LONDON (Reuters) – China will overtake the United States to become the world’s biggest economy in 2028, five years earlier than previously estimated due to the contrasting recoveries of the two countries from the COVID-19 pandemic, a think tank said.
“For some time, an overarching theme of global economics has been the economic and soft power struggle between the United States and China,” the Centre for Economics and Business Research said in an annual report published on Saturday.
“The COVID-19 pandemic and corresponding economic fallout have certainly tipped this rivalry in China’s favour.”
The CEBR said China’s “skilful management of the pandemic”, with its strict early lockdown, and hits to long-term growth in the West meant China’s relative economic performance had improved.
China looked set for average economic growth of 5.7% a year from 2021-25 before slowing to 4.5% a year from 2026-30.
While the United States was likely to have a strong post-pandemic rebound in 2021, its growth would slow to 1.9% a year between 2022 and 2024, and then to 1.6% after that.
Japan would remain the world’s third-biggest economy, in dollar terms, until the early 2030s when it would be overtaken by India, pushing Germany down from fourth to fifth.
The United Kingdom, currently the fifth-biggest economy by the CEBR’s measure, would slip to sixth place from 2024.
However, despite a hit in 2021 from its exit from the European Union’s single market, British GDP in dollars was forecast to be 23% higher than France’s by 2035, helped by Britain’s lead in the increasingly important digital economy.
Europe accounted for 19% of output in the top 10 global economies in 2020 but that will fall to 12% by 2035, or lower if there is an acrimonious split between the EU and Britain, the CEBR said.
It also said the pandemic’s impact on the global economy was likely to show up in higher inflation, not slower growth.
“We see an economic cycle with rising interest rates in the mid-2020s,” it said, posing a challenge for governments which have borrowed massively to fund their response to the COVID-19 crisis.
“But the underlying trends that have been accelerated by this point to a greener and more tech-based world as we move into the 2030s.”
(Writing by William Schomberg; Editing by Toby Chopra)
Australian economy forecast to rebound in 2021 as pandemic subsides: Reuters poll – TheChronicleHerald.ca
By Vivek Mishra
BENGALURU (Reuters) – Australia’s economy, which entered 2021 in better shape than most of its peers, will gain further momentum from the successful domestic suppression of the coronavirus pandemic and supportive policies, according to a Reuters poll of economists.
Coronavirus-led lockdowns that began in March last year tipped the economy into its first recession since the early 1990s, breaking one of the world’s longest growth streaks.
But Australia has been relatively successful in curbing the pandemic and largely reopened its economy, resuming activity, domestic traveling and consumer spending.
The Jan. 12-20 Reuters poll of 34 economists forecast Australia’s A$2 trillion ($1.55 trillion) of gross domestic product would expand 3.5% this year – the fastest since polling began for the year in April 2019, although slower than the government’s growth projection of 4.5% – after contracting 3.0% last year.
“We see the recovery continuing, assisted by aggressive policy accommodation, both monetary and fiscal, and continuing growth in Asia. We assume vaccine roll-out will commence in February,” said Andrew Ticehurst, economist at Nomura.
“While the broad outlook is favourable, with unemployment set to rise much less than earlier feared, we expect the recovery to be somewhat constrained by continuing Australia/China tensions and weak population growth, given ongoing travel restrictions.”
Goods exports to China declined nearly 10% to a four-month low in November as diplomatic tensions with Beijing saw the world’s second-biggest importer impose heavy tariffs on imports of Australian coal, beef, barley and wine.
Iron ore – Australia’s top export and a critical ingredient for China’s massive steel sector – has so far been spared, but if China finds alternative sources, as it has for other goods, it could be very damaging.
ALL IS NOT WELL
Although the country’s jobless rate declined to 6.8% in November from a July peak of 7.5%, it remained above pre-COVID-19 levels of around 5%. Some economists forecast it will hold above 6% this year.
That was despite billions of dollars in tax concessions to businesses and aggressive monetary policy easing from the Reserve Bank of Australia.
The RBA, which has slashed its official cash rate by a cumulative 65 basis points to an all-time low of 0.1% since the pandemic began, is expected to leave interest rates just above zero through at least 2022.
That is unlikely to stoke inflation as low wage growth keeps price pressures subdued, but it will push house prices higher.
In a report last week, the central bank said a 100-basis- point reduction in interest rates could push real housing prices up 30% after about three years.
The poll forecasts consumer prices would rise 1.5% this year and 1.7% next, still below the RBA’s comfort zone of 2 to 3%.
For decades, wage and price growth have remained largely subdued, and with the global pandemic ongoing that is expected to continue.
