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China's fiscal revenues rise 4.7% in third-quarter as economy gains steam – The Guardian

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BEIJING (Reuters) – China’s fiscal revenues grew 4.7% in the third quarter from a year earlier, reversing a 7.4% drop in the previous quarter, the finance ministry said on Wednesday, as the country’s economic recovery picked up pace.

China’s economy in the July to September quarter expanded by 4.9% from a year earlier, weaker than analyst expectations but faster than the second quarter’s 3.2% growth.

For the first nine months of the year, fiscal revenues fell 6.4% from a year earlier to 14.10 trillion yuan ($2.12 trillion), while fiscal expenditures dropped 1.9% to 17.519 trillion yuan, the ministry said.

Liu Jinyun, a finance ministry official, told a briefing that tax receipts could get a boost from China’s continued economic rebound in the fourth quarter.

“The decline in accumulative fiscal revenues will gradually moderate,” he said.

The government is on track to cut taxes and fees by more than 2.5 trillion yuan in 2020, including 1.88 trillion yuan in the first eight months, the ministry said.

China has allocated 200 billion yuan in local government special bonds to help resolve risks at small banks, Wang Kebing, a second finance ministry official, told the briefing.

In July, China’s cabinet said it would allow local governments to use part of the money they raise from special bonds this year to recapitalise some small banks.

China’s local governments will be allowed to issue 3.75 trillion yuan in special bonds this year, up from 2.15 trillion yuan in 2019.

(Reporting by Kevin Yao, Writing by Gabriel Crossley; Editing by Ana Nicolaci da Costa and Christian Schmollinger)

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UK borrowing to hit peacetime high as economy faces COVID-19 emergency – TheChronicleHerald.ca

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By William Schomberg and David Milliken

LONDON (Reuters) – Britain will borrow almost 400 billion pounds this year to pay for the massive coronavirus hit to its economy, finance minister Rishi Sunak said on Wednesday, as he took his first steps to offset the country’s highest budget deficit outside wartime.

The world’s sixth-biggest economy is now set to shrink by 11.3% in 2020 – the most since “The Great Frost” of 1709 – before recovering by less than half of that in 2021, Sunak told parliament as he announced a one-year spending plan.

“Our health emergency is not yet over. And our economic emergency has only just begun,” he said, promising more money for health, infrastructure, defence and to fight unemployment.

Britain’s budget watchdog estimated borrowing would be 394 billion pounds ($526 billion) in the 2020/21 financial year that began in April, slightly more than it predicted in August.

At 19% of gross domestic product, the deficit will be almost double its level after the global financial crisis which took nearly a decade of unpopular spending squeezes to work down.

Sunak announced cuts to foreign aid spending and a freeze on pay for many public sector workers.

But with many public services still stretched, Sunak is expected to look more at tax rises to make up the shortfall.

“We have a responsibility, once the economy recovers, to return to a sustainable fiscal position,” he said on Wednesday.

Britain was hammered harder by the coronavirus pandemic than most other rich economies as it underwent a long lockdown.

Nearly 56,000 Britons have died from COVID-19, the highest death toll in Europe.

Even with recent positive news about vaccines, the Office for Budget Responsibility (OBR) said the economy was only likely to regain its pre-crisis size at the end of 2022 – or later if Britain fails to get a post-Brexit trade deal with the European Union before a transition arrangement expires on Dec. 31.

Sunak made no reference to Brexit in his speech.

YET MORE SPENDING

Since the pandemic struck Britain a few weeks after he took over as finance minister, the former Goldman Sachs analyst has rushed out emergency spending – much of it on pay subsidies to fend off a surge in unemployment – and tax cuts.

The shift away from the traditional economic orthodoxy of the Conservative Party has alarmed some lawmakers.

Sunak said the cost of his measures to fight the coronavirus was now 280 billion pounds for this year, up from a previous estimate of about 200 billion pounds.

Even so, long-term economic damage of roughly 3% of GDP was likely as a result of COVID-19, the OBR said.

Unemployment was likely to peak at 7.5%, from 4.8% now.

With that damage in mind, Sunak sought to stress how spending would rise in the short term as Britain grapples with the fallout from the pandemic.

Over this year and next, day-to-day spending will rise by 3.8% in inflation-adjusted terms, the fastest growth rate in 15 years.

To meet Prime Minister Boris Johnson’s promise of “levelling up” growth around the country, 100 billion pounds will be spent next year on longer-term investments, 27 billion pounds more than last year.

A new national infrastructure bank will be based in the north of England, where many voters broke with tradition and backed Johnson in last year’s election.

