(Bloomberg) — European Central Bank President Christine Lagarde will have to walk a fine line on Thursday as she portrays a euro-area economy that’s recovering as hoped from the coronavirus pandemic yet still in need of massive support.
While new economic projections will confirm that the worst downside risks haven’t materialized, they’ll still be bleak and subject to high uncertainty. Lagarde also now has to deal with a stronger euro that could hamper the upturn.
Read more: ECB Forecasts Said to Show More Confidence in Economic Outlook
The Governing Council is expected to keep its 1.35 trillion euro ($1.6 trillion) emergency bond-buying program and record-low interest rates unchanged for now. But the president will be quizzed in her press conferences on market expectations for more stimulus later this year.
The pandemic emergency bond-buying program is set to run until the middle of next year and economists predict another 350 billion euros will be added by December. They also expect purchases to be extended by another six months.
Among policy makers, different views on the direction of stimulus have emerged over the past weeks. Bundesbank President Jens Weidmann is campaigning to withdraw emergency support once the recovery from the pandemic is complete. The program is “limited in duration and clearly linked to the crisis,” he said.
Chief Economist Philip Lane has stressed the ECB is ready to do more if needed, and argued that once the economy has overcome its immediate shock, fueling inflation will become the next priority. The institution is buying an additional 20 billion euros a month in bonds as parts of its quantitative easing tool that was restarted last year.
What Our Economists Say:
“The Governing Council may indicate next week that downside risks have intensified, signaling monetary policy could be loosened further before the end of the year.”
–David Powell and Maeva Cousin. Read the ECB PREVIEW
The ECB’s job is being complicated by a strengthening euro that risks damping already feeble inflation by making imports cheaper. The currency broke through $1.20 last week for the first time since 2018, before Lane knocked it back saying the exchange rate “does matter” for monetary policy.
Lagarde may try to reiterate this view, but the ECB’s scope for action is fairly limited. Its deposit rate is at -0.5% and has been negative for more than six years, leading to complaints from banks and savers.
Nomura strategist Jordan Rochester said while attempts to talk down the exchange rate should help in the short term, it’ll be difficult to break the euro’s upward trend.
Some policy makers have become more confident in their forecasts for the region’s economic recovery, according to people familiar with the debate. The latest projections for output and inflation will show only slight changes to the June outlook, with GDP for this year set to be revised up.
That perspective meshes with economists’ views. Most predict growth forecasts beyond 2020 will be largely untouched, as cheaper oil prices help offset the currency’s effect on export demand.
Another topic Lagarde is likely to be asked about is the Federal Reserve’s new framework, which allows the central bank to tolerate faster inflation after periods of weakness. If that keeps U.S. monetary policy loose for longer, pressure on the ECB to do the same could increase to keep the currency in check.
The ECB is in the process of overhauling its own strategy — for the first since 2003 — although results aren’t due until the middle of next year.
“It’s a good thing to have a strategy review of monetary policy,” Governing Council member Francois Villeroy de Galhau said in response to the Fed’s decision. “You can be reassured that a credible and symmetrical inflation objective will remain at the heart of our action.”
©2020 Bloomberg L.P.
Clarida Says Economy Facing Lengthy Recovery Amid Uncertainty – Yahoo Canada Finance
(Bloomberg) — Federal Reserve Vice Chair Richard Clarida said the U.S. economy faces a long and uncertain recovery from the Covid-19 pandemic, and requires continued support from monetary and fiscal policy.
“It will take some time to return to the levels of economic activity and employment that prevailed at the business cycle peak in February, and additional support from monetary — and likely fiscal — policy will be needed,” Clarida said Monday in a speech to an online event hosted by the American Bankers Association. “The economic outlook is unusually uncertain.” His prepared remarks reprise a speech he gave Oct. 14.
The Fed slashed rates to nearly zero in mid-March as the pandemic took hold and has signaled it expects to keep them there through at least 2023, according to forecasts released last month. Clarida said the timing of rate liftoff will be governed by the speed of the economic recovery, not the calendar.
“We expect to keep rates in the current range, which is just north of zero, until we’ve actually got inflation back to 2% on at least a year-over-year basis,” he said in response to a question from the moderator after his speech. “We would want that to be consistent with a very healthy labor market, and also the prospect for inflation to moderately exceed 2% for some time.”
“If the economy recovers faster and sooner that would mean earlier liftoff, and if it recovers more slowly that would mean later liftoff,” he said.
