By Shrutee Sarkar and Richa Rebello
BENGALURU (Reuters) – A full bounceback from the euro zone’s deepest recession on record will take two years or more, according to a Reuters poll of economists who also said there is a high risk the job recovery underway reverses by the end of 2020.
Europe was badly hit earlier this year by the coronavirus pandemic, which has now infected more than 22 million people globally. But stringent lockdowns and contact tracing helped get the numbers down and allowed swift re-openings.
Along with trillions of euros’ worth of European Central Bank stimulus and a 750 billion euro European Union recovery fund that kicks in next year, sentiment has improved, and the economy is bouncing back along with the euro.
The consensus from the Aug 14-19 Reuters poll points to 8.1% growth this quarter compared with the previous one, easily the fastest on record, following a historic 12.1% contraction in Q2. That is unchanged from the July poll median.
In May, around the time lockdowns were lifted in most euro zone countries, the Q3 forecast was for 7.2% growth.
Quarterly growth will then slow sharply to 3.0% in Q4, slightly better than the 2.8% predicted last month and still a historically robust rate.
However, more than 70% of economists, or 25 of 35 who replied to an additional question, said it would take two or more years for euro zone GDP to reach pre-COVID-19 levels. Ten respondents said within two years and none said within a year.
“Despite the recent recovery in economic indicators, the better-than-feared performance of labour markets and the recent agreement on the Recovery Fund, we still see various downside risks to the economic recovery,” said Elwin de Groot, head of macro strategy at Rabobank.
“Although there have been encouraging reports with regard to a potential (COVID-19) vaccine by early 2021, as long there isn’t any effective one, containment measures will have to be kept in place regardless. A second series of partial lockdowns could have some serious economic effects.”
Around three-quarters of common contributors to this month’s and last month’s poll either lowered their GDP forecasts for the remainder of the year or kept them unchanged.
Asked to predict their worst-case scenario, the median response was 4.0% this quarter, much better than the 2.0% forecast in last month’s poll. But the worst-case view points to a 2.0% contraction in Q4, the most pessimistic yet for that period.
On an annual basis, the economy was expected to shrink 8.2% this year and then grow 5.5% next, or -10.3% this year and no growth in 2021 on a worst-case basis.
Much will depend on how the job market performs from now on.
Thanks to wide-reaching government furlough programmes that have helped businesses retain workers, euro zone unemployment has risen only slightly to 7.8% in July from 7.2% in February.
But about 85% of economists in the poll, 28 of 33 who responded to an additional question, said the risk the job recovery reverses by year-end was high, including four who said very high.
“Euro zone unemployment almost looks like a Cinderella story. With barely any increase in unemployment, it is currently the belle of the global labour market ball, at least compared to many other developed economies,” said Carsten Brzeski, chief economist, eurozone and global head of macro at ING.
“When the clock strikes midnight, however, and short-term work schemes come to an end, the fairy tale is unlikely to continue. We expect a second wave of job losses towards the end of the year and going into 2021.”
The jobless rate is expected to rise to 8.9% in 2020 and 9.3% in 2021, according to a July Reuters poll.
Inflation was not expected to touch the ECB’s target of below, but close to 2% through to 2022, according to the latest August survey. The ECB’s key interest rates are expected to stay on hold through the forecast horizon.
(For other stories from the Reuters global long-term economic outlook polls package:)
(Reporting by Shrutee Sarkar and Richa Rebello; polling by Nagamani Lingappa; editing by Ross Finley, Kirsten Donovan)
Racism has cost US economy $16 trillion in 20 years: Citi report – Yahoo Canada Finance
<p class="canvas-atom canvas-text Mb(1.0em) Mb(0)–sm Mt(0.8em)–sm" type="text" content="According to a new report from Citi (C), systemic racism in the United States has had a huge cost to the economy: $16 trillion over the past two decades. ” data-reactid=”16″>According to a new report from Citi (C), systemic racism in the United States has had a huge cost to the economy: $16 trillion over the past two decades.
That’s the combined cost of disparities in wages, education, investment in black-owned businesses, and the housing market.
