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For the Economy, Climate Risks Are No Longer Theoretical – Wall Street Journal

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Hay bales ablaze in Australia. The worst bushfires in the country’s history have led to a lowering of economic growth forecasts.


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kelly barnes/Shutterstock

Last year Australia’s central bank hoped that several interest-rate cuts would mark a turning point for its slowing economy. That was before the worst bushfires in Australia’s history hit tourism, consumer confidence and growth forecasts for this year. There is now a good chance the bank will cut interest rates again soon.

Welcome to a world in which climate change’s economic impact is no longer distant and imperceptible. Puerto Rico never fully recovered from Hurricane Maria in 2017. Extreme drought in California and poorly maintained utility power lines led to severe wildfires in 2018, the utility’s bankruptcy and blackouts last year.

Climate change can’t be directly blamed for any single extreme weather event, including Hurricane Maria, California’s wildfires or Australia’s bushfires. But it makes such events more likely. “They are starting to be more than tail events, they’re starting to affect economic outcomes,” Robert Kaplan, president of the Federal Reserve Bank of Dallas, told an economic conference earlier this month.

Climate crises in the next 30 years may resemble financial crises in recent decades: potentially quite destructive, largely unpredictable and, given the powerful underlying causes, inevitable.

Climate has muscled to the top of business worries.

Every year, the World Economic Forum asks business, political, academic and nongovernmental leaders to rank the most probable and consequential risks, from cyberattacks to fiscal crises. This year, ahead of its annual meeting next week in Davos, Switzerland, climate-related risks took the five top spots in terms of probability, the first time a single issue had done so in the survey’s 14-year history.

Of course, economies have always been vulnerable to natural disasters. Before the modern industrial era, crop failures were a leading cause of recession. The monsoon season remains a key economic variable in India, and the Tohoku earthquake and tsunami in 2011 tipped Japan into recession.

And while estimates of climate’s economic impact are suffused with uncertainty, they don’t suggest any major economy will be pushed into recession, much less depression.

Studies reviewed by David Mackie of JPMorgan Chase suggest climate change could reduce global gross domestic product by 1% to 7% by 2100, assuming “business as usual” (i.e., absent policies to mitigate emissions of carbon dioxide). Given that the impact is spread out over 80 years, in which per capita incomes probably rise 300% to 400%, even larger climate change impacts would appear small, he said.

Aggregate changes in GDP, though, can be misleading. As global temperatures climb, the probability of extreme temperatures and events and the associated economic consequences should rise more.

This relationship is driven home in a study released Thursday by the McKinsey Global Institute. It estimated that “unusually hot summers” affected 15% of the Northern Hemisphere’s land surface in 2015, up from 0.2% before 1980.

McKinsey estimated that climate change made the European heat wave that in 2019 killed 1,500 in France 10 times more likely and the forest fires that devastated northern Alberta in 2016 up to six times more likely.

NASA says smoke from Australian fires has made a full circuit of Earth. It has affected New Zealand’s air quality and turned skies in South America hazy. Photo: NASA Earth Observatory handout/Shutterstock

Looking ahead, assuming business as usual, McKinsey projected the probability of a 10% drop in wheat, corn, soybean and rice yields in any given year will rise from 6% now to 18% in 2050. Such a change wouldn’t cause food shortages but could cause prices to spike. The probability that a catastrophic cyclone disrupts semiconductor manufacturing in the western Pacific will double or quadruple by 2040. Such an event “could potentially lead to months of lost production for the directly affected companies,” McKinsey said. The probability of rain heavy enough to halt the mining in southeastern China of rare-earth elements, vital to many electronic devices, will rise from 2.5% now to 6% by 2050.

Such an exercise comes with plenty of caveats. The projections make no allowance for adaptation, though no doubt some outdoor activity will move indoors, some businesses will relocate from flood plains, and insurance will cushion the cost for many.

But adaptation goes only so far. Humans can’t survive prolonged high heat and humidity beyond certain thresholds. Those thresholds are rarely met now, but will be reached regularly in some regions by 2050.

Adaptation and insurance may be deemed too costly. “Underinsurance may grow worse as more extreme events unfold, because fewer people carry insurance for them,” McKinsey predicted.

Some on Wall Street are starting to treat climate change the way they regard financial crises. “Climate change is almost invariably the top issue that clients around the world raise with BlackRock,” Chairman and CEO Laurence Fink told chief executives this week in explaining why climate would be a key criterion in how

BlackRock Inc.

invests its $7 trillion of client money. For businesses, mandates—private or government-driven—pose a risk distinct from climate change itself. Car companies are now spending heavily to market electric vehicles with no assurance they will be profitable.

Some central bankers are also talking about climate risk the way they talk about financial crises. Christine Lagarde, the newly installed European Central Bank president, told European parliamentarians last fall, “At a minimum…[the ECB’s] macroeconomic models must incorporate the risk of climate change.”

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Yet worrying about it isn’t the same as doing something about it. Unlike financial crises, neither Wall Street nor central bankers have the tools to alter the forces making climate crises more likely: rising carbon dioxide emissions and economic development in vulnerable regions. Only political leaders can—and it isn’t clear they will.

The Madrid climate summit in December “is the most recent example of countries failing to cooperate to create a global emissions trading regime,” Mr. Mackie said. “Most likely, business as usual will be the path that policy makers follow in the years ahead…[which] increases the likelihood that the costs of dealing with climate change will go up as action is delayed.”