In the third quarter, Australian wages grew just 0.10% – the slowest pace on record – hurting household spending.
“No one really understands how bad the underlying picture is because no one’s pulled away that plaster yet. If you think zero real wage growth and house price growth of 10% is good news, then everything is looking great and if you don’t, then everything’s looking pretty rocky,” said Michael Every, global strategist at Rabobank.
(For other stories from the Reuters global long-term economic outlook polls package:)
($1 = 1.2937 Australian dollars)
(Reporting by Vivek Mishra; polling by Shaloo Shrivastava and Md Manzer Hussain; editing by Jonathan Cable, Larry King)
Bank of Canada sees economy shrinking in first quarter as second wave makes for choppy recovery – TheChronicleHerald.ca
Bank of Canada governor Tiff Macklem, an enthusiastic water skier, borrowed from one of his favourite sports to describe the current state of the Canadian economy.
“We’ve said for some time that we’re expecting a choppy recovery and, unfortunately, we’re in a very serious chop,” he
on a Jan. 20 call with reporters after the central bank released
a new forecast
that predicts an economic contraction this winter.
The forecast is a disappointing turn. Canada’s economy was gathering pace over the summer, but conditions turned rough ahead of the holidays as the second wave of COVID-19 infections forced governments across the country to restrict movement and commerce. Employers sent more than 60,000 people home in December, the first decline in employment since the spring, Statistics Canada
earlier this month.
With no immediate end to the pandemic in sight, the Bank of Canada’s forecasting team concluded that gross domestic product (GDP) will contract at an annual rate of 2.5 per cent in the first quarter of 2021, after growing 4.8 per cent in the fourth quarter, thereby offsetting the boost the economy should get from the earlier-than-expected arrival of effective vaccines.
Overall, the Bank of Canada predicts growth of four per cent in 2021, compared with a previous estimate of 4.2 per cent, 4.8 per cent in 2022 and 2.5 per cent in 2023.
“We’re moving in the wrong direction right now,” Macklem said. “We’re starting off in a deeper hole. We’ve got to climb back out of that.”
The shift in circumstances highlights the fragility of the recovery from one of the most epic recessions in history. Canada’s ability to generate wealth will be determined by the public health system’s ability to keep up with the coronavirus. There’s enough money in the system to power growth, but businesses and households won’t spend it freely until the disease is brought under control.
“That is what will determine everything,” said Darcy Briggs, a Calgary-based portfolio manager at Franklin Templeton Canada.
that he intends to leave the benchmark interest rate at 0.25 per cent until some point in 2023, and that the central bank would continue to create roughly $4 billion per week to purchase Government of Canada bonds, an approach to monetary policy that puts downward pressure on borrowing costs by augmenting private-sector demand for bonds.
Extraordinary stimulus remains essential, in part, because Canada’s economy has run into additional headwinds. The immediate future of the oil industry is clouded by mediocre prices, uncertain demand and TC Energy Corp.’s decision to stop building the Keystone XL pipeline in the face of political opposition in the United States. The dollar’s appreciation has become so problematic that the Bank of Canada felt compelled to flag it as a key risk to its inflation outlook, something it hasn’t done so explicitly since 2011.
“Appreciation of the Canadian dollar creates direct downward pressure on inflation by lowering the prices of imports,” the central bank said. “Further appreciation of the Canadian dollar could slow output growth by reducing the competitiveness of Canadian exports and import-competing production. Slower output growth would also imply more disinflationary pressures.”
The Bank of Canada’s bond-buying efforts are controversial with a minority of market participants, economists and politicians who dislike the sight of the central bank using its unique power to create money so aggressively.
In theory, Macklem is testing the central bank’s ability to contain inflation, since a massive increase in the money supply should cause prices to rise. There is no evidence of that yet, as Statistics Canada on Jan. 20
that the Consumer Price Index (CPI) increased 0.7 per cent in January from a year earlier, a reading that suggests deflation is the greater threat at the moment.
“The ongoing drag from economic slack is the most important driver of inflation dynamics over the medium term,” the Bank of Canada said in its new outlook, which predicts some temporary spikes in the CPI, but concludes that inflation won’t “return sustainably” to the two-per-cent target until 2023.
Still, Macklem began the process of unwinding his bond-buying program by reminding traders and investors that the Bank of Canada doesn’t intend to be a major player in bond markets indefinitely.
The central bank used its new policy statement to tweak its language around quantitative easing (QE), as the policy is known, saying that, as “the Governing Council gains confidence in the strength of the recovery, the pace of net purchases of Government of Canada bonds will be adjusted as required.”
