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Covid-19’s $3 Trillion Price Tag Rocks Japan’s Economy – Forbes

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The last 12 months were devastatingly costly for Japan.

As Covid-19 fallout shoulder-checked the global economy, Tokyo rolled out a $2.2 trillion rescue package—more than 40% of gross domestic product. More recently, Prime Minister Yoshihide Suga telegraphed another $708 billion of support as deflationary forces return.

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Suga’s team capped off the last 12 months circulating a truly scary number: 106,610,000,000,000. That’s the size, in yen terms, of Tokyo’s annual budget for fiscal 2021. Yet the unprecedented 106.61 trillion yen ($1.03 trillion) Suga needs just to fund his government is really a result of bad decisions made over the last 12 years.

The dozen years since the global financial crisis of 2008 are as good a window as any to wonder what might have been. If only the resolving of prime ministers and finance ministers since then had raised Japan’s economic game. If only any of the six governments in power since 2008 had loosened labor markets, cut bureaucracy, catalyzed a startup boom, devised a pro-growth energy policy or empowered women.

Instead, the previous five leaders did exactly what Suga is doing now: throwing ever bigger piles of cash at Japan’s problems.

Not to belabor the bookends metaphor here, but Taro Aso deserves special mention in this context. Aso was prime minister back in 2008 amid the “Lehman shock.” And today, he’s serving as Suga’s low-energy finance minister.

Actually, Aso has been doing this job since 2012. That year, former Prime Minister Shinzo Abe took power pledging a structural reform “Big Bang.” He made Aso, a big power player in faction-driven Tokyo politics, to be both deputy premier and finance minister.

Yet Aso’s team mostly just leaned on the Bank of Japan to boost growth, while Tokyo pumped ever more fiscal stimulus into a deflation-plagued economy. It was the same play Aso’s government ran in 2008. It’s the same one Suga’s three-month-old government is running now, with Aso as his point man.

And it’s not going to work. The $1.03 trillion budget Suga just unveiled is a harbinger of bigger splurges to come. There are many reasons for this. One is that Japan has long since reached what economists call the “diminishing returns” problem. Like a patient taking too many antibiotics, monetary and government stimulus tends to lose potency over time. You need ever bigger jolts to get the intended effect.

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Another: the external sector is still sending powerful headwinds Japan’s way. The U.S. is stumbling anew. Europe’s economies continue to ricochet from one debt trauma to another. And the 2% growth many expect from China isn’t nearly enough of a coattail for developing Asia to ride in the months ahead.

Yet the real problem is how Japan’s demographics is working at cross-purposes with the government’s desire to generate faster growth. In recent decades, government after government pledged policies to do a variety of things: generating higher tax revenues via faster growth; increasing the national birthrate; and finding innovative ways to pay for a rapidly-aging population.

Each saw the magnitude of the task and returned to the same-old, same-old strategy of short-term stimulus. In 2018, that approach pushed the Bank of Japan to a troubling milestone: its balance sheet topped the size of the nation’s $5 trillion economy. More recently, Tokyo has been adding to the national debt with ever-growing abandon.

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In a recent report, analysts at Fitch Solutions noted how Covid-19 era pump-priming is pushing Japan deeper and deeper into the red. Since the coronavirus arrived, the ruling Liberal Democratic Party has tried three times to jolt the economy via borrowing. Fitch said: “Given that the three extra budgets are entirely financed by debt, with new issuance of Japanese government bonds, we estimate that Japan’s debt to GDP ratio will climb to 282.1%, from 271.7% previously calculated in June.”

A debt load of that magnitude might be fine if 30% of the population financing it wasn’t over 65. It might be OK if the economy in question wasn’t in the midst of a two-decade stagnant-wage nightmare. Or if the political system calling the shots had a new and innovative idea now and again.

The costs of Abe’s newly eight years in power are mounting by the day. No, his government doesn’t get all the blame for the uncompetitive and rigid state of Japan’s economy. But Japan’s longest-serving leader had three big things going for him no predecessor did: majorities in both houses of parliament; a clear economic plan, dubbed Abenomics, the population supported; and plenty of time to get major reforms done.

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Abe’s failure to revitalize Japan is evidenced by how quickly the economy folded amid coronavirus fallout. Suga, it’s worth noting, was there all along as Abe’s loyal chief cabinet secretary for seven-plus years. Now, it turns to Suga’s government to end a recession that’s bringing back the deflation with which Tokyo has been grappling for two decades.

There are valid reasons to doubt it’ll work in 2021. Make that 106,610,000,000,000 reasons.

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Four Years of Crisis: Charting Iran's Economy Under Trump – BNN

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(Bloomberg) —

Iran had barely started to reap the economic benefits of its 2015 nuclear deal with world powers when Donald Trump withdrew and imposed sanctions so tight they plunged the country into its worst economic crisis since the 1980s.

