The Boxing Day sales might be over but it looks like Canadians will be ready to keep the economy chugging along well into the new year, according to forecasts from BMO.
“British Columbia continues to look like an outperformer,” senior economist Robert Kavcic wrote in a January 4 note.
The province’s real GDP is pegged to expand 5.6 per cent year-over-year over the course of 2021 — the highest among all provinces and above the national average of 5 per cent growth.
The 5 per cent projection for Canada would be the highest rate of expansion for the country since 2000.
The B.C. government, typically much more cautious in projections than private sector economists pegs the province’s growth at 3 per cent for 2021.
Unemployment on the West Coast is also expected to be the lowest in Canada by the end of the year, running at 6.5 per cent.
BMO pegs this year’s national unemployment rate at 7.5 per cent, while other big provinces such as Ontario (7.5 per cent), Quebec (7 per cent) and Alberta (9.1 per cent) are all expected to lag behind the West Coast.
Economic growth will get off to a slow start, however, as first-quarter growth “will likely slow to a crawl” nationally during the colder winter months before bouncing back with 8 per cent annualized growth in the second quarter.
The Canadian economy managed to expand 5 per cent (annualized) in the fourth quarter of 2020.
“Major downside risks include a possible glitch in vaccine rollout [say, due to safety concerns], a more adverse mutation of the virus and the unwinding of fiscal stimulus later this year. One threat we probably won’t need to worry about is a spike in inflation [and interest rates] given the dynamic duo of lofty unemployment and advanced automation. More likely is a correction in asset prices if they run too far ahead of fundamentals, which could slow spending,” senior BMO economist Sal Guatieri wrote in a separate note.
“Unlike last year, however, there is more upside for the economy. A smoother rollout of vaccines could lead to early herd immunity. As well, flush with savings, consumers could ‘let loose’ after spending a year in COVID prison.”
Guatieri said that with diminished desire to travel or even dine out, Canadians are now buying more goods “with anything tied to homes or recreation flying off the shelves.”
“Although some hard-hit service industries will struggle until most of the population is inoculated (likely in the summer), the goods-producing sector will continue to expand. Record home sales are bound to simmer down, but residential construction should stay aloft given record-low resale availability,” he stated, referring to national trends.
BMO also anticipates the loonie strengthening to $1.25 (US$0.80) vs. the greenback by late 2021.
“This is near purchasing power parity, limiting its impact on the economic recovery though keeping the trade deficit large. The loonie should benefit from firmer resource prices … as global demand improves,” Guatieri said.
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Asian shares were mostly higher ahead of Joe Biden’s inauguration as U.S. president Wednesday, though worries about surging coronavirus cases sapped the Japanese market’s early gains.
Japan’s benchmark Nikkei 225 slipped 0.4% to finish at 28,523.26. Australia’s S&P/ASX 200 added 0.4% to 6,770.40, while South Korea’s Kospi edged up 0.6% to 3,112.03. Hong Kong’s Hang Seng added 0.7% to 29,835.04, while the Shanghai Composite rose 0.1% to 3,570.40.
Hopes are growing that Biden’s planned stimulus for the American economy as well as measures to curb the pandemic will boost regional markets.
While many Asian nations have fared better in the pandemic than European countries and the U.S., worries still run high. Main urban areas in Japan, including Tokyo, are under a state of emergency, with evening dining discouraged. Critics say that’s not enough, as deaths related to COVID-19 have been rising.
“Chinese New Year is less than a month away. With COVID infection numbers already on the rise again in parts of Asia, there are concerns about what the holiday season may mean for efforts to contain the virus’s spread,” said Stephen Innes, chief global market strategist at Axi.
On Wall Street, the S&P 500 rose 30.66 points, or 0.8%, to 3,798.91, pulling to within 1% of its record high set earlier this month. The Dow Jones Industrial Average added 116.26 points, or 0.4%, to 30,930.52. The Nasdaq composite gained 198.68 points, or 1.5%, to 13,197.18.
About 60% of the companies in the S&P benchmark index rose. Technology, communication services and health care stocks accounted for much of the rally, though energy sector companies notched the biggest gain.
Traders continued to bid up shares in smaller companies, a sign of confidence in the prospects for future economic growth. The Russell 2000 index picked up 27.94 points, or 1.3%, to 2,151.14.
U.S. markets were closed Monday in observance of Martin Luther King Day.
The gains this week marked a reversal from last week, when stocks ran out of steam after a strong start to the year. Markets have been rising on enthusiasm about a coming economic recovery as more people are inoculated with COVID-19 vaccines and Washington gets set to try for another round of economic stimulus.
Janet Yellen, Biden’s nominee to be Treasury secretary, told the Senate Finance Committee during her confirmation hearing that the incoming administration would focus on winning quick passage of its US$1.9 trillion pandemic relief plan.
“More must be done,” Yellen said. “Without further action, we risk a longer, more painful recession now — and long-term scarring of the economy later.”
