FRANKFURT – A startling fall in consumer prices and a stronger euro have increased pressure on the European Central Bank to provide another blast of monetary stimulus in support of a drawn-out economic rebound from the pandemic recession.
A 0.2% annual drop in prices in August in the 19 countries that use the euro underlined that demand from unsettled consumers across the economy remains weak despite the reopening of many businesses. While it also reflected one-time effects such as delayed summer sales, the drop is more evidence of how severely the pandemic has held back business activity in Europe, which along with the U.S. and China is one of three major pillars of the global economy.
The economy plunged by a dizzying 11.8% in the second quarter from the first quarter. And while experts say that the economy’s recovery will be determined mainly by governments’ ability to contain the pandemic, the ECB is doing what it can to help.
The focus after Thursday’s policy meeting will be on President Christine Lagarde’s statements on the inflation outlook and the stronger euro, another risk factor for the economy because it can make life harder for exporters.
The bank’s governing council is expected to keep interest rates unchanged at record lows and to leave its bond-purchase stimulus program at the current level of 1.35 trillion euros ($1.6 trillion). That stimulus program, which regularly injects newly printed money into the economy, still has 850 billion euros left to be used, giving the bank plenty of ammunition for now. Analysts, however, are predicting that the bank’s leadership could add to that amount sooner than expected.
Analysts at Morgan Stanley originally expected more stimulus only next year. But after last week’s “deflationary surprise, and with the drag from a stronger euro, we will be looking for any signal that the ECB may act earlier,“ for instance at the December meeting.
The fall in the consumer price index is mostly due to temporary factors such as a cut in German value-added tax and the slashing of prices by hotels, said Oliver Rakau at Oxford Economics. That means it doesn’t represent outright deflation, a dreaded downward price spiral that can become a long-term trap for an economy.
He expects a partial rebound in prices in the near term followed by a period of subdued inflation rather than a sustained fall in prices. “This won’t absolve the ECB from responding, but it does lessen the urgency,” he said. He predicted the bank would raise the amount of pandemic stimulus purchases this year.
The drop in inflation to below zero – the first time that has happened since 2016 – underlined how the ECB has struggled in recent years to consistently achieve its goal of keeping annual inflation close to but less than 2%. The U.S. Federal Reserve has also not been able to consistently hit its 2% inflation target but the ECB has fallen even farther short.
Low inflation may seem good for consumers but can make debt harder to repay and makes it harder for economically weaker eurozone countries to improve their competitiveness.
The ECB’s chief economist, Philip Lane, said in a recent assessment on CNBC that “our baseline was built around that once the economy was unlocked there would be some recovery, but the reality is that while we still have to manage this virus in terms of social distancing and other restrictions, there’s not going to be a return to normal levels of economic activity for a considerable period.”
Recent economic indicators suggest the bounce back as businesses have reopened is losing some of its momentum as summer ended, says Jack Allen-Reynolds, senior Europe economist at Capital Economics.
Online retail sales have fallen without a corresponding upturn in in-store spending, and some indicators of business activity suggest the economy contracting again in Italy and Spain, two countries hardest hit by the virus and constraints on vacation spending. The rise in the value of the euro this summer, from about $1.12 in June to over $1.18 on Tuesday, has put more strain on exporters, among other things.
The most troubling factor, however, is that the number of infections has been rising again, raising fears of more restrictions on public life and commerce.
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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