<p class="canvas-atom canvas-text Mb(1.0em) Mb(0)–sm Mt(0.8em)–sm" type="text" content="“Racial inequality has always had an outsized cost, one that was thought to be paid only by underrepresented groups,” said Citigroup Vice Chairman Raymond J. McGuire. "What this report underscores is that this tariff is levied on us all, and particularly in the U.S., that cost has a real and tangible impact on our country’s economic output. Now, more than ever, we have a responsibility and an opportunity to confront this longstanding societal ill that has plagued Black and brown people in this country for centuries, tally up the economic loss and as a society, commit to bring greater equity and prosperity to all."” data-reactid=”18″>“Racial inequality has always had an outsized cost, one that was thought to be paid only by underrepresented groups,” said Citigroup Vice Chairman Raymond J. McGuire. “What this report underscores is that this tariff is levied on us all, and particularly in the U.S., that cost has a real and tangible impact on our country’s economic output. Now, more than ever, we have a responsibility and an opportunity to confront this longstanding societal ill that has plagued Black and brown people in this country for centuries, tally up the economic loss and as a society, commit to bring greater equity and prosperity to all.”
<p class="canvas-atom canvas-text Mb(1.0em) Mb(0)–sm Mt(0.8em)–sm" type="text" content="The $16 trillion drag on the U.S. economy since 2000 is particularly felt in the area of capital investment of black-owned businesses. A 2019 study from Illumen Capital found that $35 trillion of capital would be allocated differently, were it not for racial and gender bias. ” data-reactid=”19″>The $16 trillion drag on the U.S. economy since 2000 is particularly felt in the area of capital investment of black-owned businesses. A 2019 study from Illumen Capital found that $35 trillion of capital would be allocated differently, were it not for racial and gender bias.
According to the estimates from Citi’s research, racism impacting Black entrepreneurs has cost the United States $13 trillion of business revenue and potentially 6.1 million jobs that could have been created — each year.
<h2 class="canvas-atom canvas-text Mb(1.0em) Mb(0)–sm Mt(0.8em)–sm" type="text" content="Closing the gap” data-reactid=”21″>Closing the gap
What’s more, closing the wage gap between Black and white employees could have added $2.7 trillion — or 0.2% of GDP each year to the American economy.
“Improving access to housing credit might have added an additional 770,000 Black homeowners, adding $218 billion in sales and expenditures,” the study found, while improving access to college for Black students could increase the income of Black employees by up to $113 billion over their lifetimes.
“Present racial gaps in income, housing, education, business ownership and financing, and wealth are derived from centuries of bias and institutionalized segregation, producing not only societal, but also real economic losses,” the study noted.
“However, future gains from eliminating these gaps are enormous: benefiting not only individuals, but also the broader U.S. economy with positive spillover effects into the global economy.”
If racial gaps were eliminated, Citi estimates that over the course of the next 5 years, roughly $5 trillion could be added to the country’s GDP.
That’s an average of 0.35% of GDP growth each year.
<p class="canvas-atom canvas-text Mb(1.0em) Mb(0)–sm Mt(0.8em)–sm" type="text" content="Goldman Sachs in July published a report saying that reducing racial income inequality “could also deliver a boost to the level of US GDP of around 2%, which currently equates to just over $400 billion per year.”” data-reactid=”39″>Goldman Sachs in July published a report saying that reducing racial income inequality “could also deliver a boost to the level of US GDP of around 2%, which currently equates to just over $400 billion per year.”
The benefits wouldn’t just remain domestically: the study also notes that 0.09% growth would be added to global growth.
<p class="canvas-atom canvas-text Mb(1.0em) Mb(0)–sm Mt(0.8em)–sm" type="text" content="Citi on Wednesday announced it plans to spend over $1 billion to help address racial inequality over 3 years. The plan would include programs to help increase access to banking and credit to Black and brown communities, which are traditionally underbanked. The initiative would also aim to increase investment in Black-owned businesses and help more Black households purchase homes. ” data-reactid=”41″>Citi on Wednesday announced it plans to spend over $1 billion to help address racial inequality over 3 years. The plan would include programs to help increase access to banking and credit to Black and brown communities, which are traditionally underbanked. The initiative would also aim to increase investment in Black-owned businesses and help more Black households purchase homes.
