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Expert says Canadian economy will improve in 2021, though 'not spectacularly' – CTV News

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TORONTO —
After a tumultuous 2020, those with their eyes on the Canadian and global economies can expect improvements in 2021, according to one expert.

“I actually think the economy is going to do very well in 2021,” Ian Lee, an associate professor at Carleton University’s Sprott School of Business, told CTV News Channel on Friday. “Not spectacularly, but much better than in 2020.”

Lee attributes this in part to Canadians’ saving rate in 2020, which he said has “gone through the roof.”

Lockdown measures to prevent the spread of COVID-19 meant that those with disposable income had less to spend it on. Statistics Canada reports that after the first quarter of 2020, Canadians saved an average of 7.6 per cent of disposable income, up from 2.3 per cent in the first quarter of 2019.

But by the second quarter of 2020, Canadians were saving 28.2 per cent, a dramatic increase from the 3.1 per cent they were saving in 2019’s second quarter.

“I cannot remember it being this high,” Lee said.

With vaccines being rolled out in 2021, Lee said there is renewed hope that Canadians will soon be able to leave their homes and make the kinds of purchases that will stimulate the economy.

“I think we’re going to see a very significant increase in spending because people are going to be so grateful and so happy it’s behind us,” he said. “We can get out of our houses, go to restaurants, go out flying and travelling and so forth. So I think we’ll see that pent-up demand express itself in 2021.”

 

WILL SMALL BUSINESSES BOUNCE BACK?

Even with this expected spending ahead, small businesses in Canada are barely holding on, with some already forced to shutter.

“Small businesses always had much smaller profit margins than big business,” Lee said. “I think it’s inevitable we’re going to see a significant increase in failures – small business bankruptcies – over the winter months.”

Lee said he believes this “inevitable” outcome may be why many provinces have not gone into universal lockdowns, instead trying to focus restrictive measures where they were most needed to try to help those whose livelihoods are at stake.

“I don’t think it’s going to be as bad on small businesses,” Lee said of the year ahead. “But it’s still going to be negative, no question about it.”

But he adds if governments continue to make these lockdown considerations in the new year, it could allow small businesses to generate some cash flow.

“Between that and the backstops provided by the government, I think they’re hoping it’ll be enough to carry them through the winter into the spring when the vaccine starts rolling out,” he noted.

 

REAL ESTATE MAY NOT BE NOT AS GOOD AS IT SEEMS

One of the key backstops provided by central banks, including the Bank of Canada, is record low interest rates, which has led some to seek approval for a home mortgage.

And while low rates may be good for those seeking a loan, it’s also led to rising home prices, making the buyer’s market more competitive and pricey.

“I don’t think we’re going to see in 2021 the average increases in real estate prices that we saw in this last year,” Lee said. “It’s not sustainable.”

Lee points to a collapse in immigration levels in Canada due to the pandemic as a contributing factor.

“People don’t realize […] the impact of immigration – the positive impact of immigration,” Lee said.

Immigrants need homes in Canada, Lee said, but can also bring wealth with them to spend in the Canadian economy.

All this, he said, will yield lower real estate prices in 2021: “I think it will be much more modest this year.”

 

U.S. POLITICS COULD IMPACT STOCK MARKET

With several uncertainties still ahead in 2021, a rise in the stock market is anything but a sure thing despite low interest rates, reopening economies and more liquidity.

“I don’t think it’s going to explode,” Lee said, pointing to the changing administrations in the U.S. as a possible “wildcard.”

U.S. President-elect Joe Biden has announced plans for a stimulus for Americans, as well as plans for improving infrastructure, which Lee said could “rev up” the U.S. economy, but Biden’s plans may be constrained by the Republican-controlled Senate.

Democrats have an opportunity to take hold of the Senate Jan. 5, but only if they can win both of the Georgia runoff elections.

“It’s unpredictable, but I don’t think we’re going to see huge increases in the stock market averages for 2021,” Lee said.

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U.S. labour market recovery fading; housing, factories underpin economy – The Globe and Mail

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The number of Americans filing new applications for unemployment benefits decreased modestly last week as the COVID-19 pandemic tore through the U.S. Reuters

The number of Americans filing new applications for unemployment benefits decreased modestly last week as the COVID-19 pandemic tears through the country, raising the risk that the economy will shed jobs for a second straight month in January.

Despite the labour-market woes, the economy remains anchored by strong manufacturing and housing sectors. Other data on Thursday showed homebuilding and permits for future residential construction surged in December to levels last seen in 2006. Factory activity in the mid-Atlantic region accelerated this month, with manufacturers reporting a boom in new orders.

The services sector has borne the brunt of the coronavirus crisis, disproportionately affecting lower-wage earners, who tend to be women and minorities. Addressing the so-called K-shaped recovery, where better-paid workers are doing well while lower-paid workers are losing out, is one of the key challenges confronting U.S. President Joe Biden and his new administration.