Sworn in on Wednesday, the new U.S. president, Joe Biden, has already reversed some of his predecessor’s most controversial policies on immigration, climate and health. He’s also promised to re-engage with the Islamic Republic and picked some of the architects of the original pact for top policy posts.

Even if sanctions are eventually eased again, Iran’s road to recovery could be even more fraught this time around. Below are five charts that show how the Iranian economy changed during the Trump years:

Iran’s economy contracted sharply during the Trump years. Unable to export most of its oil due to the new sanctions, its government turned to other exports instead, making a big push to develop domestic manufacturing and expand trade with immediate neighbors. That helped offset some of the impact. It also meant that by the time Covid-19 hit global oil demand last year, Iran was better primed to absorb the shock than fellow crude exporters.

The biggest casualty of Trump’s “maximum pressure” policy was the Iranian rial, which lost about 80% of its value against the dollar, fueling inflation, devastating purchasing power and pushing millions of families into poverty. Efforts to stabilize the currency by controlling the rate and prosecuting money changers backfired, weakening the rial further as the black market thrived.

As the rial lost value, stocks saw unprecedented gains. The main index on the Tehran Stock Exchange has risen more than 600% since January 2019 as record numbers of new investors sought to shield their savings from inflation. The market has already begun to lose value since Biden’s election on expectations that sanctions will ease and the rial will strengthen again.

The European Union was Iran’s biggest trade partner before the bloc imposed oil sanctions in 2012 over the country’s nuclear program. Since then, China has become Iran’s top destination for energy exports and biggest source of imports. It has been the lone customer for Iranian crude since Trump’s sanctions came into force in 2018. While Europe’s tried to keep the nuclear deal alive, it struggled to maintain economic ties in the face of U.S. penalties.

In May 2019, the Trump administration suspended sanctions waivers that had enabled Iran to keep selling oil to a select number of countries. That sent crude exports plunging to 290,000 barrels a day, according to data compiled by Bloomberg, from about 2.6 million in January 2017, when Trump entered office. Iran has demanded the U.S. lift sanctions on its oil and banking industries as soon as possible and is preparing to increase production.

©2021 Bloomberg L.P.

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Coronavirus: How the pandemic has changed the world economy – Yahoo Finance

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Coronavirus economic graphic
Coronavirus economic graphic

The coronavirus pandemic has reached almost every country in the world.

Its spread has left national economies and businesses counting the costs, as governments struggle with new lockdown measures to tackle the spread of the virus.

Despite the development of new vaccines, many are still wondering what recovery could look like.

Here is a selection of charts and maps to help you understand the economic impact of the virus so far.

Global shares in flux

Big shifts in stock markets, where shares in companies are bought and sold, can affect the value of pensions or individual savings accounts (Isas).

The FTSE, Dow Jones Industrial Average and the Nikkei all saw huge falls as the number of Covid-19 cases grew in the first months of the crisis.

The major Asian and US stock markets have recovered following the announcement of the first vaccine in November, but the FTSE is still in negative territory.

The FTSE dropped 14.3% in 2020, its worst performance since 2008.

Stock market chart - Jan 2021Stock market chart - Jan 2021
Stock market chart – Jan 2021

In response, central banks in many countries, including the UK, have slashed interest rates. That should, in theory, make borrowing cheaper and encourage spending to boost the economy.

Some markets recovered ground in January this year, but this is a normal tendency known as the “January effect”.

Analysts are worried that the possibility of further lockdowns and delays in vaccination programmes might trigger more market volatility this year.

A difficult year for job seekers

Many people have lost their jobs or seen their incomes cut.

Unemployment rates have increased across major economies.

Unemployment rate chart - Jan 2021Unemployment rate chart - Jan 2021
Unemployment rate chart – Jan 2021

In the United States, the proportion of people out of work hit a yearly total of 8.9%, according to the International Monetary Fund (IMF), signalling an end to a decade of jobs expansion.

Millions of workers have also been put on government-supported job retention schemes as parts of the economy, such as tourism and hospitality, have come to a near standstill.

The numbers of new job opportunities is still very low in many countries.

Job vacancies in Australia have returned to the same level of 2019, but they are lagging in France, Spain, the UK and several other countries.

Job vacancies - Jan 2021Job vacancies - Jan 2021
Job vacancies – Jan 2021

Some experts have warned it could be years before levels of employment return to those seen before the pandemic.

Most of countries now in recession

If the economy is growing, that generally means more wealth and more new jobs.

It’s measured by looking at the percentage change in gross domestic product, or the value of goods and services produced, typically over three months or a year.

