Connect with us


Coronavirus economic impact offers lesson for Canadian businesses



The potential for economic disruptions posed by the coronavirus outbreak in China offers some lessons for Canadian businesses, says one expert.

In an interview with The West Block‘s Mercedes Stephenson, Canadian Chamber of Commerce president Perrin Beatty said while many of the larger businesses in Canada learned lessons from the SARS outbreak in 2003, similar lessons can be learned around the need to diversify supply chains for smaller businesses.

“We’re certainly urging particularly smaller businesses and medium-sized businesses to develop contingency plans,” said Beatty, pointing to situations such as if a supplier becomes unavailable, inventory runs low or employees on the ground in China might not be able to work.

“These are all lessons that larger businesses learned to deal with after SARS, but often smaller businesses don’t have those plans in place and to need to.”

The outbreak was first identified at the end of December. Over the course of recent weeks, it has infected more than 30,000 and killed more than 600 people.

The overwhelming majority of those cases are in China, although two deaths have been reported in Hong Kong and the Philippines.

Four cases have been confirmed in Canada with no fatalities.

But roughly 50 million people are in the region under quarantine, with 11 million of those in Wuhan, the epicentre of the outbreak.


Wuhan has been locked down, with all roads in or out of the city blocked by authorities as they grapple to contain the virus.

And there are growing concerns that companies relying on imports from the industrial region could start to feel the pinch.

Wuhan, for example, is an automotive production hub, and its unprecedented quarantine could impact those factories along with others producing phones and crystal displays for things like televisions.

Beatty said it drives home the need for companies to have diverse supply chains.

However, he said he expects any economic impact to Canada to be minimal.

“It’s certainly manageable,” he said. “Yes, it does impact economic growth in Canada in a negative way, but it’s something that we can overcome and we can manage and we will still see positive growth through the year.”


Edited BY Harry Miller

Source link

Continue Reading


Pound Fights for Reprieve as Economy Flails: UK Weatherwatch – Financial Post



Article content

By Alice Gledhill

(Bloomberg) —

The pound has pulled off a fighting comeback from a two-year low against the dollar yet the UK’s markets are looking more bruised as evidence of a sharp economic slowdown mounts.

The currency has gained for two weeks to end a month of losses, mostly thanks to ebbing demand for the dollar as a haven rather than positive local factors. The pressure on Britain’s companies is growing after an index of UK private sector growth unexpectedly slid in May.

For some strategists, much of the bad news is now priced in. For others, another period of reckoning for the pound is likely. Doubts are rife over just how much the Bank of England, which next meets in mid-June, can keep hiking borrowing costs given a cost-of-living crisis and collapse in consumer sentiment.

Advertisement 2

Article content

“Overall the UK’s vulnerable position in terms of exposure to a slowing Europe and China, more dovish central bank and weak balance of payments suggests to us the path for pound-dollar is lower towards $1.20,” said Jordan Rochester, a strategist at Nomura International Plc. 

A recent Confederation of British Industry survey painted a gloomy picture of wilting demand and sagging profits. Inflation — already at a 40-year high — may not have peaked. And a new government levy on energy companies could weaken investor sentiment, with oil major BP Plc already warning it will reconsider its capital expenditure plans.

Read more: Gloom Engulfs UK Services Firms as Costs and Prices Soar

While the BOE’s outlook is becoming more murky after back-to-back rate increases, the European Central Bank looks set to start hiking soon, and that could also send sterling lower against the euro. Deutsche Bank AG strategist Shreyas Gopal recommended clients buy euros, pointing to a target of 88 pence by the end of the third quarter. It was at about 85 pence on Friday. 

Advertisement 3

Article content

The pound only tells part of the story about the health of UK Plc. Bloomberg News will use a regular series of charts to show what rates, credit and stock markets are signaling.

