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For the World Economy, a Grim Slog Tempered by New Hopes – The New York Times



Nearly a year into a pandemic that has ravaged the global economy like no time since the Great Depression, the only clear pathway toward improved fortunes is containing the virus itself.

With the United States suffering its most rampant transmission yet, and with major nations in Europe again under lockdown, prospects remain grim for a meaningful worldwide recovery before the middle of next year, and far longer in some economies. Substantial job growth could take longer still.

A significant hope has emerged this month in the form of three vaccine candidates, easing fears that humanity could be subject to years of intermittent, wealth-destroying lockdowns. But significant hurdles remain before vaccines restore any semblance of normalcy. More tests must be conducted, and vast supplies manufactured. The world must navigate the complexities of distributing a life-saving medicine amid a surge of nationalism.

The very concept of normalcy now seems open to question. Even after the coronavirus is tamed into something familiar and manageable like the flu, will people habituated to keeping their distance from others return to restaurants, shopping malls and entertainment venues in the same numbers? With videoconferencing established as a replacement for business travel, will companies shell out as much as before to put them on airplanes and in hotels?

More coronavirus testing must be conducted for the economy to return to normal, although the very definition of normal is now open to question.
Credit…Hiroko Masuike/The New York Times

Calculating the prospects for a vigorous economic recovery entails wrestling with questions of human nature. The Depression imprinted a generation with a tendency toward thriftiness and an aversion to risk. If frugality endures this time, that would have profound and enduring economic consequences: Consumer spending typically makes up two-thirds of economic activity in countries like the United States and Britain.

“If you’re a business, you might be a bit more wary about taking on staff again,” said Ben May, a global economist at Oxford Economics in London. “You might make do with overtime for a while. Households might behave more cautiously. If that’s the case, you run the risk of economic scarring further down the line.”

Long-term damage on top of the recent economic devastation would add to the inequality that has been a central feature of recent decades, as people with greater education, advanced skills and access to stock and real estate markets harvested the winnings of expansion, while others struggled.

The pandemic has made the world more so. It has concentrated its lethal force on blue-collar workers, for whom human interaction is a necessity, striking people who labor in warehouses, slaughterhouses and frontline medical facilities. Professionals able to work from home have maintained their safety along with their incomes.

Credit…Elaine Cromie for The New York Times

The industries that face the greatest challenges in recovering — airlines, hotels, restaurants and retail — are major employers of lower-skilled workers, and especially women.

At a time when companies are under pressure to make their workforces more diverse, the likelihood that many people will continue working from home threatens to impede entry and promotion for women and minorities. Breaking into established ranks and altering culture is not a process best conducted over Zoom.

That could limit economic dynamism. “Growing inequality is terrible for economies because consumption is reduced,” said Ian Goldin, a professor of globalization and development at Oxford University, and author of “Terra Incognita: 100 Maps to Survive the Next 100 Years.” “A smaller share of your economy is able to buy your goods and services.”

What has been challenged most directly is the popular notion that the world economy could simply endure a deep freeze to contain the pandemic and then revive, almost as if nothing had happened. The idea was that public largess could support workers and keep businesses alive during the short, sharp downturn required to choke off the virus, before commercial life recovered.

Credit…Gilles Sabrie for The New York Times

This sort of thinking was the basis for forecasts of a so-called V-shaped recovery: The astonishing collapse of major economies in the first half of the year was supposed to be followed by an equally astonishing revival.

But the global economy does not come with an on-off switch. After marked improvement in the late summer, the surge of virus cases has destroyed the hopeful scenario. The strains of the catastrophe — from failed businesses and elevated joblessness to disrupted education — appear likely to endure, potentially for years.

When the novel coronavirus first captured attention in China early this year, it prompted grave worries about a global shock. China was the world’s second-largest economy, and a voracious purchaser of goods and services, from raw materials like soybeans and iron ore to the latest gadgets from Apple. Its factories produced electronics and apparel, chemicals and construction supplies, auto parts and appliances. Disruption in China was certain to ripple outward.

The threat intensified as the virus spread to Europe, shutting down commercial life in Italy’s industrial heartland and then spreading to factories across the continent. As the pandemic assailed Europe and then North and South America, governments ordered businesses closed to halt the virus. The economic unraveling proved more intense than the global financial crisis of a dozen years earlier.

