 2,140.25 and Sydney’s S&P-ASX 200 declined 0.6% at 5,919.20. India’s Sensex lost 0.3% to 36,625.60. New Zealand, Jakarta and Bangkok retreated, while Singapore markets were closed.

On Thursday, three out of four stocks in the S&P declined. The biggest losers were oil companies, airlines and other stocks that are most heavily affected by a reopening and strengthening economy.

The Nasdaq composite, dominated by tech stocks that are seen as relatively resilient to the pandemic, added 0.5% to a record high.

“The market is concerned about the uptick in cases globally,” said Stephen Innes of AxiCorp. in a report. “Money is funneling into perceived safe areas of the market like tech, which should hold up broader indexes to a degree.”

U.S. government data showed 1.3 million workers filed for unemployment claims last week. That is down from 1.4 million the prior week and a peak of nearly 6.9 million in late March.

The improvements have helped validate investors’ optimism that the economy can recover as anti-virus controls are relaxed. That helped the S&P 500 rebound to within 7% of its record, after being down nearly 34%.

But economists point to a troubling slowdown in the pace of such changes, including moderating declines in the four-week average of jobless claims.

Investors are worried that worsening infection levels in the populous U.S. states of Florida, Texas and California could derail a recovery. Some states are rolling back their reopenings, while others are ordering people arriving from hotspots to quarantine.

Other countries including Brazil and South Africa also report rising case totals. Australia’s populous state of Victoria closed its border with neighbouring New South Wales this week to contain an outbreak.

In energy markets, benchmark U.S. crude lost 59 cents to $39.03 per barrel in electronic trading on the New York Mercantile Exchange. Brent crude, used to price international oils, declined 50 cents to $41.85 per barrel in London.

The dollar declined to 106.81 yen from Thursday’s 107.95. The euro was little-changed at $1.1287.

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Asian stocks sink after Wall St losses on economy worries – CTV News

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BEIJING —
Asian stock markets followed Wall Street lower Friday on worries economic recoveries might fade as coronavirus cases increase in the United States and some other countries.

Benchmarks in Shanghai, Tokyo, Hong Kong and Southeast Asia retreated a day after strong gains driven by the rise of U.S. tech stocks.

Global stock prices have recovered most of this year’s losses on optimism about a recovery from the coronavirus pandemic. But forecasters warn the rise might be too big and too fast to be supported by uncertain economic conditions.

On Wall Street, the benchmark S&P 500 index lost 0.6% overnight.

“The market is concerned about the uptick in cases globally,” said Stephen Innes of AxiCorp. in a report. “Money is funneling into perceived safe areas of the market like tech, which should hold up broader indexes to a degree.”

The Shanghai Composite Index lost 1.2% to 3,408.93 and the Nikkei 225 in Tokyo shed 0.7% to 22,368.44. The Hang Seng in Hong Kong retreated 1.9% to 25,702.64.

The Kospi in Seoul lost 1.2% to 2,141.63 and Sydney’s S&P-ASX 200 declined 0.6% at 5,917.60. India’s Sensex opened 0.6% lower at 36,523.82. New Zealand, Jakarta and Bangkok retreated, while Singapore markets were closed.

On Wall Street, the S&P 500 declined to 3,152.05. The Dow Jones Industrial Average dropped 1.4% to 25,706.09.

Three out of four stocks in the S&P declined. The biggest losers were oil companies, airlines and other stocks that are most heavily affected by a reopening and strengthening economy.

The Nasdaq composite, dominated by tech stocks that are seen as relatively resilient to the pandemic, added 0.5% to a record 10,547.75.

U.S. government data showed 1.3 million workers filed for unemployment claims last week. That is down from 1.4 million the prior week and a peak of nearly 6.9 million in late March.

The improvements have helped validate investors’ optimism that the economy can recover as anti-virus controls are relaxed. That helped the S&P 500 rebound to within 7% of its record, after being down nearly 34%.

But economists point to a troubling slowdown in the pace of such changes, including moderating declines in the four-week average of jobless claims.

Investors are worried that worsening infection levels in the populous U.S. states of Florida, Texas and California could derail a recovery. Some states are rolling back their reopenings, while others are ordering people arriving from hotspots to quarantine.

Other countries including Brazil and South Africa also report rising case totals. Australia’s populous state of Victoria closed its border with neighbouring New South Wales this week to contain an outbreak.

In energy markets, benchmark U.S. crude lost 70 cents to $38.92 per barrel in electronic trading on the New York Mercantile Exchange. Brent crude, used to price international oils, declined 63 cents to $41.72 per barrel in London.

The dollar declined to 106.94 yen from Thursday’s 107.95. The euro edged down to $1.1271 from $1.1286.

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Japan's economy to shrink at fastest pace in decades this fiscal year due to pandemic: Reuters poll – TheChronicleHerald.ca

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By Kaori Kaneko

TOKYO (Reuters) – Japan’s economy will shrink at the fastest pace in decades in the year through March 2021, forcing the government to compile another stimulus package to cushion the blow from the coronavirus pandemic, a Reuters poll showed on Friday.

Many respondents predicted the Bank of Japan’s (BOJ’s) next policy step would be to expand stimulus, but they do not see the pandemic triggering a banking sector crisis this year.

The world’s third-largest economy is forecast to contract 5.3% this fiscal year, a July 3-9 poll of over 30 economists shows, the most it has shrunk since comparable data became available in 1994.

It will rebound 3.3% next year, according to the poll.

The economy will grow at an annualised 10.0% pace in the current quarter of the calendar year 2020 after having shrunk 23.9% in the second quarter ended June, the poll shows.

“It would take two to three years for economic activity to return to normal levels in Japan as its overseas markets are likely to continue suffering from the spread of the virus,” said Atsushi Takeda, chief economist at Itochu Research Institute.

Two-thirds of economists polled expect Japan to compile its next stimulus package this year to ease the pain on companies and households. Japan has so far rolled out two packages totalling $2.2 trillion.

Arata Oto, market economist at Societe Generale Securities Japan, expects the next stimulus package to be worth about 1-2% of the country’s gross domestic product.

The package “would aim at accelerating Japan’s recovery … once there are more signs the pandemic is beginning to subside, or to help further cushion the blow from COVID-19 if the likelihood of a second wave heightens”, he said.

Globally, more than 12 million have been infected by the virus and over half a million people have died. In Japan, more than 21,000 people have been infected and over 900 killed.

Policy support for hard-hit firms should help counter worries about Japan’s financial system, over 90% of economists surveyed said.

Asked about BOJ’s next move, 26 of 40 economists said they expect it to expand its stimulus, with 18 saying it would happen this year and five predicting it would be next year.

At next week’s rate review, the BOJ is expected to roughly maintain its view the economy will gradually recover this year from the virus-led downturn, sources have said, even as fears of a second wave of infections cloud the outlook.

Japan’s core consumer prices, which exclude volatile fresh food but includes energy costs, will drop 0.4% this fiscal year and rise 0.3% next fiscal year, the latest poll showed.

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

(Reporting by Kaori Kaneko; Polling by Daniel Leussink in Tokyo and Shaloo Shrivastava, Tushar Goenka and Manzer Hussain in Bengaluru; Editing by Leika Kihara and Himani Sarkar)

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