No Upside

The weakness in the pound, still down nearly 7% this year, has bolstered the exporter-heavy FTSE 100 stock index, particularly in contrast to the more domestically-focused FTSE 250. Still, strategists in a monthly Bloomberg survey see no more upside for the benchmark this year, compared with a return potential of 9% for the Euro Stoxx 50. 

Read more: It’s Going to Get Harder for UK Stocks to Keep Outperforming

Commodities prices, an important driver behind the FTSE 100’s performance given firms such as Shell Plc and Glencore Plc, are stalling as Chinese demand shows signs of weakness. Energy company profits could also suffer given the so-called windfall tax. 

Advertisement 4

Article content

A warning sign for the health of companies is a gauge of risk in the sterling junk bond sector, which comprises mainly local borrowers. That’s approaching 600 basis points for the first time since the pandemic’s early stages, meaning higher costs. It’s also thrown the market for new bond sales into disarray, with high-profile financing deals grinding to a halt. 

Bloomberg News reported this week that UK retailer Matalan Ltd. is facing challenges in refinancing its debt as a maturity deadline looms. Banks have struggled for more than six months in some cases to sell financing deals for high-profile buyouts including Wm Morrison Supermarkets Plc. 

There are some positives for the UK economy: it has a strong labor market and the government’s £15 billion ($19 billion) spending spree announced in recent days will help the hit to households from higher energy prices. Yet it’s unlikely to boost sentiment in UK data surveys or the path for lower growth ahead, according to Nomura’s Rochester.

Advertisement 5

Article content

There are also warnings it could further stoke inflationary pressures, particularly as Chancellor Rishi Sunak hinted in an interview on Friday that another massive handout could follow in 2023. That’s led bets on the number of BOE rate hikes to tick up again for 2022.

Money markets are pricing five 25 basis points hikes by December, though that’s still below the 150 basis points seen earlier in May. Forward prices drive home the bleak longer-term outlook, showing traders expect the BOE to end up cutting rates in two years.

“It still looks very likely that the UK economy will fall into recession, or at least experience a period of extremely weak growth,” said Standard Bank strategist Steven Barrow.

©2022 Bloomberg L.P.



Postmedia is committed to maintaining a lively but civil forum for discussion and encourage all readers to share their views on our articles. Comments may take up to an hour for moderation before appearing on the site. We ask you to keep your comments relevant and respectful. We have enabled email notifications—you will now receive an email if you receive a reply to your comment, there is an update to a comment thread you follow or if a user you follow comments. Visit our Community Guidelines for more information and details on how to adjust your email settings.

Adblock test (Why?)

Source link

Continue Reading


Charting the Global Economy: Export Limits Worsen Food Security – Bloomberg



Sign up for the New Economy Daily newsletter, follow us @economics and subscribe to our podcast

India and Malaysia are among several Asian countries restricting exports of certain key commodities as nations try to safeguard supplies over concerns of food security and inflation.

Adblock test (Why?)

Source link

Continue Reading


U.S. economy kicks off second quarter on strong note; rise in inflation slowing – The Globe and Mail



U.S. consumer spending rose more than expected in April as households boosted purchases of goods and services, and the increase in inflation slowed, which could underpin economic growth in the second quarter amid rising fears of a recession.

The economy’s near-term prospects were also brightened by other data from the Commerce Department on Friday showing the goods trade deficit narrowed sharply last month. A record trade deficit caused a contraction in output in the first quarter.

“The economy can always turn on a dime, but at this point in the economic cycle, consumers are still spending their hearts out, keeping the recessionary winds at bay,” said Christopher Rupkey, chief economist at FWDBONDS in New York.

Consumer spending, which accounts for more than two-thirds of U.S. economic activity, increased 0.9 per cent last month. Data for March was revised higher to show outlays racing 1.4 per cent instead of 1.1 per cent as previously reported. The strength in spending is despite consumer sentiment being at its lowest level since 2011.