World leaders drew on the playbook from that episode, unleashing trillions of dollars of credit via central banks and direct government spending. European nations effectively nationalized payrolls to prevent layoffs. The United States delivered expanded unemployment benefits. All of this eased fears of a cascading run of bankruptcies and a potential financial crisis.

Credit…Sylvia Jarrus for The New York Times

After initially covering up the epidemic, China mobilized aggressively to contain it. Its factories roared back to life, and its 1.4 billion people resumed spending, making China a rare engine of growth in the world economy.

In Europe, the apparent containment of the virus in the summer months along with the lifting of government restrictions prompted people to emerge from their bunkers, taking holidays, going out to eat, and generating optimism for a recovery.

Between July and September, most major economies expanded dramatically. The United States grew more than 7 percent compared with the previous quarter, and Germany by more than 8 percent. The United Kingdom expanded by nearly 16 percent, and France by a whopping 18 percent. Such performances were embraced by some as proof that economies would snap back as soon as the virus was gone.

Conditions appeared ripe for robust spending. Unlike in the aftermath of the global financial crisis, when households were contending with crippling debts — especially in the United States — many households in large economies are this time flush with cash, given the enforced savings regimen of the lockdowns.

“You have a lot of pent-up money,” said Kjersti Haugland, chief economist at DNB Markets, an investment bank in Oslo. “This is definitely a scenario for a rebound.”

Credit…Andrew Testa for The New York Times

Yet the exuberance of the summer also appears to have rendered the populace vulnerable. The French thronged cafes and Britons returned to the pubs. Americans disdained masks as a supposed affront to civil liberties. The virus commenced spreading, triggering a new round of lockdowns that have destroyed hopes of recovery this year.

Most economists assume that Europe will register a contraction over the last quarter of the year. Britain’s economy is expected to shrink by more than 11 percent this year, according to Oxford Economics, and will struggle to mount a full recovery before 2022. Among the worst-performing major economies is India: Its economy contracted 7.5 percent in the three months that ended in September compared with a year earlier, government figures showed on Friday.

The world economy will contract by 4.4 percent this year, the International Monetary Fund forecast in its most recent assessment. World trade is on track to fall by as much as 9 percent this year, according to an assessment from the United Nations Conference on Trade and Development.

Next year, the world economy is expected to grow by 5.2 percent, according to the I.M.F., but that would still leave it only 0.6 percent larger than in 2019. Joblessness would remain elevated. Poor countries would continue to suffer a drop in earnings sent home by migrant workers. Malnutrition would climb.

In the United States, the defeat of President Trump by Joseph R. Biden Jr. has yielded optimism that a sustained and serious attack on the pandemic will now be waged. But the prospect that the incoming administration will be constrained by Republican control of the Senate — pending a pair of runoff elections in Georgia — reduces the likelihood that the government will agree on a robust package of spending measures to stimulate the economy.

Credit…Fabio Bucciarelli for The New York Times

Questions about next year center on how soon vaccines reach the bloodstream of the masses. The three candidates so far, from Pfizer, Moderna and AstraZeneca, have produced a credible vision of an end to the agony. But the economic pain has become so intense that its effects may linger.

The infusions of relief from central banks have propped up solid and flimsy companies alike. Many of the weak will eventually succumb, especially as aid is withdrawn, costing jobs. The pandemic has accelerated a pushback against globalization that may inspire multinational companies to make more goods in their home markets, while cutting costs through automation — limiting job and wage growth.

Poor and developing countries went into the pandemic facing alarming levels of debt. Promised aid from international institutions like the International Monetary Fund and the World Bank have proved disappointing. Private creditors have withheld debt relief.

Some argue that the pandemic should be the impetus for new economic models that create jobs through a transition to green energy while spreading the gains more equitably.

“What I’m allergic to at the moment is the notion of going back, bouncing back,” said Mr. Goldin, the Oxford economist. “It’s business as usual that got us to where we are.”

Credit…Lena Mucha for The New York Times.

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ECB reaffirms pledge to support economy through pandemic –



By Balazs Koranyi and Francesco Canepa

FRANKFURT (Reuters) – The European Central Bank kept its policy unchanged on Thursday but reaffirmed a pledge to keep borrowing costs at record lows to help the euro zone economy withstand the impact of the coronavirus pandemic.

Having extended their massive bond-buying scheme well into next year in December, ECB policymakers are keen to pass the baton to governments to keep the euro zone economy afloat until normal business activity can resume.