The U.S. economy’s rebound has shown some signs of slowing in recent weeks as fiscal stimulus passed in early spring has expired and the Covid-19 virus makes an autumn resurgence. The most recent economic data has been mixed.
Employment, consumer spending and consumer sentiment have each made important strides but remain well below pre-pandemic levels. Manufacturing unexpectedly declined in September.
The chance that lawmakers in Washington will agree on a new round of spending before the Nov. 3 election appears low but not dead. Democratic House Speaker Nancy Pelosi on Sunday set Tuesday as a deadline for more progress with the White House on a deal, extending her previous deadline by a day. President Donald Trump renewed his offer to go beyond the dollar amounts now on the table.
The spread of Covid-19, meanwhile, has picked up in several countries around the world. Global coronavirus cases have exceeded the 40 million mark, with new cases in the U.S. averaging more than 50,000 a day. Millions of Europeans are facing tighter restrictions on movement, with London and Paris enforcing stricter curbs.
Clarida said the Fed had made important changes in banking regulation and supervision to help keep credit flowing to households and firms. The central bank is also engaged in efforts to modernize the Community Reinvestment Act, which aims to address racial and geographic inequities in the access to credit, he said.
(Updates with Clarida answers to post-speech Q&A in the fifth paragraph.)
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China's economy accelerates as virus recovery gains strength – CBC.ca
China’s shaky economic recovery from the coronavirus pandemic is gaining strength as consumers return to shopping malls and auto dealerships while the United States and Europe endure painful contractions.
Growth in the world’s second-largest economy accelerated to 4.9 per cent over a year earlier in the three months ending in September, up from the previous quarter’s 3.2 per cent, official data showed Monday. Retail spending rebounded to above pre-virus levels for the first time and factory output rose, boosted by demand for exports of masks and other medical supplies.
Growth ‘still accelerating’
China is the only major economy that is expected to grow this year while activity in the United States, Europe and Japan shrinks.
The recovery is “broadening out and becoming less reliant” on government stimulus, Julian Evans-Pritchard of Capital Economics said in a report. He said growth is “still accelerating” heading into the present quarter.
Most Asian stock markets rose on the news of increased activity in China, the biggest trading partner for all of its neighbours. Japan’s Nikkei 225 index added 1.1 per cent while Hong Kong’s Hang Seng climbed 0.9 per cent. Markets in South Korea and Australia also rose.
China’s benchmark Shanghai Composite Index lost 0.7 per cent on expectations the relatively strong data will reduce the likelihood of additional stimulus that might boost share prices.
Warning on international economy
China, where the pandemic began in December, became the first major economy to return to growth after the ruling Communist Party declared the disease under control in March and began reopening factories, shops and offices.
The economy contracted by 6.8 per cent in the first quarter, its worst performance since at least the mid-1960s, before rebounding.
The economy “continued the steady recovery,” the National Bureau of Statistics said in a report. However, it warned, “the international environment is still complicated and severe.” It said China faces great pressure to prevent a resurgence of the virus.
Authorities have lifted curbs on travel and business but visitors to government and other public buildings still are checked for the virus’s telltale fever. Travellers arriving from abroad must be quarantined for two weeks.
Last week, more than 10 million people were tested for the virus in the eastern port of Qingdao after 12 cases were found there. That broke a two-month streak with no virus transmissions reported within China.
Industrial production rose 5.8 per cent over the same quarter last year, a marked improvement over the first half’s 1.3 per cent contraction. Chinese exporters are taking market share from foreign competitors that still are hampered by anti-virus controls.
Retail sales rose 0.9 per cent over a year earlier. That was up from a 7.2 per cent contraction in the first half as consumers, already anxious about a slowing economy and a tariff war with Washington, put off buying. Online commerce rose 15.3 per cent.
In a sign demand is accelerating, sales in September rose 3.3 per cent.
“China’s recovery in private consumption is gathering momentum,” said Stephen Innes of AxiCorp in a report.
Economists say China is likely to recover faster than other major economies due to the ruling party’s decision to impose the most intensive anti-disease measures in history. Those temporarily cut off most access to cities with a total of 60 million people.
The International Monetary Fund is forecasting China’s economic growth at 1.8 per cent this year while the U.S. economy is expected to shrink by 4.3 per cent. The IMF expects a 9.8 per cent contraction in France, 6 per cent in Germany and 5.3 per cent in Japan.
Private sector analysts say as much as 30 per cent of China’s urban workforce, or up to 130 million people, may have lost their jobs at least temporarily. They say as many as 25 million jobs might be lost for good this year.