In its report, Citi wrote: “The persistence of racially-biased attitudes, coupled with the implementation and maintenance of policies enshrining these attitudes, constitute what is often termed as systemic racism. Biases may be conscious or unconscious. Nonetheless, the result of policies creating and perpetuating bias produce inequality. Even when the biases fade, the policies may linger, rendering the inequality multi-generational as it becomes interwoven with the way things are done: in broader society, government, corporations, and/or institutions.”
“We are in the midst of a national reckoning on race and words are not enough,” said Chief Financial Officer Mark Mason. “We need awareness, education, and action that drive results.”
<p class="canvas-atom canvas-text Mb(1.0em) Mb(0)–sm Mt(0.8em)–sm" type="text" content="Read more:” data-reactid=”44″>Read more:
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Tech lifts world stocks as economy back in focus – TheChronicleHerald.ca
By Danilo Masoni
MILAN (Reuters) – World shares stabilised and the dollar rose on Wednesday with overnight gains of stay-at-home Wall Street tech champions helped balance concerns that new restrictions to counter resurging coronavirus infections will hurt economic recovery.
First indications from global surveys about economic activity in September gave a gloomy picture for Europe with rising COVID-19 infections leading to a downturn in services.
MSCI world equity index .MIWD00000PUS>, which tracks shares in 49 countries, was 0.2% higher by 0821 GMT, while the pan-European STOXX 600 .STOXX> benchmark rose 1.1%.
Tech shares were the strongest gainers in Europe following a rally overnight in big U.S. tech stocks Amazon , Microsoft , and Apple .
“This strong performance on the part of U.S. stocks is likely to translate into a similarly positive open for European stocks,” said Michael Hewson, analyst at CMC Markets in London.
“However there is rising concern that in light of surging infection rates across Europe, and the beginnings of a rise in hospitalisations, that the economic rebound from the lockdown lows is set to finish the year with a whimper,” he added.
The PMI survey showed euro zone business growth ground to a halt this month as the service industry shifted into reverse, knocked by a resurgence in coronavirus cases that pushed governments to reintroduce restrictions.
French business activity slowed to a four-month low in September, while Germany’s private sector continued to recover from the coronavirus shock.
Earlier, MSCI’s broadest index of Asia-Pacific shares outside Japan .MIAPJ0000PUS> rose 0.2% for its first gain this week, but the mood was hardly bullish. Japan’s Nikkei .N225> returned from a two-day holiday to slip 0.1%.
Nasdaq futures remained near Tuesday’s highs, up 0.1%. S&P 500 futures were 0.3% higher.
In foreign exchange markets, the standout mover was the gaining dollar, which was up 0.10% against a basket of six major currencies .DXY> at its highest level since July 27.
“Risk aversion on the back of new COVID-19 infections affecting Europe more directly remains an important factor this week,” UniCredit strategists said in a note. “This means that the USD is likely to remain firm in its role as preferred safe-haven currency.”
Meantime the euro hit a seven-week low and was last down 0.12% at $1.1693, on concerns about coronavirus infections and after the tepid European surveys.
Commodities were also weighed down by the robust dollar and worries linked to economic impact of a second wave of COVID-19.
“A resurgence in cases could prove to be a stumbling block for the demand recovery, although any lockdowns moving forward are likely to be more targeted and localised,” said ING commodity strategists Warren Patterson.
Brent crude futures were last down 0.2% at $41.64 a barrel and U.S. crude futures slipped 0.3% to $39.69.
Gold prices touched a six-week low as the dollar strengthened. Spot gold fell 1.2% to $1,875.7 per ounce.
In bond markets, Italy’s 30-year bond yield fell to a record low as the country’s debt remained supported after local elections reduced the risk of a snap election.
U.S. bonds were steady, with the yield on benchmark 10-year U.S. debt US10YT=RR up less than one basis point at 0.6724%
(Additiona reporting by Tom Westbrook in SINGAPORE; Editing by Tomasz Janowski)
Italy’s Chance of a Lifetime for Economy Could Yet Be Squandered – Yahoo Canada Finance
(Bloomberg) — No Italian government has ever had so much cash at its disposal as Prime Minister Giuseppe Conte — enough possibly to transform the region’s laggard economy.