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White House economic adviser Brian Deese said the fragile labour market underscored the urgency for U.S. Congress to act quickly on Mr. Biden’s US$1.9-trillion relief plan to “get this virus under control, stabilize the economy and reduce the long-term scarring that will only worsen if bold action isn’t taken.”

Initial claims for state unemployment benefits fell 26,000 to a seasonally adjusted 900,000 for the week ended Jan. 16, the Labour Department said. Economists polled by Reuters had forecast 910,000 applications in the latest week.

Including a government-funded program for the self-employed, gig workers and others who do not qualify for the regular state unemployment programs, 1.4 million people filed claims last week.

Out-of-control coronavirus infections are disrupting operations at businesses such as restaurants, gyms and other establishments where crowds tend to gather, reducing hours for many workers and pushing others out of employment.

Consumers are also hunkering down at home, dampening demand. COVID-19 has infected more than 24 million Americans, with the death toll exceeding 400,000 since the pandemic started.

Stocks hovered near record highs on Thursday, while the U.S. dollar fell against a basket of currencies. U.S. Treasury prices were lower.

Some of the elevation in claims reflects people re-applying for benefits following the government’s recent renewal of a US$300 unemployment supplement until March 14 as part of the nearly US$900-billion in additional fiscal stimulus. Programs for the self-employed, gig workers as well as those who have exhausted their benefits were also extended.

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The claims data covered the week during which the government surveyed establishments for the non-farm payrolls component of January’s employment report. Claims were slightly higher between the December and January survey period.

“Another negative print for payrolls in January remains within the realm of possibility,” said Sarah House, a senior economist at Wells Fargo Securities in Charlotte, N.C.

The economy shed 140,000 jobs in December, the first job losses since April when authorities throughout the country enforced stay-at-home measures to slow the spread of the virus. Retail sales fell for a third straight month in December.

Though jobless claims have dropped from a record 6.867 million in March, they remain above their 665,000 peak during the 2007-09 Great Recession.

The claims report showed the number of people receiving benefits after an initial week of aid decreased 127,000 to 5.054 million during the week ending Jan. 9.

About 16 million people were on unemployment benefits under all programs at the start of the year. The decrease from 18.4 million at the end of 2020 reflected the temporary expiration of government-funded benefits. The economy has recovered 12.4 million of the 22.2 million jobs lost in March and April.

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But housing and manufacturing are bucking the labour-market distress. In a separate report on Thursday, the Commerce Department said housing starts jumped 5.8 per cent to a seasonally adjusted annual rate of 1.669 million units in December, the highest level since September, 2006.

Building permits for future homebuilding, which typically lead starts by one to two months, accelerated 4.5 per cent to a rate of 1.709 million units in December, the highest since August 2006. Surging lumber prices and labour and land shortages could, however, slow the housing market momentum.

“Rising material prices, including lumber, are beginning to weigh on builder confidence and reduce housing affordability,” said Ryan Sweet, a senior economist at Moody’s Analytics in West Chester, Pa.

A third report from the Philadelphia Federal Reserve showed its business conditions index soared to a reading of 26.5 this month from 9.1 in December. A measure of new orders at factories in the region that covers eastern Pennsylvania, southern New Jersey and Delaware, vaulted to a reading of 30.0 from 1.9 in December. Manufacturing is being boosted by businesses rebuilding inventories.

Factory employment measures also improved. While manufacturers reported paying more for raw materials, they were also able to increase prices for their goods. This mirrored other manufacturing surveys, suggesting inflation could pick up and remain elevated for a while this year. Manufacturers were upbeat about capital investment plans in the six months ahead.

“Inflation is likely moving up and should continue to do so, albeit slowly,” said Joel Naroff, chief economist at Naroff Economics in Holland, Pa.

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European Central Bank stimulus on track as economy struggles – North Shore News

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FRANKFURT — With more than a trillion euros in stimulus still in the pipeline to the economy, the European Central Bank left its key bond-purchase program unchanged Thursday as the 19-country eurozone endures a winter economic slowdown due to the pandemic.

ECB President Christine Lagarde told a news conference that the economy likely contracted in the last three months of 2020 and the outlook going forward faces risks.

Coronavirus infections and deaths have risen during the winter, leading to new restrictions on businesses. Germany has extended its partial lockdown until Feb. 14, France has imposed a 6 p.m. curfew, and Portugal has hit multiple records in case numbers.

Lagarde said that while the start of vaccinations against the coronavirus was “an important milestone,” the outbreak continued to pose “serious risk to the eurozone and global economies.”

She said that the bank’s outlook for growth of 3.9% in 2021 was “still holding as we speak.”

“We had anticipated the continuation and the lockdown measures that are currently in place… and that leads us to conclude that our own forecast for 2021 is still broadly valid at this time,” she said, while cautioning that short-term risk was “tilted to the downside, no question about it.”

