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COVID-19 shook, rattled and rolled the global economy in 2020 –



By Dan Burns and Mark John

(Reuters) – When 2020 dawned, the global economy had just notched its 10th straight year of uninterrupted growth, a streak most economists and government finance officials expected to persist for years ahead in a 21st Century version of the “Roaring ’20s.”

But within two months, a mysterious new virus first detected in China in December 2019 – the novel coronavirus – was spreading rapidly worldwide, shattering those expectations and triggering the steepest global recession in generations. The International Monetary Fund estimates the global economy to have shrunk by 4.4% this year compared with a contraction of just 0.1% in 2009, when the world last faced a financial crisis.

Graphic: The global coronavirus recession

Government-mandated shutdowns of businesses and any non-essential activities in much of the world unleashed a wave of joblessness not seen since the Great Depression. Still, unemployment levels varied dramatically across the globe.

In some countries, like China, COVID-19 infection levels were effectively suppressed through strict but relatively brief lockdowns, allowing unemployment rates to remain low. Others, such as Germany, deployed government-backed schemes to keep workers on company payrolls even as work dried up.

Elsewhere, including in Brazil and the United States, the uncontrolled spread of the virus and patch-work government health and economic responses fueled rampant job losses. Some 22 million people in the United States were thrown out of work in March and April alone and the unemployment rate jumped to near 15%.

Most economists expect it to take a year or more for labor markets to return to something resembling the pre-pandemic era.

Graphic: Global unemployment in the pandemic

The pandemic delivered a body blow to global trade, with export volumes dropping abruptly to their lowest in nearly a decade in March and April.

The recovery since then has been led largely by China, which stands alone among major economies in seeing year-over-year growth in exports.

Graphic: Global exports have cratered almost everywhere

Unprecedented levels of government stimulus prevented even larger damage to many economies but also added to a global mountain of sovereign debt amassed by governments, raising questions about whether a financial crunch is the next crisis the world must deal with.

Graphic: Pandemic stimulus adds to the global debt mountain

However, historically low interest rates hovering around – and sometimes below – zero percent mean that debt servicing costs for the Group of Seven (G7) economies are at their lowest since the 1970s, when the debt burden was only a fraction of what it is now.

“Debt today is sustainable and it will remain so for a few years because as long as economic activity and employment have not recovered momentum, central banks are unlikely to do anything with their interest rates. That allows governments to keep up the fiscal support in the form of retention schemes and support to firms,” said Laurence Boone, the OECD’s chief economist.

Graphic: The cost of countries’ debt burdens has fallen

One offshoot of that largesse has been that consumer spending has held up better than many had expected. While spending on services plunged and remains depressed – at restaurants and for travel and leisure in particular – consumers did lay out for goods, especially big-ticket items such as cars and home improvements that benefited from rock-bottom interest rates.

As a result, retail sales in many economies are up on a year-over-year basis, in some instances by more than they were at the end of 2019.

Graphic: Retail sales have been a mixed bag

Another direct effect of all that government spending has been a surge in savings among consumers in many parts of the world. Government support payouts in developed economies padded household bank accounts and, with consumers hunkered down in the pandemic’s early days in particular, savings rates soared.

They began returning to earth in the latter part of 2020 but remain well above pre-pandemic levels. Some economists see this as the dry tinder to help fuel an economic rebound in 2021 and beyond when COVID-19 vaccines allow a wider recovery to take hold and consumers to begin moving about – and spending – more freely.

Graphic: Personal savings rates soared during the pandemic

(Reporting by Dan Burns in Newtown, Connecticut, and Mark John in London; Additional reporting by Leigh Thomas in Paris; Editing by Paul Simao)

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Biden’s scrapping of Keystone pipeline allows Canada’s Trudeau to move on



OTTAWA (Reuters) – U.S. President Joe Biden’s move to scrap the Keystone XL oil pipeline, while a blow to Canada’s energy sector, is a blessing in disguise for Prime Minister Justin Trudeau, who is eager to embrace the new administration, two sources familiar with the matter said.

Biden formally revoked the permit to build the pipeline on Wednesday, killing the $8 billion project to pump oil sands crude from Alberta to Nebraska.

“At first glance this is bad news… but at least now the matter is settled and won’t be souring bilateral relations for months to come,” a diplomatic source from a major allied country said.

“Canada hasn’t had to expend any serious political capital with the Biden administration on the pipeline and can now focus on the many other areas where Trudeau feels the two nations should cooperate,” the source said.