Johnson later told Conservative lawmakers at a meeting of the 1922 Committee that he was confident the British economy could bounce back quickly, and that his government would deliver for the people who elected him, a lawmaker attending the meeting said.

The OBR said it would take 1% of GDP of spending cuts or tax hikes to bring the government’s day-to-day spending into line with its revenues. Debt was likely to rise further, to over 109% of GDP in 2023/24, up from about 101% now.

Paul Johnson, head of the Institute for Fiscal Studies think-tank, said the headline numbers were “completely staggering” but hid a squeeze on spending in three or four years’ time which would be challenging to deliver.

Sunak signalled some early cost-saving moves, including the freeze on pay for public sector workers, except for doctors, nurses, other health staff and the lowest-paid public sector workers.

And Britain will save 3 billion pounds a year by cutting overseas aid spending to 0.5% of GDP, a level that remains higher than almost all other rich countries.

The Archbishop of Canterbury Justin Welby said the cut was “shameful and wrong”, former Prime Minister David Cameron said the government had broken a promise to the poorest countries of the world, and the government’s minister for sustainable development resigned.

(Writing by William Schomberg; Editing by Catherine Evans and Jan Harvey)

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Unchanged from early estimate, US economy grew 33.1% in Q3 – OrilliaMatters

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WASHINGTON — The second of three estimates on U.S. growth for the July-September quarter was unchanged at a record pace of 33.1%. But a resurgence in the coronavirus is expected to slow growth sharply in the current quarter with some economists even raising the spectre of a double-dip recession.

While the overall increase in the country’s total output of goods and services was static, the Commerce Department reported Wednesday, some components were revised.

Bigger gains in business investment, housing and exports were offset by downward revisions to state and local government spending, business inventories and consumer spending.

The 33.1% gain was the largest quarterly gain on records going back to 1947 and surpassed the old mark of a 16.7% surge in 1950.

Still, the economy has not fully recovered from output lost in the first six months of the year when GDP suffered a record-shattering drop of 31.4% in the second quarter. That followed a slide at an annual rate of 5% in the first quarter as when the pandemic shut down much of the economy and triggered millions of layoffs.

Economists are concerned that growth has slowed sharply in the current October-December and there are fears that GDP could dip back into negative territory in the first three months of next year.

Mark Zandi, chief economist at Moody’s Analytics, said he had forecast GDP growth of around 2% in the fourth quarter, with the real possibility of GDP turning negative in the first quarter of next year.

Economists at JPMorgan Chase have trimmed their forecast for the first quarter to a negative 1% GDP rate. “This winter will be grim and we believe the economy will contract again in the first quarter,” the JPMorgan economists wrote in a research note.

“The economy is going to be very uncomfortable between now and when we get the next fiscal rescue package,” Zandi said. “If lawmakers can’t get it together, it will be very difficult for the economy to avoid going back into a recession.”

While lawmakers have returned for a lame-duck session, there has been no progress so far in narrowing the differences between Democrats who are pushing for a big package of $1 trillion or more, and Senate Republicans who are refusing to approve anything above approximately $500 billion.

More than 9 million people will lose their unemployment benefits at the end of the year when two jobless benefit programs are set to expire unless Congress extends them.

At the same time virus cases are surging, triggering a number of states to re-impose business limits such as earlier closing times for bars and restaurants and stricter limits on the number of in-store shoppers.

Martin Crutsinger, The Associated Press


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World economy risks buckling into 2021 despite vaccine nearing – BNN

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The surging coronavirus is stoking fears of a fresh downturn for the world economy, heaping pressure on central banks and governments to lay aside other concerns and do more to spur demand.

Hopes are mounting that COVID-19 vaccines will become available as soon as December, but widespread delivery will take months and infections are rising again in many large economies. Authorities are responding with more restrictions to limit the virus’s spread at the price of weaker economic activity.

Wall Street economists now say that it wouldn’t take much for the U.S., euro area and Japan to each contract again either this quarter or next, just months after they bounced from the deepest recession in generations. Bloomberg Economics guages of high-frequency data point to a double-dip downturn, with European factory indexes on Monday justifying that worry, though a U.S. measure of business activity was upbeat.

That leaves policy makers hearing calls for more stimulus, even when central banks are already stretched and starting to worry about froth in financial markets. Meantime, politicians from the U.S. to Europe are clashing over just how much they can and should do with fiscal policy.

“While there is much excitement over the progress of vaccine development, it will not be the quick fix that many expect it to be,” Singapore’s Trade & Industry Minister Chan Chun Sing told reporters on Monday. “Manufacturing enough doses, then distributing and vaccinating a significant population of the world, will take many months, if not years.”

