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Coronavirus poses 'new risk' to US, global economy, Fed warns – Aljazeera.com

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The Federal Reserve Board said that the coronavirus outbreak presented a “new risk” to the economic outlook for the U.S. and warned of disruptions in global markets.

“Because of the size of the Chinese economy, significant distress in China could spill over to U.S. and global markets through a retrenchment of risk appetite, U.S. dollar appreciation, and declines in trade and commodity prices,” the U.S. central bank wrote in its semi-annual report to Congress released on Friday in Washington. “The effects of the coronavirus in China have presented a new risk to the outlook.”

The coronavirus has claimed more than 600 lives since its outbreak in China. Some economists have started to mark down their first-quarter U.S. growth estimates as China’s economy is expected to slow due to the coronavirus outbreak.

Powell will discuss the economy and monetary policy before the House Financial Services Committee on Feb. 11 and the Senate banking panel the following day. The Monetary Policy Report released Friday is aimed at informing the Congress of the Fed’s outlook and sense of risks to U.S. and global growth.

Stress points

A special section on financial stability was more descriptive than the previous report on possible points of stress in some areas. The Fed said that low interest rates had elevated asset valuations, and it also pointed to risks in the corporate debt markets.

“The concentration of investment-grade debt at the lower end of the investment-grade spectrum creates the risk that adverse developments, such as a deterioration in economic activity, could lead to a sizable volume of bond downgrades to speculative-grade ratings,” the Fed said. “Such conditions could trigger investors to sell the downgraded bonds rapidly, increasing market illiquidity and causing outsized downward price pressures.”

The Fed also mentioned that volatility in repurchase agreement markets in September “highlighted the possibility for frictions in repo markets to spill over to other markets.”

U.S. central bankers kept their benchmark interest rate unchanged at their meeting last month after cutting three times in 2019. Forecasts released in December show that most of them expect to stay on hold through 2020, keeping the Fed on the sidelines during a U.S. presidential election year.

Chairman Jerome Powell told reporters on Jan. 29 that monetary policy is “well positioned” to support growth, labor markets and a return of inflation to the Fed’s 2% target.

On the domestic front, Labor Department data released earlier on Friday showed the U.S. jobs market remains durable. Payrolls increased by a stronger-than-expected 225,000 workers and average hourly earnings climbed 3.1% from a year earlier.

Manufacturing slowdown

The report also devoted a section breaking down the slowdown of manufacturing in the U.S. in 2019. The Fed attributed the decline to a range of issues including international trade tensions, weak global growth, softer business investment, lower oil prices affecting drillers and the slowdown in production of Boeing Co.’s 737 Max airliner.

While the 2019 decline in manufacturing accounted directly for a 0.15% drop in gross domestic product, Fed economists estimated that number rises 0.5% when adding the impact on purchased inputs and downstream activities, like transport and marketing.

A poor 2019 also comes amid a long-run deterioration of manufacturing in the U.S. as a share of employment and GDP that goes back more than half a century and has continued this century. Factory output has grown just 0.5% a year since 2001, with only two of those years recording gains greater than 3.5%.

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Tourism shaping Osoyoos's economy in big way – Times Chronicle

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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.

Economic impact

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.

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What you need to know about the global economy this week – World Economic Forum

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License and Republishing

World Economic Forum articles may be republished in accordance with the Creative Commons Attribution-NonCommercial-NoDerivatives 4.0 International Public License, and in accordance with our Terms of Use.

The views expressed in this article are those of the author alone and not the World Economic Forum.

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Extreme heat is slamming the world's three biggest economies all at once – CNN

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London (CNN Business)Estimating just how catastrophic climate change will be for the global economy has historically proven challenging. But this summer, it’s increasingly evident how quickly costs can pile up.

Extreme heat and drought conditions are battering the United States, Europe and China, compounding problems for workers and businesses at a time when economic growth is already slowing sharply and adding to upward pressure on prices.
In China’s Sichuan province, all factories have been ordered shut for six days to conserve power. Ships carrying coal and chemicals are struggling to make their usual trips along Germany’s Rhine river. And people living on America’s West Coast have been asked to use less electricity as temperatures soar.
These events “have the capacity to be quite significant for the particular regions that are affected,” said Ben May, director of global macro research at Oxford Economics.
The extent of the pain could depend on how long the heatwaves and lack of rain last. But in countries like Germany, experts warn there’s little relief in sight, and companies are preparing for the worst.
A barge passes exposed rocks and sandbanks on the Rhine river in Bacharach, Germany, on Aug. 15.

A barge passes exposed rocks and sandbanks on the Rhine river in Bacharach, Germany, on Aug. 15.