Trudeau was the first world leader to congratulate Biden after the November election, and hopes to be the first to meet with him in a bid to turn the page on the Donald Trump era, when relations between the two countries were often turbulent.

A Biden spokeswoman said the president’s first call to a foreign leader would be to Trudeau on Friday.

In a statement late on Wednesday, Trudeau said “we are disappointed but acknowledge the President’s decision” while welcoming his move to rejoin the Paris agreement on climate change.

“I look forward to working with President Biden to reduce pollution,” he said. Trudeau, first elected in 2015, has consistently said cutting the greenhouse gases widely blamed for global warming is a big priority.

Trudeau is also weighing a possible snap election this year, and he has much riding on his ties with Biden.

“The relationship is much bigger than one project,” said a Canadian source familiar with the matter.

Keystone XL was meant to carry 830,000 barrels per day to the United States, but ran into fierce domestic opposition.

During his election campaign, Biden promised quash the pipeline, which Trudeau has supported since before he became prime minister.

The permit revocation “is not the best way to start off” with a new president, said Roland Paris, a former foreign policy adviser to Trudeau and University of Ottawa international affairs professor.

“This issue should not be seen as a litmus test to the relationship because there are many other areas where Canada will be able to cooperate with the new Biden administration,” Paris said.

Trudeau told Reuters last week he was looking to Biden to re-engage with allies around the world, and that he wanted to discuss climate change.

Biden’s ambitious climate change plan includes $2 trillion in investment for clean-energy infrastructure over four years and “opens up opportunities for collaboration” with Canada, said Sara Hastings-Simon, a researcher at the Colorado School of Mines.


(Reporting by Steve Scherer, additional reporting by David Ljunggren; Editing by Marguerita Choy and Sonya Hepinstall)

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BOE's Bailey Says Economy Will Adapt to New Lockdown – BNN



(Bloomberg) — Bank of England Governor Andrew Bailey said that the U.K. economy is learning to adapt to lockdowns to contain the coronavirus.

Speaking in a webinar, the central bank chief said the economy seemed to weather the closure in November better than it did at the start of the pandemic in early 2020.

“We have little to go on in terms of evidence on the economy so far in January,” Bailey said. But evidence suggests that “probably the impact of lockdowns in economic terms is diminishing somewhat. We all find ways to do to do economic activity by adapting. Online shopping is the obvious best example.”

Policy makers are grappling with whether Britain needs more monetary stimulus to overcome the biggest slump in three centuries. They’ll update their forecasts at the Feb. 4 decision to incorporate the new surge of Covid-19 cases and the country’s recent departure from the European Union’s single market.

Bailey said the BOE still expects a “quite pronounced” effect of the latest lockdown in the first quarter. He reiterated that the bank is reviewing the possibility of using negative interest rates, but hasn’t yet starting discussing whether to deploy them.

In a question-and-answer session, Bailey also discussed:

Negative Interest Rates

The governor said it’s important for policy makers to maintain negative interests rates as a possible option, though they’ve made no decision yet on whether to go ahead with them, partly because there’s so much uncertainty about how they’d impact the economy.

“Particularly when you go negative, the transmission is much less clear because it does change the whole calculus of how the banking system works. We do not know with any confidence how that would work. However, there are experiences of other countries,” Bailey said.

“The evidence suggests it isn’t straightforward but it can work under certain circumstances, and depending a bit on how your financial system works. We need tools in our box. We also have a very low rate of inflation. It’s still well below our target. Our challenge still remains getting inflation up to our target.”

Banking Equivalence Rules

Bailey said he’s wondering what the EU’s request for equivalence on financial services will mean for the U.K.

“It can’t seriously mean: you should never change your rules, because the world changes. Covid has illustrated that to us. If it doesn’t mean that, does it mean, ‘You should only change the rules when we the EU change our rules?’ That’s what they may mean, but … that’s unacceptable because that’s just rule-taking.”

“We cannot be in a world, particularly with as big a financial center as we have, saying: just ring us up and tell us when you change the rules and we’ll just copy them out. That’s a recipe for disaster, frankly, because our markets are different.”

Climate Change

Bailey said the bank will keep studying how climate change will impact the financial system and what policy makers can do to support environmental infinitives.

“Today we’ve seen a very big change. We now have a U.S. administration that’s going to be fully behind this. I’m very optimistic on this front at the moment. We’ve just got to get on with it now.”

(Updates with more comments from sixth paragraph)

©2021 Bloomberg L.P.

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Australian economy forecast to rebound in 2021 as pandemic subsides: Reuters poll –



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.


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)

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