Voters Tend to Trust Trump on the Economy. Yet He’s Behind. Why? – The Wall Street Journal
It’s been 28 years since adviser James Carville helped propel Bill Clinton to the presidency by posting a sign in campaign headquarters reminding everyone there: “It’s the economy, stupid.” That was his singular way of drilling home the message that the economy mattered more to voters than anything else.
So far in 2020, though, it doesn’t seem to be the economy. Even though voters today prefer President Trump to handle the economy as much as ever, he remains behind as the race enters its final two weeks. That raises two questions: Why? And could the economic issue still propel him to a final-days turnaround?
Five times this year, The Wall Street Journal/NBC News poll has asked voters who they think would be better at handling the economy, Mr. Trump or Democrat Joe Biden. Five times they have named the president, by margins ranging from seven to 11 percentage points. Plenty of Americans, in short, appear to buy the president’s argument that the economy was in fine shape before the coronavirus hit, and that it isn’t his fault it has plunged since then.
More than that, when the poll asked voters just last week which issue is most important to them, they named the economy more than any other issue, including the coronavirus. All of that simply serves to frame the mystery of why that set of conditions isn’t working better for Mr. Trump.
The answer starts with evidence suggesting the dominance of the economic issue may be something of a myth, which has its roots in that 1992 campaign. It simply isn’t true that the candidate or party given better marks on handling the economy wins an election, even when the economy seems to get top billing. Voters have other issues propelling them with nearly equal force—and sometimes they view those as matters that also affect their own everyday economy.
Bill McInturff, a Republican pollster who co-directs the Journal/NBC News poll, notes that the same set of conditions prevailed in 2018: Voters said they thought Republicans would do a better job handling the economy, yet the party lost 41 seats in House elections that year. In some respects—the shift of suburban women toward the Democrats, more energized minority voters, concern about health care—this year resembles 2018 more than 2016 when Mr. Trump won.
With the second debate between President Trump and Democratic challenger Joe Biden’s canceled, they instead appeared in simultaneous town halls on competing TV networks. The two candidates offered Americans a contrast in tone and style. Photo: Jim Watson/Agence France-Presse/Getty Images,Evan Vucci/Associated Press
And though it’s little remembered now, a similar set of circumstances prevailed in 2012. Voters called the economy the most important issue, and more said they preferred Republican Mitt Romney to Democratic President Barack Obama on handling it. Yet Mr. Obama won re-election.
Then, as now, there was a cluster of other issues that, when taken together, rivaled the economy in importance to voters. This year the coronavirus, health care, race relations, climate change and ability to unite the country also are pressing and emotional matters for many voters. On every one, voters tend to prefer Mr. Biden, sometimes by wide margins.
More broadly, now as in 2016, the race seems as much about a struggle over the nation’s culture as about economic issues.
Moreover, voters relate the health of the economy to the handling of the pandemic: If they buy Mr. Biden’s argument that the economy can’t improve until the coronavirus is under better control, they actually see the pandemic as an economic issue. That benefits Mr. Biden.
Democratic pollster Peter Hart, who helps oversee the Journal/NBC News poll, says that as Americans already are standing in long lines to cast ballots, 2020 is a year in which voters see the broader course of the country as the real issue. “The massive turnout in 2020 is occurring because voters understand the stakes that go far, far beyond the two candidates,” he says. “Hidden behind the pandemic are the big issues of race, climate, gender, and safety.”
Mr. Trump also hasn’t played his advantage on the economy particularly well. He talks about his record of accomplishment, but doesn’t lay out many specifics about what he’d do in a second term to revive and extend economic growth. And his fabled rallies tend to veer down side alleys as they did in Michigan on Sunday, when the president’s argument that Michigan Democratic Gov. Gretchen Whitmer needs to do more to open up the state’s economy veered into chants from the crowd of, “Lock her up.” Mr. Trump echoed “Lock them all up” just days after the FBI arrested a group of men for plotting to kidnap the governor. That put the emphasis on a divisive message rather than a unifying economic one.
Perhaps Mr. Trump will find better ways in the campaign’s final days to focus voters on the economy, to his benefit. Presidential elections tend to tighten in the end, as wandering voters return to their home base, and as candidates manage to frame the final choice to their benefit. Mr. Trump gets one more big chance, in Thursday’s debate, to bring the argument back to the economy.
Write to Gerald F. Seib at firstname.lastname@example.org
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