Extreme weather and an economic slowdown

It’s not just the Rhine. Around the world, rivers that support global growth — the Yangtze, the Danube and the Colorado — are drying up, impeding the movement of goods, messing with irrigation systems and making it harder for power plants and factories to stay cool.
At the same time, scorching heat is hampering transportation networks, straining power supply and hurting worker productivity.
“We shouldn’t be surprised by the heat wave events,” said Bob Ward, policy and communications director at the London School of Economics’ Grantham Research Institute on Climate Change and the Environment. “They’re exactly what we predicted and are part of a trend: more frequent, more intense, all over the world.”
China is facing its fiercest heat wave in six decades, with temperatures crossing 40 degrees Celsius (104 degrees Fahrenheit) in dozens of cities. Parts of California could see temperatures as high as 109 degrees Fahrenheit this week. Earlier this summer, temperatures topped 40 degrees Celsius in the United Kingdom for the first time ever.
Dry grass is seen in Greenwich Park, England. Sixty-three percent of land in the European Union and United Kingdom — an area nearly the same size as India — is now under either drought warnings or alerts.

Dry grass is seen in Greenwich Park, England. Sixty-three percent of land in the European Union and United Kingdom — an area nearly the same size as India — is now under either drought warnings or alerts.

The global economy was already under pressure. Europe is at high risk of a recession as energy prices soar, stoked by Russia’s invasion of Ukraine. High inflation and aggressive interest rate hikes by the Federal Reserve jeopardize growth in the United States. China is grappling with the consequences of harsh coronavirus lockdowns and a real estate crisis.
“At present, we are at the most difficult point of economic stabilization,” Chinese Premier Li Keqiang said this week.

Something else to worry about

Extreme weather could exacerbate “existing pinch points” along supply chains, a major reason inflation has been difficult to bring down, May of Oxford Economics said.
China’s Sichuan province, where factories have shuttered production this week, is a hub for makers of semiconductors and solar panels. The power rationing will hit factories belonging to some of the world’s biggest electronics companies, including Apple (AAPL) supplier Foxconn and Intel (INTC).
The province is also the epicenter of China’s lithium mining industry. The shutdown may push up the cost of the raw material, which is a key component in electric car batteries.
The neighboring city of Chongqing, which sits at the confluence of the Yangtze and Jialing rivers, has also ordered factories to suspend operations for a week through next Wednesday to conserve electricity, state media The Paper reported.
The Yangtze riverbed is exposed due to drought on Aug. 17 in Chongqing, China.

The Yangtze riverbed is exposed due to drought on Aug. 17 in Chongqing, China.

Forecasts for China’s economy this year are already being downgraded as a consequence. Analysts at Nomura cut their 2022 projection for GDP growth to 2.8% on Thursday — way below the government’s 5.5% target — while Goldman Sachs trimmed its forecast to 3%.
Germany’s shrinking Rhine, meanwhile, has dropped below a critical level, impeding the flow of vessels. The river is a crucial conduit for chemicals and grain as well as commodities — including coal, which is in higher demand as the country races to fill storage facilities with natural gas ahead of the winter. Finding alternative forms of transit is difficult given labor shortages.
“It is only a matter of time before plants in the chemical or steel industry are shut down, mineral oils and building materials fail to reach their destination, or large-volume and heavy transports can no longer be carried out,” Holger Lösch, deputy director of the Federation of German Industries, said in a statement this week.
Low water levels along the Rhine shaved about 0.3 percentage points off Germany’s economic output in 2018, according to Carsten Brzeski, global head of macro at ING. But in that instance, low water wasn’t a problem until late September. This time around, it could lower GDP by at least 0.5 percentage points in the second half of this year, he estimated.
Economic sentiment in Germany continued to dip in August, according to data released this week. Brzeski said the country “would need an economic miracle” to avoid falling into a recession in the coming months.
A bathtub ring watermark at Hoover Dam/Lake Mead, the country's largest man-made water reservoir, formed by the dam on the Colorado River.

A bathtub ring watermark at Hoover Dam/Lake Mead, the country's largest man-made water reservoir, formed by the dam on the Colorado River.

In the American West, an extraordinary drought is draining the nation’s largest reservoirs, forcing the federal government to implement new mandatory water cuts. It’s also forcing farmers to destroy crops.
Nearly three quarters of US farmers say this year’s drought is hurting their harvest — with significant crop and income loss, according to a survey by the American Farm Bureau Federation, an insurance company and lobbying group that represents agricultural interests.
The survey was conducted across 15 states from June 8 to July 20 in extreme drought regions from Texas to North Dakota to California, which makes up nearly half of the country’s agricultural production value. In California — a state with high fruit and nut tree crops — 50% of farmers said they had to remove trees and multiyear crops due to drought, which will affect future revenue.
Without significant investment in upgrading infrastructure, costs will only keep rising, Ward of the London School of Economics noted. And the impact may not be incremental.
“There are signs these heat episodes are not just becoming slightly more intense and frequent over time. It’s happening in a kind of non-gradual way, and that will make it more difficult to adapt,” Ward said.
— Laura He, Shawn Deng, Simone McCarthy, Benjamin Brown, Aya Elamroussi, Taylor Romine and Vanessa Yurkevich contributed reporting.

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