Policy-makers also used their quarterly economic report to point out that the central bank now holds about 36 per cent of all federal government debt, compared with 32 per cent in October, an amount that as a percentage of GDP is greater than the holdings of the central banks of Australia and Sweden, but less than the U.S. Federal Reserve and the Bank of England.
In other words, the Bank of Canada has more ammunition, but its armoury isn’t bottomless.
“There’s an upper limit,” Briggs said. “We’re not there yet. We assume QE will end with the pandemic.”
Copyright Postmedia Network Inc., 2021
Trump inherited a booming economy — and handed Biden a nation 'in shambles' – NBC News
More so than other presidents, and to the endless frustration of economists, Donald Trump correlated stock market performance with the nation’s economic health. However, President Joe Biden is unlikely to measure his own achievements by the gyrations of the stock market, economic experts say — and that message is likely to resonate with an anxious population.
“I doubt Joe Biden views the stock market as a barometer of his immediate success,” said Thomas Martin, senior portfolio manager at Globalt Investments. “He is focused on the health and welfare of Americans. He will gauge success on how much he can flatten the curve, prevent deaths and get the economy back in shape.”
For much of Trump’s presidency, it was easy for him to claim credit for stock gains, since he was set up for success, economists say.
“The economy was in pretty good shape. Nothing was really out of balance,” said Dan North, chief economist for North America at Euler Hermes.
Corporate expectations of lower taxes and fewer regulations sent business optimism soaring. “It was the right environment to go up. The Biden stock market has an awful lot going against it,” North said.
The Biden stock market has an awful lot going against it.”
Last March 9 and again on March 12, as the coronavirus began to take over the country, stocks fell so far, so fast, that electronic “circuit breakers” had to be triggered to stave off a full-blown collapse. That weekend, Trump tweeted, “BIGGEST STOCK MARKET RISE IN HISTORY YESTERDAY!” while saying nothing to address, or even acknowledge, the nation’s growing economic fears. The following week, circuit breakers were again triggered on two different days as stocks continued to slide.
The CARES Act, along with aggressive action from the Federal Reserve to lower interest rates and add liquidity to the financial system, ultimately stopped the market’s fall. In the ensuing months, Wall Street recovered, while Main Street suffered.
Experts say this is just one example of why it was not only pointless, but foolhardy, for Trump to claim credit for a rising market. “In the investment business, generally speaking, we know that the things that make the stock market move are myriad and complex. It’s difficult, at best, to gauge cause and effect,” Martin said.
Despite his self-professed business acumen, Trump squandered some of the market momentum he was handed, analysts say. “He did quite a few things to really impede the progress of the stock market,” said Chris Zaccarelli, chief investment officer at the Independent Advisor Alliance. “The trade war with China was, by far, the most detrimental.”
That trade war was widely regarded as a failure: It drew to an uneasy truce in early 2020, with little gained for American consumers or businesses.
The new president, on the other hand, faces a heavier lift. “President Trump is handing Biden an economy in shambles, still down nearly 10 million jobs from its pre-pandemic peak and struggling to avoid a double-dip recession,” Moody’s Analytics Chief Economist Mark Zandi wrote in a research note earlier this week.
“Whereas you might say what Trump inherited was a ‘normal market,’ Joe Biden is inheriting a market that’s at extremes,” Martin said. “You just have a whole new ballgame for Joe Biden.”
Valuations are high, inflation is broadly low but shows pockets of escalation, and market observers say Wall Street seems to be positioned for a best-case scenario regarding Covid-19 containment and immunity. Anything that doesn’t live up to the market’s lofty expectations could trigger a reversal in investor sentiment.
“If you’re the average person, do you care if GDP was 3.2 or 3.4 percent? No, you care if you have a job.”
If the market does drop from its current highs, though, economists don’t expect Biden to respond the way his predecessor might have. Unlike Trump, Biden is more likely to focus on containing Covid-19 and getting the sputtering labor market recovery going again. “The Biden administration, I think, is going to focus more on the unemployment rate and jobs and less on what the actual stock market may do,” said Megan Horneman, director of portfolio strategy at Verdence Capital Advisors. “Right now, our immediate problem is still the coronavirus and getting the economy reopened.”
North said: “It’s going to take a long time to get those 10 million jobs back, particularly because there’s been so much permanent business closure. That’s what I believe the administration will focus on and, honestly, should focus on.”
“If you’re the average person, do you care if GDP was 3.2 or 3.4 percent?” he said. “No, you care if you have a job.”
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