She said that “an ample monetary stimulus remains essential” and that if things turn out worse than expected “all instruments can be adjusted and nothing is off the table” in terms of stimulus.

The economy is being propped up by massive support from the ECB, national governments, and the EU. The ECB’s decision not to adjust its key programs was largely expected because it added a major dose of stimulus only last month, at its Dec. 10 meeting. The governing council added 500 billion euros to its pandemic emergency stimulus bond purchases, bringing the total to 1.85 trillion euros ($2.2 trillion), and extended the regular purchases through at least March 2022. More than half of that total is still waiting to be deployed.

The bond purchases are a way of pumping newly created money into the economy, which aims to raise inflation from levels that are currently considered too low. The purchases also keep market interest rates down so that companies can access the credit they need to get through the pandemic recession.

One result of the purchases is that governments can use the bond market to borrow cheaply as their deficits rise through spending on pandemic support, such as paying salaries for furloughed workers to avoid layoffs.

Additional stimulus is on the way from the EU’s 750 billion-euro fund established to support the recovery through shared borrowing by member countries — a step toward further solidarity and integration among the 27-member EU. The fund is to support projects that reduce emissions of carbon dioxide, the main greenhouse gas blamed for climate change, and that promote the spread of digital technology and infrastructure.

The European Union’s executive commission forecasts that the eurozone economy shrank 7.8% last year. Official numbers for last year are to be released Feb. 2.

The bank left interest benchmarks untouched. Those are zero for short term loans from the ECB to banks, and minus 0.5% on deposits left overnight at the ECB by banks. The negative rate is a penalty aimed at pushing banks to lend the money rather than leave it at the ECB.

The ECB is the chief monetary authority for the countries that use the euro, playing a role analogous to that of the Federal Reserve in the U.S. It sets key interest rate benchmarks and supervises banks. So far, 19 of the 27 EU countries have joined the euro.

David McHugh, The Associated Press

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European Central Bank stimulus on track as economy struggles – The Tri-City News

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FRANKFURT — With more than a trillion euros in stimulus still in the pipeline to the economy, the European Central Bank left its key bond-purchase program unchanged Thursday as the 19-country eurozone endures a winter economic slowdown due to the pandemic.

ECB President Christine Lagarde told a news conference that the economy likely contracted in the last three months of 2020 and the outlook going forward faces risks.

Coronavirus infections and deaths have risen during the winter, leading to new restrictions on businesses. Germany has extended its partial lockdown until Feb. 14, France has imposed a 6 p.m. curfew, and Portugal has hit multiple records in case numbers.

Lagarde said that while the start of vaccinations against the coronavirus was “an important milestone,” the outbreak continued to pose “serious risk to the eurozone and global economies.”

She said that the bank’s outlook for growth of 3.9% in 2021 was “still holding as we speak.”

“We had anticipated the continuation and the lockdown measures that are currently in place… and that leads us to conclude that our own forecast for 2021 is still broadly valid at this time,” she said, while cautioning that short-term risk was “tilted to the downside, no question about it.”

She said that “an ample monetary stimulus remains essential” and that if things turn out worse than expected “all instruments can be adjusted and nothing is off the table” in terms of stimulus.

The economy is being propped up by massive support from the ECB, national governments, and the EU. The ECB’s decision not to adjust its key programs was largely expected because it added a major dose of stimulus only last month, at its Dec. 10 meeting. The governing council added 500 billion euros to its pandemic emergency stimulus bond purchases, bringing the total to 1.85 trillion euros ($2.2 trillion), and extended the regular purchases through at least March 2022. More than half of that total is still waiting to be deployed.

The bond purchases are a way of pumping newly created money into the economy, which aims to raise inflation from levels that are currently considered too low. The purchases also keep market interest rates down so that companies can access the credit they need to get through the pandemic recession.

One result of the purchases is that governments can use the bond market to borrow cheaply as their deficits rise through spending on pandemic support, such as paying salaries for furloughed workers to avoid layoffs.

Additional stimulus is on the way from the EU’s 750 billion-euro fund established to support the recovery through shared borrowing by member countries — a step toward further solidarity and integration among the 27-member EU. The fund is to support projects that reduce emissions of carbon dioxide, the main greenhouse gas blamed for climate change, and that promote the spread of digital technology and infrastructure.

The European Union’s executive commission forecasts that the eurozone economy shrank 7.8% last year. Official numbers for last year are to be released Feb. 2.

The bank left interest benchmarks untouched. Those are zero for short term loans from the ECB to banks, and minus 0.5% on deposits left overnight at the ECB by banks. The negative rate is a penalty aimed at pushing banks to lend the money rather than leave it at the ECB.

The ECB is the chief monetary authority for the countries that use the euro, playing a role analogous to that of the Federal Reserve in the U.S. It sets key interest rate benchmarks and supervises banks. So far, 19 of the 27 EU countries have joined the euro.

David McHugh, The Associated Press

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