The IMF estimates that the global economy shrunk by 4.4% in 2020. The organisation described the decline as the worst since the Great Depression of the 1930s.

Majority of countries in recession - Jan 2021Majority of countries in recession - Jan 2021
Majority of countries in recession – Jan 2021

The only major economy to grow in 2020 was China. It registered a growth of 2.3%.

The IMF is, however, predicting global growth of 5.2% in 2021.

That will be driven primarily by countries such as India and China, forecast to grow by 8.8% and 8.2% respectively.

Recovery in big, services-reliant, economies that have been hit hard by the outbreak, such as the UK or Italy, is expected to be slow.

Travel still far from taking off

The travel industry has been badly damaged, with airlines cutting flights and customers cancelling business trips and holidays.

New variants of the virus – discovered only in recent months – have forced many countries to introduce tighter travel restrictions.

Data from the flight tracking service Flight Radar 24 shows that the number of flights globally took a huge hit in 2020 and it is still a long way from recovery.

Commercial flights - Jan 2021Commercial flights - Jan 2021
Commercial flights – Jan 2021

Hospitality sector has shut its doors worldwide

The hospitality sector has been hit hard, with millions of jobs and many companies bankrupt.

Data from Transparent – an industry-leading intelligence company that covers over 35 million hotel and rental listings worldwide – has registered a fall in reservations in all the top travel destinations.

Global tourism industry - Jan 2021Global tourism industry - Jan 2021
Global tourism industry – Jan 2021

Billions of dollars have been lost in 2020 and although the forecast for 2021 is better, many analysts believe that international travel and tourism won’t return to the normal pre-pandemic levels until around 2025.

Shopping… at home

Retail footfall has seen unprecedented falls as shoppers stayed at home.

New variants and surges in cases have made problems worse.

Pedestrian numbers have fallen further from the first lockdown, according to research firm ShopperTrak,

Huge drop in shoppers - Jan 2021Huge drop in shoppers - Jan 2021
Huge drop in shoppers – Jan 2021

Separate research suggests that consumers are still feeling anxious about their return to stores. Accountancy giant EY says 67% customers are now not willing to travel more than 5 kilometres for shopping.

This change in shopping behaviour has significantly boosted online retail, with a global revenue of $3.9 trillion in 2020.

Pharmaceutical companies among the winners

Governments around the world have pledged billions of dollars for a Covid-19 vaccine and treatment options.

Shares in some pharmaceutical companies involved in vaccine development have shot up.

Moderna, Novavax and AstraZeneca have seen significant rises. But Pfizer has seen its share price fall. The partnership with BioNTech, the high cost of production and management of the vaccine, and the growing number of same-size competitors have reduced the investors’ trust in the company to have bigger revenue in 2021.

Pharmaceutical companies are the winners - Jan 2021Pharmaceutical companies are the winners - Jan 2021
Pharmaceutical companies are the winners – Jan 2021

A number of pharmaceutical firms have started already distributing doses and many countries have started their vaccination programmes. Many more – such as Johnson & Johnson and Sanofi/GSK – will join the vaccine distribution during 2021.

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Canadian retail sales jump in November, but December looks gloomier

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december retail sales

By David Ljunggren

OTTAWA (Reuters) – Canadian retail sales jumped by much more than expected in November, but preliminary figures for December suggest a sharp drop as novel coronavirus restrictions were re-imposed, Statistics Canada said on Friday.

Food and drink sales rose by 5.9% and helped push overall retail trade up by 1.3%, its seventh consecutive monthly gain and significantly greater than the 0.1% increase predicted by analysts in a Reuters poll.

Most retail businesses were open in November but as the second wave of the coronavirus spread, many provinces imposed clamp downs. Statscan said December retail sales looked set to drop by 2.6% but stressed this was a preliminary estimate.

“The expected tumble in December retail sales following the pop in November conforms to the Bank of Canada‘s outlook, which sees weakness at the turn of the year,” said Ryan Brecht, a senior economist at Action Economics.

The Bank of Canada forecast on Wednesday that the economy would shrink in the first quarter of 2021 due to the impact of temporary business closures.

Shortly after the data were released the Canadian dollar was trading 0.5% lower at 1.27 to the greenback, or 78.74 U.S. cents, with the currency giving back some of this week’s gains as oil and global shares fell.

Statscan is due to issue November GDP data on Jan. 29 and Royce Mendes, a senior economist at CIBC Capital Markets, said the agency’s flash estimate of 0.4% growth still seemed reasonable. The estimate was released on Dec. 23.

Overall November sales were up in 7 of 11 sub-sectors, representing 53.4% of retail trade, while in volume terms, retail sales rose 1.2%.

 

(Reporting by David Ljunggren in Ottawa and Fergal Smith in Toronto; Editing by Ken Ferris)

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