Against such a backdrop, the European Central Bank is set to ease monetary policy again next month, while the Federal Reserve could concentrate more of its bond purchases on longer-term securities to push down interest rates.

But there are concerns the central banks have run out of room to act decisively and that even easier financial conditions won’t translate into an economic boost. The International Monetary Fund is among those also warning elevated asset prices potentially point to a disconnect from the real economy and so may pose a financial stability threat.

“There is a glut of savings and a shortage of investment,” which is the core problem facing developed economies, former Fed Chair Janet Yellen, who is set to be nominated for Treasury Secretary by President-elect Joe Biden, told Bloomberg’s New Economy Forum last week. “We have to have fiscal policy, structural policy other than just relying on central banks to achieve healthy growth.”

The problem is fiscal policy in the U.S. and Europe isn’t racing to the rescue. Lawmakers in the U.S. are at loggerheads over how much more to spend as Biden prepares to take office. President Donald Trump’s Treasury Department last week reduced the Fed’s ability to aid some credit markets.

In Europe, US$2 trillion in aid is being held up by a fight over political control.

“Exactly at the time central banks everywhere are acknowledging the centrality of fiscal policy in dealing with the economic consequences of the pandemic, governments are facing difficulties in implementing the next leg of their stimulus,” said Gilles Moec, chief economist at AXA SA.

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What Bloomberg Economics Says...

“Our base case is a contraction of 4.1 per cent in global output in 2020, followed by a rebound to 4.9 per cent growth in 2021. Uncertainty on the course of the virus, extent of stimulus, and timing of a vaccine mean the range of possible outcomes remains unusually wide.”

— Tom Orlik

For the U.S., the pace of infections prompted JPMorgan Chase & Co. analysts to forecast an economic shrinkage next quarter as various states impose social distancing curbs and some government benefits expire. Recent data show more people filing for unemployment benefits and fewer dining out at restaurants.

“It is possible we could have negative growth if this resurgence gets bad enough and mobility falls off enough,” Dallas Fed President Robert Kaplan told Bloomberg Television last week.

In Europe, further evidence arrived on Monday that a double-dip recession is on the way, with a survey of purchasing managers dropping sharply.

Japan’s manufacturing and service sectors worsened at a faster pace in November, early purchasing managers’ indexes showed, adding to concern over the strength of the recovery. Prime Minister Yoshihide Suga has called for a third extra budget to keep the economy on a growth path.

Both the International Monetary Fund and the Group of 20 — which comprises the world’s richest nations — warned during the G20’s meetings last weekend that the recovery is at risk of derailing despite positive news around vaccines buoying global stocks.

China is the world’s only major economy tipped to grow in 2020 as the government’s early control of the virus allowed lockdowns to be eased months ago. While its trade-led recovery is offering a boost to global commerce for now, even it’s vulnerable to the global outlook.

Reality Check

Fed Chair Jerome Powell and ECB President Christine Lagarde are among the central bankers warning against exuberance on news of successful vaccine trials.

The main reason for caution is the time needed to roll out shots for the world population to an extent enabling an end to growth-sapping movement restrictions. The announcement of a vaccine itself may drive market optimism, but doesn’t re-open economies for now.

“The vaccine gives more of a vision for what may be late next year, and what 2022 will look like, but not for the next six months,” ECB chief economist Philip Lane said in an interview with Les Echos. “The situation will not materially improve in the last weeks of 2020.”

The ECB’s downbeat tone on the immediate outlook is the backdrop to the likely arrival of a boost to the central bank’s 1.35 trillion-euro (US$1.6 trillion) emergency bond-buying program and its cheap bank loans. Policy makers meet on Dec. 10.

The worst affected sectors continue to shed jobs as companies warn on profits. Boeing Co. is almost doubling its planned job cuts while Adidas AG became one of the first consumer-goods companies in Europe to warn that renewed lockdowns will weigh on its earnings again and bring a swift end to a recent sales rebound.

The JPMorgan analysts are though hopeful that a vaccine and another round of fiscal support totaling US$1 trillion in the U.S. will be enough to deliver average growth of more than five per cent in the middle quarters of 2021. Even then, the virus’s legacies of record debt and elevated unemployment will endure.

Economists at ABN Amro Group NV however see mobility restrictions around the world lasting well into 2022.

“Only then can the global economy break into a growth spurt to make up the lost output versus trend growth,” analysts including chief economist Sandra Phlippen wrote in a report on Monday. “The vaccine is tantalizingly close, but still out of reach.”

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