The dean of Cape Breton University’s Shannon School of Business says the local economy should quickly rev up once public health restrictions really start to ease up.
George Karaphillis says if the past is any indication, the gross national product has shown it can recover, but he admits there hasn’t been a pandemic this severe for 100 years and no one really knows what will happen.
“History shows that the economy snaps back fast after an epidemic of this magnitude,” the dean said. “There is some pent-up demand from different sectors of the economy.”
Nova Scotia is nearing the end of the second month of public health restrictions that closed some businesses and forced others to close due to lack of customers.
If the economy does bounce back quickly, as most economists predict, then the province will have avoided a recession, which is defined as two successive quarters with a shrinking economy, Karaphillis said.
“The consensus is that it’s going to be a rapid rise in economic activity in about one month’s time, when the economy is actually fully operational and we’re back firing on all cylinders,” he said.
There are positive signs for retail stores, but the growth of e-commerce and home delivery may have changed the game, Karaphillis said.
“The buying habits of consumers has changed, especially the new generation, the millennials, do not like to shop in the malls like the boomers.”
Cape Breton is heavily dependent on tourism, which will be hit hard for a year or more, but there is reason for optimism in commercial and retail operations, he said.
Two weeks ago, Brookfield Asset Management announced $5 billion in retail investments. The Toronto-based company is one of the largest owners of malls in the United States. That sends a strong signal that retail will not be left to struggle back to life, Karaphillis said.
Cape Breton developments
Also, the Membertou First Nation is building a 55,000-square-foot commercial and retail building on the reserve next to Sydney, and a local business owner is promoting a 33,000-square-foot redevelopment in a former call centre to be called Sydney River Square.
The owner declined to comment, but a sign outside the building adjacent to the McDonald’s restaurant and Atlantic Superstore indicates it is being redeveloped for commercial and retail uses in two phases.
Karaphillis said with no vaccine for COVID-19, businesses will have to maintain physical distancing for the foreseeable future and that will hamper commerce to some degree.
“COVID-19 has been a major disruption for the world economy and nobody really knows exactly how the world is going to behave after the COVID-19 and when we’re going to actually go back to normal,” he said.
However, the Membertou development in particular is good news because it’s already 75 per cent leased and the band’s other properties are fully leased, Karaphillis said.
“That’s a good indicator that another building, a commercial-size building, is going on now and it’s going to happen although we’re in the middle of this major disruption,” he said.
“This is a very positive sign for the local economy all by itself.”
Hudson’s Bay recently announced plans to reopen its store in Sydney and the Mayflower Mall’s general manager, Greg Morrison, said some retailers will open inside the mall starting on Friday.
The mall is moving cautiously and will operate on reduced hours, though, he said.
“We’re really not sure at this time how many stores will open,” Morrison said on Tuesday.
“We’re not pressuring any stores to open. We’re going to just try to open and gauge and see how things work.”
Customers will be greeted at the door, given information on how to proceed and hand sanitizing stations will be available, said Morrison.
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Swiss Economy Slumps the Most in Decades – Yahoo Canada Finance
(Bloomberg) — Switzerland’s economy slumped the most in at least four decades as a result of the coronavirus pandemic, with private consumption and investment plummeting.
First-quarter gross domestic product plunged 2.6%, data from the State Secretariat for Economic Affairs showed. That’s worse than the 2.1% hit forecast by economists in a Bloomberg survey and the biggest three-month contraction since the start of the time series in 1980.
Like neighboring France, Italy and Germany, Switzerland responded to the pandemic by winding down much of public life. The hotel and restaurant sector experienced a 23.4% drop in output, according to the data on Wednesday.
Although the Swiss economy fared slightly worse than Germany’s in the first quarter, the contractions in France and Italy were far more severe.
Swiss government subsidies have kept a lid on unemployment and helped companies avoid a cash crunch, but the SECO still expects the economy to shrink 6.7% this year before staging a slow recovery in 2021.
Machine industry group Swissmem said that 80% of its member companies were forced to apply for short-time work, and that the full impact of the pandemic wouldn’t be felt by the sector until the second or third quarter of this year.
To prevent the rallying haven franc from hurting the economy still further, the Swiss National Bank has stepped up the pace of its currency interventions. Its deposit rate is already at a record low of -0.75%.
(Updates detail on hospitality sector in 3rd paragraph)
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Australia Economy Contracts as End to Recession-Free Run Looms – BNNBloomberg.ca
(Bloomberg) — Australia’s economy contracted in the first three months of the year, setting up an end to the nearly 29-year run without a recession as an even deeper slowdown looms for the current quarter.
