China’s effort to contain the Wuhan coronavirus could have significant spillover effects on the global economy, according to analysts and other experts who are closely monitoring the outbreak.
There have so far been 20,630 confirmed cases of the new coronavirus and more than 425 deaths, almost all of which have been in China, according to the latest statistics from the World Health Organization.
But China’s increasing role in the global economy means the longer the crisis drags on, the greater the economic fallout could be.
A recent report from the economics unit of Royal Bank of Canada noted that China now accounts for nearly 20 per cent of global gross domestic product, compared to around nine per cent at the time of the SARS crisis in 2003.
“A disruption to economic activity in China, even if temporary, will have greater implications for the global economy now than in the past,” the RBC report said. ”And the longer the disruptions to economic activity in China last, the greater the potential for temporary spillover into global supply chains.”
The Chinese economy has also become much more “consumer-led,” rather than driven purely by manufacturing, according to Pedro Antunes, the chief economist at the Conference Board of Canada. This broadens out the possible economic effects to industries such as automotive manufacturing, tourism and even lobster fishing, which have all benefited from active Chinese consumers.
“This will have an impact,” Antunes said.
China has responded to the outbreak by locking down entire cities and restricting travel, something that will likely come with an economic cost.
Capital Economics recently cut its first-quarter forecast for China’s economic growth to around three per cent year-over-year from 5.5 per cent.
Chief economist Neil Shearing noted the longer the crisis goes on in China, the greater the global impact might be. He also pointed to the potential for the crisis to trigger a stock market correction.
“Given that we’re ten years into a global equity bull market, the potential for the virus to trigger a significant market correction is much greater now than it has been during previous epidemics,” he said in the report.
The potential for the virus to trigger a significant market correction is much greater now than it has been during previous epidemicsNeil Shearing
Antunes said a tumbling stock market could create a “fear factor” that weighs on business confidence. Canadian stocks have managed to rebound somewhat since the WHO’s first situation report on Jan. 21, with the S&P/TSX Composite Index now down around 0.2 per cent since then.
Canada has so far had four confirmed cases of the new coronavirus, with a possible fifth case announced on Tuesday.
S&P Global Ratings said Tuesday that its “base-case projection” was the coronavirus crisis will stabilize by April, with the agency’s worst case being the virus stops spreading by late May.
Consumer demand may take even more time to pick up steam again. And for Canada specifically, the country’s trade ties with China were already strained after the arrest of a Huawei Technologies Co. Ltd. executive in 2018.
“This is going to affect that further, obviously,” Antunes said.
Judging from market moves the Canadian economy could also be affected by a drop-off in energy demand stemming from the coronavirus. Over the past month, the benchmark for West Texas Intermediate oil has fallen to around US$50 a barrel from US$65.
“While that drop is expected to be temporary, it will presumably reduce revenue for the Canadian oil and gas sector in the near term,” RBC’s Jan. 31 report stated.
News of coronavirus-related moves by companies is already beginning to trickle out, such as fashion company Ralph Lauren Corp. disclosing Tuesday it had shuttered around half of its 110 stores in China because of the outbreak.
The tourism sector is likely to be affected as long as the virus is looming as well, with a number of airlines, Air Canada included, having already suspended flights to China. On Tuesday, Royal Caribbean Cruises Ltd. said it had cancelled eight cruises out of China due to the outbreak, while the government of gambling metropolis Macau said it decided to suspend casino operations for two weeks.
“The outbreak has the potential to cause severe economic and market dislocation,” Shearing wrote. “But the scale of the impact will ultimately be determined by how the virus spreads and evolves, which is almost impossible to predict, as well as how governments respond. If the epidemiologists are unsure how events will play out, then you should be sceptical of any economist that claims to know better.”
Chile’s Economy Stagnates in Second Quarter as Demand Withers – BNN Bloomberg
(Bloomberg) — Chile’s economy is teetering on the brink of recession after unexpectedly flatlining in the second quarter amid soaring inflation and heightened political uncertainty over a new constitution.
Gross domestic product was unchanged in the April-June period from the previous three months, worse than all forecasts in a Bloomberg survey of analysts that had a 0.3% median estimate. It shrank in the first quarter. From a year prior, the economy expanded 5.4%, the central bank reported on Thursday.
Chile’s economy is running out of steam after last year’s boom as President Gabriel Boric’s administration weans the population off of stimulus and inflation hits the highest in almost three decades. Consumers are also getting pinched as the central bank extends aggressive interest rate hikes, while businesses are holding back on investments ahead of next month’s referendum on a new constitution.
Read more: Chile Inflation Tops 13% as Weak Peso Adds to Price Pressure
What Bloomberg Economics Says
“Chile GDP data for the second quarter showed a second straight drop in domestic demand — confirming the economy has reversed trend after the sharp rebound from the pandemic.”
–Felipe Hernandez, Latin America economist
Click here for full report
Domestic demand fell 0.9% during the second quarter compared to the first three months of the year as retail dropped by 1.2% and manufacturing declined 0.3%. On the other hand, mining increased 3.1%, according to the central bank. The nation’s current account deficit widened to $6.6 billion.
“All in all, the economic performance during the first half of the year was poor,” Andres Abadia, chief Latin America economist at Pantheon Macroeconomics, wrote in a report. “Looking ahead, conditions remain challenging. We expect GDP to fall by about 0.2% in both Q3 and Q4.”
Annual inflation has rocketed to a 28-year high on rising raw material costs and a recent currency plunge, prompting the central bank to extend a hiking cycle that’s added 925 basis points to borrowing costs in just over a year.
Boric has responded with limited aid including a new round of payouts to help the poorest face the surging cost of living without hurting public finances. It’s a turnaround from last year, when billions of dollars from early pension withdrawals and cash transfers were plowed into the economy.