But if that fiscal hoard swelled by European Union rescue funds and central bank-backed cheap borrowing is spent unwisely, it could become the biggest missed opportunity of a generation.
Avoiding that outcome is the test confronting Conte and his finance minister, Roberto Gualtieri. While targeting a revamp of the economy, they face pressure to throw funds at protecting existing jobs rather than investing in new ones, expanding the role of the state despite a troubled history of such policies in the country.
“In Italy, too many people think that any kind of public expenditure can boost output,” said Riccardo Puglisi, economics professor at the University of Pavia. “This increases the risk that recovery-fund money is not used properly and efficiently.”
The fiscal windfall that Italy’s governing class is about to sink its teeth into is staggering. Gone are the days of haggling over 0.1% budget deviations with Brussels officials concerned about burgeoning borrowings that are now well on the way to exceed 150% of gross domestic product.
The country stands ready to receive as much as 209 billion euros ($248 billion) in EU aid funded by jointly issued debt to help its post-coronavirus reconstruction.
Further bolstering its public finances are European Central Bank efforts to keep borrowing costs low. That help allowed Conte to spend 100 billion euros in stimulus on a battered economy that analysts anticipate may contract as much as a 10th this year. The yield on Italian 10-year bonds has more than halved since the peak of the pandemic in mid-March.
“Italy will have billions in its pockets,” said Paolo Pizzoli, a senior economist at ING Bank. The government “needs to show it is not only able to access European Union funds, but also to focus spending effectively to ultimately boost growth.”
With strict strings attached to EU money, officials intend to use it to boost growth to at least 1.6% a year and increase employment by 10 percentage points from the 2019 tally of 63.5% to bridge the gap with regional peers, according to draft guidelines seen by Bloomberg.
The plan is to invest in digitalization, a unified ultra-broadband network, innovation, education, more efficient infrastructure, a green economy, and also reforms of the judicial system and state bureaucracy.
“It’s a once-in-a-lifetime opportunity to exit a long period of stagnation,” Gualtieri told lawmakers last week.
That ambitious growth agenda is pulling in one direction, while the government’s own spending plans for the rest of its budget are pulling in another. Conte’s coalition of the left-wing Democratic Party and the populist Five Star Movement — newly emboldened after holding its ground in local elections this week — is increasingly tending toward state aid and government intervention.
The premier has pushed for the creation of a single broadband network company, halting the sale by Telecom Italia SpA of a minority stake in its network. He has also pressured the Benetton family’s Atlantia holding company to sell its 88% stake in toll road operator Autostrade per l’Italia. Meanwhile Gualtieri has publicly favored a sale of the Italian Stock Exchange and its MTS bond market to a European company.
The government wants the state-backed lender, Cassa Depositi e Prestiti, to take stakes in all three enterprises, and it has also set up a new publicly controlled company to run failed airline Alitalia SpA. Italy has seen such measures before, but not for a while.
Not the Solution
“The successful Italian economy of the 1950s, which was a mixed system — with strong government involvement in companies through a vehicle called IRI — worked for a time but degenerated quickly into cronyism and wasting public funds,” said Giovanni Orsina head of LUISS University’s School of Government in Rome. “Regenerating that system for all the wrong reasons is not the solution.”
The Institute for Industrial Reconstruction — known as IRI — was a state company established by the fascists in 1933. It helped rebuilding after the war, constructing roads and the phone network, and was once Italy’s biggest employer.
If Cassa Depositi becomes a revamped version of that, it would ultimately turn back the clock, reversing decades of economic policy since IRI was dissolved during a sell-off of assets in the 1990s.
“We hope the government will use the funds to boost competitiveness with a market approach rather than acting as a nanny state,” said Paolo Magni, parter at Alpha Group, a private equity fund with 2 billion euros of assets under management in Italy.
For Orsina, such an outcome would prolong Italy’s history of failing to deliver on economic reforms, hampered by special interests and a political cycle with frequent elections.
“Politicians gain very little from long-term planning and very much from spending on solutions that increase their power and popularity,” he said. “The country is condemned to short-termism.”
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