Gross domestic product fell 0.3% from the final three months of 2019, the first quarterly drop since 2011, compared with a forecast 0.4% decline, statistics bureau data showed in Sydney Wednesday. From a year earlier, it expanded 1.4%, matching estimate
The result sets up an end to Australia’s record run of avoiding two consecutive quarters of negative GDP, having dodged recessions during the 1997 Asian Financial Crisis, the Dot Com Bubble and the 2008 global financial crisis. The current quarter will see a deep contraction, with almost 600,000 jobs lost in April alone and much of the economy in lockdown to contain the coronavirus.
Fiscal and monetary policy are working in tandem to rebuild the economy. The Reserve Bank of Australia has taken the cash rate near zero and lowering the cost of borrowing with its 0.25% bond yield target. The government has injected tens of billions of dollars into the economy to help tide businesses and households through the lockdown.
With the containment of the health crisis allowing activity to resume, how quickly businesses can get back on their feet, workers regain employment and households resume spending is the critical question.
“The rate of new infections has declined significantly and some restrictions have been eased earlier than was previously thought likely,” RBA Governor Philip Lowe said Tuesday after keeping borrowing costs unchanged.
“However, the outlook, including the nature and speed of the expected recovery, remains highly uncertain and the pandemic is likely to have long-lasting effects on the economy,” he said. “In the period immediately ahead, much will depend on the confidence that people and businesses have about the health situation and their own finances.”
©2020 Bloomberg L.P.
Australia’s Economy Contracts, Ending Three-Decade Expansion – Yahoo Canada Finance
(Bloomberg) — Australia’s economy contracted in the first three months of the year, setting up an end to a nearly 29-year run without a recession as an even deeper slowdown looms for the current quarter.
Gross domestic product fell 0.3% from the final three months of 2019, the first quarterly drop since 2011, brought down by a collapse in household spending, statistics bureau data showed in Sydney Wednesday. Economists had forecast a 0.4% drop. From a year earlier, the economy expanded 1.4%, matching estimates.
The Australian dollar edged a little lower after the release, and traded at 69.32 U.S. cents at 1:06 p.m. in Sydney.
The result sets up an end to Australia’s record run of avoiding two consecutive quarters of shrinking GDP, having dodged recessions during the 1997 Asian Financial Crisis, the Dot Com Bubble and the 2008 global financial crisis. The current quarter will see a deep contraction, with almost 600,000 jobs lost in April alone and much of the economy in lockdown to contain the coronavirus.
Treasurer Josh Frydenberg, speaking after the release, accepted this fate when asked directly whether the economy is now in recession.
“The answer to that is yes,” he told reporters. “That is on the basis of the advice that I have from the Treasury Department about where the June quarter is expected to be.”
Fiscal and monetary policy are working in tandem to rebuild the economy. The Reserve Bank of Australia has taken the cash rate near zero and lowered the cost of borrowing with its 0.25% bond yield target. The government has injected tens of billions of dollars into the economy to help tide businesses and households through the lockdown.
With the containment of the health crisis allowing activity to resume, the critical question is how quickly businesses can get back on their feet, workers regain employment and households resume spending.
“Growth should resume in the September quarter, but the impact of COVID-19 will surely cast a long and lingering shadow over the global economy and Australia’s recovery,” said Callam Pickering, an economist at global jobs website Indeed Inc. who previously worked at the central bank. “Continued support from fiscal and monetary policy will be necessary throughout 2020 and beyond.”
Today’s report showed:
Household spending tumbled 1.1%, shaving 0.6 percentage point off GDP, driven by a 2.4% drop in services expenditure. Restrictions particularity impacted spending on travel, hotels, cafes and restaurantsGovernment spending jumped 1.8%, adding 0.3 percentage point. Payments to provide support during the pandemic are expected to rise in the current quarterThe savings ratio advanced to 5.5% from a downwardly revised 3.5% in the fourth quarterDwelling construction fell 1.7%, reflecting continued weakness in approvalsNon-mining business investment fell 1.7%, while mining investment rose 3.6% as miners invest in new technologies and automation
Rising commodity prices are boosting miners’ profitability, with the terms of trade 2.9% higher in the first three months of 2020, pushing the current account surplus to a record A$8.4 billion ($5.8 billion). Yet, miners will be keeping a watchful eye on the nation’s currency, which has surged almost 20% in the past two-and-a-half months.
What Bloomberg’s Economists Say
“Typically backward looking national accounts releases contain an array of hidden trends that are often overlooked. Mining investment has climbed to a 7-year high, Australia’s terms of trade have risen and exploration intentions are elevated. This bodes well for the recovery.”
James McIntyre, economist
The economic outlook is improving as the restrictions are lifted, but will continue to be constrained by closed borders that are hitting tourism and education exports. The government is discussing a fresh round of fiscal stimulus to try to put residential construction back on its feet.
(Updates with Treasurer and economist comments)
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