Goods spending increased a solid 0.8 per cent, driven by new motor vehicles, clothing, footwear, recreational goods as well as furnishings and household equipment. Demand for goods remains strong even as spending on services is picking up.

Services outlays rose 0.9 per cent as consumers frequently dined out and traveled. There was also increased spending on housing and utilities, and recreation services.

Economists polled by Reuters had forecast consumer spending gaining 0.7 per cent. Spending is being supported by massive savings as well as strong wage gains, with companies scrambling to fill a record 11.5-million job openings as of the end of March.

Personal income rose 0.4 per cent, with wages accounting for the bulk of the increase. The saving rate dropped to 4.4 per cent, the lowest since September 2008, from 5.0 per cent in March. That suggests households have been tapping into the more than $2-trillion in excess savings accumulated during the COVID-19 pandemic.

The reduction in savings could mean slower consumer spending down the road, especially given the rising borrowing costs.

“High- and middle-income households still have some savings amassed,” said Diane Swonk, chief economist at Grant Thornton in Chicago. “Households in the bottom quintile have now tapped what little they had in excess reserves.”

The Federal Reserve’s hawkish monetary policy stance as it fights to quell high inflation and bring it back to its 2 per cent target has fanned worries of a recession. Fears of an economic downturn have also been exacerbated by Russia’s dragging war against Ukraine as well as China’s zero COVID-19 policy, which have further entangled supply chains.

The U.S. central bank has raised its policy interest rate by 75 basis points since March. The Fed is expected to hike the overnight rate by half a percentage point at each of its next meetings in June and July.

Strong consumer spending offered some reprieve for risky assets like equities after a recent sharp sell-off. Stocks on Wall Street were higher. The dollar was steady against a basket of currencies. U.S. Treasury prices were mixed.

Although inflation continued to increase in April, it was not at the same magnitude as in recent months. The personal consumption expenditures (PCE) price index rose 0.2 per cent, the smallest gain since November 2020, after shooting up 0.9 per cent in March.

In the 12 months through April, the PCE price index advanced 6.3 per cent after jumping 6.6 per cent in March.

The annual PCE price index increase is slowing as last year’s large gains drop out of the calculation.

Excluding the volatile food and energy components, the PCE price index gained 0.3 per cent, rising by the same margin for three straight months. The so-called core PCE price index increased 4.9 per cent year-on-year in April, the smallest gain since last December, after rising 5.2 per cent in March.

It was the second straight month that the rate of increase in the annual core PCE price index decelerated. This inflation measure is the most followed by economists and policymakers.

“We need to see the monthly increases cool more meaningfully before the Fed can breathe,” said Jennifer Lee, a senior economist at BMO Capital Markets in Toronto.

The moderation in inflation bodes well for GDP growth this quarter. When adjusted for inflation, consumer spending increased 0.7 per cent in April after rising 0.5 per cent in the prior month.

There was more goods news, with a second report from the U.S. Commerce Department showing the goods trade deficit dropped 15.9 per cent to $105.9-billion in April. The narrowing reflected a 5.0 per cent decline in imports.

While weak imports are good for the top line GDP number, they could be flagging a slowdown in consumer spending and business investment. Imports of both capital and consumer goods fell. Motor vehicle imports, however, rose. Good exports increased 3.1 per cent, boosted by shipments of food products.

Wholesale inventories increased 2.1 per cent last month, while stocks at retailers advanced 0.7 per cent. Following Friday’s data, Goldman Sachs raised its second-quarter GDP growth estimate by two-tenths of a percentage point to a 2.8-per-cent annualized rate.

The economy contracted at a 1.5-per-cent pace last quarter because of the massive trade deficit and slower inventory accumulation relative to the fourth-quarter’s robust rate.

Be smart with your money. Get the latest investing insights delivered right to your inbox three times a week, with the Globe Investor newsletter. Sign up today.

Adblock test (Why?)

Source link

Continue Reading