On Sept. 4, voters will head to the polls for a referendum on a new charter that was written in response to social unrest in 2019-2020. Polls show the proposal will likely be rejected, though Boric has said he will back a new constitutional rewrite, a move that could prolong political uncertainty.
Read more: Latin America’s Market Darling Now More Risky Than Chaotic Peru
(Updates with Bloomberg Economics quote in fourth paragraph)
©2022 Bloomberg L.P.
Tourism shaping Osoyoos's economy in big way – Times Chronicle
By Madeline Baker, Times Chronicle
A report commissioned by Destination Osoyoos has taken a closer look at how tourism shapes Osoyoos’s economy and what improvements, changes and concerns should be considered going forward.
The study behind this report, which was released earlier this year by B.C.’s Larose Research and Strategy, took place in 2020, which was a year full of personal and professional upheaval for communities around the world, but still a busy enough year in the tourism sector to be reflective of larger ongoing trends.
In fact, Osoyoos saw approximately 300,000 visitors in 2020, which Destination Osoyoos’s Executive Director Kelley Glazer believes is likely to be higher than 2019. The majority of these visitors stayed in Osoyoos for over a week, filling hotels, resorts, B&Bs and private vacation rentals as well as campgrounds and RV parks.
Not only is that double the length of most stays in an average B.C. community, but over 25 per cent of those visitors had been to Osoyoos more than 10 times previously. With so many return visitors, it’s hardly surprising that 71 per cent of them would be likely to recommend the town to friends or colleagues as a holiday destination and only about three per cent would not.
All that positive word of mouth may explain why Osoyoos also stands out as a travel destination for people from Canada’s prairie and eastern provinces. B.C. communities typically see twice as many visitors from Alberta as from the rest of Canada combined but Osoyoos saw only 12 per cent from Alberta and 27 per cent from other parts of Canada.
When it comes to the economic impact of all these visitors, Osoyoos is also in a unique position among most other communities in B.C. Due in part to the number of overnight rather than same-day visitors, in part to the length of their stays, and in part to the draw of the Okanagan Valley’s wine industry, the average expenditure per visitor here is much higher.
However, a popular misconception of Osoyoos as a “playground for the rich” is not reflected in the data gathered by Larose. In fact, the report shows a diversity of household income that can be considered representative of the same diversity across B.C. and Canada, despite the large amounts of money spent during holidays here.
A total of $174 million was spent in Osoyoos in 2020, and almost entirely by tourists because of the mass switch by many professional sectors to working from home and a resulting lack of business travellers. Combined with tax revenue, that makes the entire impact $264 million for a single year.
Unsurprisingly, about one third of employment in Osoyoos was directly tied to the tourism sector, which also contributes to the economic profile of the town across all seasons. Larose polled a collection of residents for the report to learn their feelings about many aspects of living in a tourist town, including its employment prospects, with rather mixed results.
While Osoyoos residents generally recognized the economic opportunities created by tourism, there was also a strong belief that growth opportunities in the tourism sector are more limited than in others, and that tourism is inherently an unstable industry.
They had bigger worries than employment, though: some replies to the poll connected the lack of available, affordable rental properties in Osoyoos with its focus on tourism, while others felt that the crowds contributed to pollution and traffic congestion in the community to a concerning degree.
Pluses and minuses
The report closes with recommendations to maximize Osoyoos’s biggest draws for tourist traffic and mitigate its weaker points. By a large margin, visitors recommended the authentic Indigenous cultural experiences that can be found here as the best reason to make the trip, and the report identified this as Osoyoos’s most unique drawing point.
Glazer confirmed that she has seen the popularity of local Indigenous cultural centres among out-of-towners firsthand. “I had some relatives come from Europe, and besides coming here to see myself, the one thing they made time for was going to the cultural centre. It was much the same as it would be if we went to Europe and wanted to see the culture.”
She added that the Okanagan Indian Band’s “business development approach to tourism” has made them an excellent marketing partner for Destination Osoyoos. “They haven’t really needed a whole lot of assistance, but we do market all of their products and include them as part of our community offerings.”
Food and beverage services and nightlife activities were pinpointed as unsatisfying areas for visitors, as was the lack of parking and abundance of motor boats near beaches. “Improving the quality and availability of food and beverage is a big challenge,” said Glazer. “I don’t care where you travel in this world right now, dining out is probably not the best experience.”
Glazer does see a way forward with the issue of motor boat usage in the wrong areas, which she believes will require a stronger partnership with local law enforcement. “Presence is key. We have two RCMP officers who are actually qualified to run our RCMP boat, and that’s just not enough people to deal with that,” she said.
As for the report’s recommendation that Osoyoos “[enhance] resident awareness of, and involvement in tourism-related planning discussions,” Glazer had to admit that she was at a loss for new strategies.
“Invitations [to planning sessions] are sent out constantly, over and over again. We’ve phoned people and asked them to come, and then we get the usual turnout,” she said. “So I’m not quite sure what we will do there.”
The report will now be used “to ensure that the [tourism] sector maximizes benefits to visitors, tourism businesses, and residents, while improving local quality of life, respecting local culture and heritage, and preserving the region’s unique and sensitive ecosystems,” as said in its closing words.
It may also be shared with other resort municipalities that share similar strengths and concerns with Osoyoos.
What you need to know about the global economy this week – World Economic Forum
License and Republishing
The views expressed in this article are those of the author alone and not the World Economic Forum.
Chile’s Economy Stagnates in Second Quarter as Demand Withers – BNN Bloomberg
Tourism shaping Osoyoos's economy in big way – Times Chronicle
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