The plan would include $1,400 cash payments for most Americans. Democrats are also pushing for faster rollout of COVID-19 vaccines, a higher minimum wage for workers and enhanced benefits for laid-off workers. The hope is that such stimulus can carry the economy until later this year, when more widespread vaccinations get life returning to some semblance of normal.
“If most of this is implemented, it does suggest significant pickup in economic growth as we head through to the fourth quarter of this year,” said David Kelly, chief global strategist at JPMorgan Funds.
In energy trading, benchmark U.S. crude added 31 cents to $53.29 a barrel. Brent crude, the international standard, rose 35 cents to $56.25.
In currency trading, the U.S. dollar slipped to 103.74 Japanese yen from 103.99 yen. The dollar cost $1.2146, up from $1.2115.
AP Business Writers Stan Choe, Damian J. Troise and Alex Veiga contributed.
China worries about lagging consumption as broader economy shakes off COVID – Cape Breton Post
By Gabriel Crossley and Kevin Yao
BEIJING (Reuters) – China will be looking to tweak its economic policies to get consumers to spend more, policy advisers in Beijing said after retail sales emerged as a weak spot in better-than-expected GDP data, underlining the need for reform.
They said that while supporting employment was key in the short run, reforms to help fatten ordinary people’s wallets were needed to boost domestic spending – a priority for President Xi Jinping’s “dual circulation” strategy to cut China’s reliance on overseas markets.
“We need to discuss ways to boost incomes,” said Yao Jingyuan, an adviser to the Chinese cabinet. “Who doesn’t spend if they’re rich?”
The advisers are influential in Beijing, and their recommendations are likely to be considered. Calls for deepening reforms to spur domestic consumption have been rising since Xi unveiled the dual circulation strategy last year.
Allowing more migration to cities, increasing the minimum wage, and easing restrictions like one on the sale of cars in big metros could be some of the policy initiatives to be considered, the advisers said.
China’s economy grew 2.3% in 2020, according to official data this week, making it likely the only major economy that expanded last year.
But retail sales fell 3.9% over the full year, marking the first contraction since 1968, and final consumption dragged on growth for the first time in at least four decades, the data showed.
(Graphic: Consumption drags on growth for first time since 1978: https://graphics.reuters.com/CHINA-ECONOMY/CHART/jznpnmxbovl/chart.png)
Worryingly for policymakers, retail sales rose just 4.6% on year in December, missing expectations and slowing for the first time since steadily accelerating from the pandemic-induced slump the previous winter.
Incomes from catering fell by 16.6% in 2020, and people’s average spending on education, culture and entertainment dropped by nearly a fifth.
Lost wages, more saving, job losses, and continued fears over COVID-19 accounted for much of the sluggish consumption, analysts said. They warned that if sustained, the slowdown could drag on economic recovery and jeopardize goals to rebalance the economy away from wasteful infrastructure investment and polluting industry.
Officials tout the vast potential of China’s market – 1.4 billion people strong, with 400 million middle class consumers – but many of them have become wary amid the pandemic, building up precautionary savings.
(Graphic: China’s household savings rise amid pandemic: https://graphics.reuters.com/CHINA-ECONOMY/CHART/nmopaoldapa/chart.png)
Policy advisers told Reuters that to boost consumption, incomes need to go up, and for that, jobs are key.
Official surveyed unemployment rates, which economic analysts say under-report actual job losses, rose sharply early in the year before subsiding to 5.2% in December. Although the export sector has seen a recent boom in hiring, analysts say labour demand remains weak in certain sectors, especially services.
“We should start with stabilising employment, because we can boost incomes of ordinary people only when employment is secured,” said Xu Hongcai, deputy director of the economic policy commission at China Association of Policy Science.
Xu said that raising minimum wages, allowing more rural residents to settle in cities, and strengthening social safety nets would help increase earnings, and so spending, in the long run.
Some regulations could also be loosened, said Yao, the cabinet adviser.
“In Beijing and big cities, we still restrict auto purchases…there are no such restrictions in London, New York or Tokyo,” he said.
LINGERING FEARS Incomes suffered under lockdowns and strict movement curbs. Some, especially migrant workers, lost months of wages. Urban disposable income growth slowed to 1.2% in 2020 from 5.0% the previous year.
Consumers chose to fill their bank accounts rather than empty their wallets. Households added 11.3 trillion yuan ($246.69 billion) in new bank savings in 2020, up from 9.7 trillion yuan the previous year, according to central bank data.
Fear of the virus, and continued small-scale outbreaks, continues to dissuade spending.
After a recent rebound in COVID-19 cases in the north of the country, around 30 million people were placed under a form of lockdown. Millions more have been asked to avoid travelling for Lunar New Year, usually a consumption hotspot.
“I won’t go out unless it’s absolutely necessary. This saves me from worry and saves me money too,” said Hou Aiping, a retired woman in her 50s who now only leaves home in Beijing to visit her parents and the supermarket.
“Even though the epidemic is contained, and I always wear my mask, I can’t guarantee I’ll be completely safe,” she said.
($1 = 6.4858 Chinese yuan renminbi)
(Additional reporting by Cheng Leng and Beijing newsroom; Editing by Raju Gopalakrishnan)
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