Economy
Economy Will Be 'Supercharged' After Pandemic But There’s One Big Risk, Moody's Says (It’s Not Inflation) – Forbes
Topline
As early indicators point to a strong recovery that will create a “supercharged” economy once the coronavirus crisis slows down, Moody’s Analytics chief economist Mark Zandi says that the biggest risk to that recovery isn’t the runaway inflation that has many experts sounding alarm bells but a dangerous surge in asset values.
Key Facts
Rising vaccination rates and falling hospitalizations, plus the fact that herd immunity looks likely by the summer months, are just a few of the “increasingly compelling reasons” to be optimistic about recovery in the months ahead, Zandi wrote in a Monday research note.
In addition, federal stimulus spending is beginning to make its way to households that need assistance, households with excess personal savings and lots of pent-up demand from the pandemic are ready to spend, and business-to-business spending is on the rise too.
Some economists, lawmakers, and market experts are worried that the unprecedented federal stimulus and the surge in consumer spending that follows it will push prices to historic levels, devalue the dollar and destabilize the broader U.S. economy.
Zandi says these concerns about rampant, uncontrollable inflation are “much too premature,” especially since it will be years before the U.S. reaches pre-pandemic employment levels.
Rather, the bigger and more pressing threat to the recovery is ballooning asset prices, he says, pointing to recent surges in the equities market, housing market, bond market, commodities market, and even the cryptocurrency market.
With valuations sky high, these markets could be vulnerable to major corrections and crashes that have the potential to reverberate through the entire economy.
Surprising Fact
The S&P 500 index has soared almost 300% over the past ten years—much in the way it did in the ten years preceding the dot-com crash two decades ago.
Big Number
$2.4 trillion. That’s how much “forced” savings—money that households would have otherwise spent but couldn’t because of pandemic restrictions—analysts from Goldman Sachs estimate will be accumulated by the time the economy returns to normal in the middle of the year. “Whether households spend a modest or large share of these pent-up savings as the economy fully reopens could be the difference between a healthy recovery and overheating,” the analysts wrote in a Monday research note.
Key Background
Zandi isn’t the only expert taking this view. In a January speech at Princeton University, Federal Reserve chair Jerome Powell said he expects to see “a strong wave of exuberant spending” once the pandemic subsides that could push prices higher in the short term, but that he is not concerned about overheating and runaway inflation in the long term. Powell noted that there are still too many Americans seeking employment for wages to rise to unhealthy levels any time soon, and emphasized that with interest rates still at rock-bottom, the Fed has an arsenal of tools at its disposal to address rising inflation if it becomes problematic.
Further Reading
Is The Stock Market About To Crash? (Forbes)
Here’s What Biden’s $2 Trillion Climate-Focused Infrastructure Plan Means For Stocks And The Economy (Forbes)
Here’s What Could Spark The Next 10% Market Correction, Bank Of America Warns (Forbes)
The Canadian economy posted its worst showing on record in 2020 as the COVID-19 pandemic swept across the country shutting down businesses and putting people out of work.
Statistics Canada says real gross domestic product shrank 5.4 per cent in 2020, the steepest annual decline since comparable data was first recorded in 1961.
The drop for the year was due to the shutdown of large swaths of the economy in March and April during the first wave of the COVID-19 pandemic that crushed the economy.
Since then, economic activity has slowly and steadily grown.
Statistics Canada says the economy grew at an annualized rate of 9.6 per cent in the fourth quarter of last year, down from an annualized growth rate of 40.6 per cent in the third quarter.
That was higher than expected, with the average economist estimate at 7.5 per cent, according to financial data firm Refinitiv.
However, despite the better-than-expected result for the quarter as a whole, December eked out a 0.1 per cent increase, which followed a 0.8 per cent increase in November.
Statistics Canada noted that total economic activity in December was about three per cent below the pre-pandemic level in February 2020.
Looking ahead to January, Statistics Canada said its early estimate was for growth in the economy of 0.5 per cent.
CIBC chief economist Avery Shenfeld wrote in a note that the early January figure should set aside fears of an outright downturn in the first quarter.
Statistics Canada said wholesale trade, manufacturing and construction sectors led the increase, while retail trade fell to start the year.
BMO chief economist Douglas Porter said the economy soldiered through second-wave restrictions better than anticipated, and may signal a better-than-anticipated quarter, and potentially year overall.
“Look for new growth drivers to kick into gear as the economy re-opens in stages through this year, leading to roughly (six-per-cent) growth – a nice mirror image to last year’s deep dive,” he wrote in a note.
“It’s not precisely a V-shaped recovery, but it’s very close.”
© 2021 The Canadian Press
OTTAWA — The Canadian economy posted its worst showing on record in 2020 as the COVID-19 pandemic swept across the country, shutting down businesses and putting millions out of work.
Statistics Canada says real gross domestic product shrank 5.4 per cent in 2020, the steepest annual decline since comparable data was first recorded in 1961.
The drop for the year was due to the shutdown of large swaths of the economy in March and April during the first wave of the COVID-19 pandemic that crushed the economy.
Since then, economic activity has slowly and steadily grown.
Statistics Canada says the economy grew at an annualized rate of 9.6 per cent in the fourth quarter of last year, down from an annualized growth rate of 40.6 per cent in the third quarter.
That was higher than expected, with the average economist estimate at 7.5 per cent, according to financial data firm Refinitiv.
However, despite the better-than-expected result for the quarter as a whole, December eked out a 0.1 per cent increase, which followed a 0.8 per cent increase in November.
Statistics Canada noted that total economic activity in December was about three per cent below the pre-pandemic level in February 2020.
Looking ahead to January, Statistics Canada said its early estimate was for growth in the economy of 0.5 per cent.
CIBC chief economist Avery Shenfeld wrote in a note that the early January figure should set aside fears of an outright downturn in the first quarter.
Statistics Canada said wholesale trade, manufacturing and construction sectors led the increase, while retail trade fell to start the year.
BMO chief economist Douglas Porter said the economy soldiered through second-wave restrictions better than anticipated, and may signal a better-than-anticipated quarter, and potentially year overall.
“Look for new growth drivers to kick into gear as the economy re-opens in stages through this year, leading to roughly (six-per-cent) growth — a nice mirror image to last year’s deep dive,” he wrote in a note.
“It’s not precisely a V-shaped recovery, but it’s very close.”
This report by The Canadian Press was first published March 2, 2021.
The Canadian Press
Canada’s economy shrank by 5.4 per cent last year, official data from Statistics Canada showed Monday, making 2020 the worst year for the country’s economic output since record keeping began.
The data agency said Tuesday that Canada’s gross domestic product — the total value of all goods and services it produced — grew by 2.3 per cent during the last three months of the year, but that was nowhere near enough to offset the record-setting plunge it experienced during the the middle half of 2020.
Since bottoming out in the spring and early summer, economic activity has slowly, steadily grown.
For comparison purposes, Canada’s economy contracted almost twice as much as the U.S. did during the COVID-19 pandemic, despite the U.S. seeing far more cases per capita.
Preliminary data suggests the U.S. economy shrank by 3.5 per cent last year.
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