Write to Greg Ip at greg.ip@wsj.com

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BoE to step up QE if economy slows again, deputy governor says – The Times – TheChronicleHerald.ca

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(Reuters) – The Bank of England will step up on quantitative easing (QE) if the British economy slows and struggles again, Deputy Governor Dave Ramsden said in an interview published on Tuesday, adding to his previous comments that BoE has more headroom to act.

QE would accelerate if “we saw signs of (market) dysfunction,” Ramsden told The Times newspaper in an interview https://bit.ly/2DFcMlr.

“I’m confident we’ve still got significant headroom to do more QE if we saw a much weaker recovery,” Ramsen said, adding that the central bank was prepared to do more quantitative easing, beyond the 745 billion pounds ($975.58 billion) committed.

He added that he was “confident” there would be no further quarters of negative growth for UK’s economy.

“A key outcome is what happens to the labour market. Some companies are going to go under. Some jobs are going to be lost,” Ramsen said.

Last week, Britain’s central bank said it saw no immediate case to cut interest rates below zero as it warned the economy would take longer to recover from the COVID-19 slump than it previously forecast.

Unemployment is likely to almost double by the end of this year, the Bank of England said on Thursday.

The BoE cut interest rates to just 0.1% in March and expanded its bond-buying plan to almost $1 trillion.

On Thursday, its nine monetary policymakers all voted for ‘no policy changes’ as they sketched out a slow path to recovery.

(Reporting by Kanishka Singh in Bengaluru, Editing by Sherry Jacob-Phillips)

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BoE to step up QE if economy slows again, deputy governor says – The Times – The Journal Pioneer

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(Reuters) – The Bank of England will step up on quantitative easing (QE) if the British economy slows and struggles again, Deputy Governor Dave Ramsden said in an interview published on Tuesday, adding to his previous comments that BoE has more headroom to act.

QE would accelerate if “we saw signs of (market) dysfunction,” Ramsden told The Times newspaper in an interview https://bit.ly/2DFcMlr.

“I’m confident we’ve still got significant headroom to do more QE if we saw a much weaker recovery,” Ramsen said, adding that the central bank was prepared to do more quantitative easing, beyond the 745 billion pounds ($975.58 billion) committed.

He added that he was “confident” there would be no further quarters of negative growth for UK’s economy.

“A key outcome is what happens to the labour market. Some companies are going to go under. Some jobs are going to be lost,” Ramsen said.

Last week, Britain’s central bank said it saw no immediate case to cut interest rates below zero as it warned the economy would take longer to recover from the COVID-19 slump than it previously forecast.

Unemployment is likely to almost double by the end of this year, the Bank of England said on Thursday.

The BoE cut interest rates to just 0.1% in March and expanded its bond-buying plan to almost $1 trillion.

On Thursday, its nine monetary policymakers all voted for ‘no policy changes’ as they sketched out a slow path to recovery.

(Reporting by Kanishka Singh in Bengaluru, Editing by Sherry Jacob-Phillips)

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Singapore’s Economy Posts Worse Contraction in Second Quarter – Yahoo Canada Finance

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Singapore Posts Bigger GDP Contraction in Second Quarter

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(Bloomberg) — Singapore’s economy had a bigger contraction in the second quarter than previously estimated, signaling a long recovery ahead for the trade-reliant nation.

Gross domestic product plunged an annualized 42.9% in the second quarter from the previous three months, according to final estimates from the Ministry of Trade and Industry released Tuesday. That was worse than a previous estimate of a 41.2% contraction and compares with a forecast of -43% in a Bloomberg survey of economists.

The economy, which is already in a technical recession, is set to shrink 5% to 7% in 2020, compared with a previous official forecast of a 4% to 7% contraction, the ministry said. On a year-on-year basis, the economy shrank 13.2% in the second quarter, compared with an earlier estimate of -12.6%.

“The outlook for the Singapore economy has weakened slightly since May,” according to the MTI statement. “The subdued external economic environment will continue to pose a drag on several of Singapore’s outward-oriented sectors,” while the reopening of borders is likely to be slower than previously anticipated, it said.

The lockdown has pummeled retail and tourism businesses and crippled construction output, while exports have slumped because of weak global demand. Even though the economy has gradually reopened and the government has pumped in stimulus measures worth more than 19% of GDP, the recovery remains uncertain and companies are bracing for further job cuts.

The data showed sharp contractions in key industries:

Manufacturing declined an annualized 31.7% in the second quarter from the previous three monthsConstruction plunged 97.1%Services contracted 37.4%

Singapore’s dollar was little changed at S$1.3746 against the U.S. dollar after the report.

The MTI said sectors reliant on foreign workers residing in dormitories will be slow to resume activity as the process to clear them for work has taken longer than expected. Most of Singapore’s virus infections have been among migrant workers living in those dormitories, several of which have been quarantined.

In a separate report, Enterprise Singapore revised its forecast for non-oil domestic exports upwards, projecting growth of 3% to 5% compared with a decline previously. Exports performed better than expected in the second quarter, due to sector-specific trends, the agency said. Non-monetary gold and pharmaceuticals, as well as electronic exports, grew in the quarter.

Singapore’s release follows reports last week that showed uneven economic performance across the region. Indonesia’s economy contracted in the second quarter for the first time in more than two decades, while the Philippines suffered its deepest plunge on record. At the same time, Chinese exports unexpectedly jumped in July amid a rekindling in global demand.

(Updates with comments from MTI statement starting in fourth paragraph.)

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