But they said they were prepared to provide even more support to the economy if needed, or to keep some of their powder dry if markets remain benign.

“In any case, the Governing Council will conduct net purchases until it judges that the coronavirus crisis phase is over,” the ECB said in a press release.

The euro rose slightly against the U.S. dollar after the ECB’s announcement.

Fresh lockdowns, a slow start to vaccinations across the 19 countries that use the euro, and the currency’s strength will increase headwinds for exporters, challenging the ECB’s forecasts of a robust recovery starting in the second quarter.

But ECB President Christine Lagarde, who is due to hold a news conference at 1330 GMT, is likely to say more stimulus is not needed now as the ECB has woven so much flexibility into its support schemes it could easily ramp them up without seeking a fresh round of approval from policymakers.

The Bank of Japan also kept its monetary policy steady earlier on Thursday and even increased its growth forecasts for the next fiscal year.


Instead of policy action, Lagarde is expected to try to provide support through nuanced communication, making clear she is aware of the risks while arguing they may be overstated.

She is likely to concede that the immediate future is more challenging than some of the more optimistic forecasts allow, and that commercial banks’ plans to restrict access to credit will be a drag on growth.

But that should not impact the longer term, especially since many key uncertainties have been resolved: COVID-19 vaccines are being deployed, a Brexit deal has been done and President Joe Biden’s inauguration on Wednesday concludes the U.S. election.

Benign market indicators support Lagarde’s argument. Stocks are rising, interest rates are steady and government borrowing costs are trending lower, despite some political drama in Italy.

There is also around 1 trillion euros of untapped funds in the Pandemic Emergency Purchase Programme (PEPP) to back up her pledge to keep borrowing costs record low.

“If favourable financing conditions can be maintained with asset purchase flows that do not exhaust the envelope over the net purchase horizon of the PEPP, the envelope need not be used in full,” the ECB said.

Recent economic history also favours the ECB. When most of the economy reopened last summer, activity rebounded more quickly than expected, indicating that firms were more resilient than had been feared.

“Wisely, we believe the ECB will now be less sensitive to market pressure and inflation expectations, calling increasingly on fiscal policy to be engaged in determining future inflation,” Societe Generale economist Anatoli Annenkov said.

Lagarde may also bat back questions about the euro, arguing that its firming has been almost exclusively against the dollar, analysts said.

On a trade-weighted basis, more relevant for exporters, the single currency has actually weakened since the ECB’s last policy meeting on Dec. 10.

Uncomfortably low inflation is set to remain a thorn in the ECB’s side, for years to come even if surging oil demand helps put upward pressure on prices in 2021.

With Thursday’s decision, the ECB’s benchmark deposit rate remained at minus 0.5% while the overall quota for bond purchases under PEPP was maintained at 1.85 trillion euros.

(Editing by Catherine Evans)

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Little fear of rate hikes despite expected economic surge: Bank of Canada –



What a difference a day makes in the outlook for the Canadian economy.

Earlier this week, some economists were predicting that the Bank of Canada’s Tiff Macklem would cut interest rates again when presenting Wednesday’s Monetary Policy Report.

But while Canada’s chief central banker warned that a resurgence in the effects of the pandemic was sending the economy further down, prospects for a vaccine-led recovery meant Canada would see a sharp return to growth later this year and next.

And while borrowers did not benefit from the “micro-cut” some had predicted — what Macklem carefully described as reducing already low rates “to a lower but still positive number” — perhaps more important for ordinary Canadians was his assurance that the bank-set interest rate would not rise.

Startling transition to growth

And that reassurance came despite the central bank’s outlook of a startling transition from a shrinking economy in the first three months of the year to extraordinarily strong growth of four per cent in 2021 and five per cent next year.

In a previous meeting with reporters at the end of last year, Macklem based his forecast on the assumption that a vaccine would not be widely available until 2022 and that the economy would be scarred by the impact of the virus on jobs and businesses. But this time, there was no talk of scarring.

Low interest rates have helped drive parts of the real estate market to new highs despite the pandemic, and so far, Bank of Canada rates are not expected to rise. There have been worries that a hike in rates that have allowed Canadians to afford large mortgages would lead to a sudden slowdown. (Don Pittis/CBC)

“Certainly the earlier-than-expected arrival of the vaccine is a very positive development,” the Bank of Canada governor said. “But we’re starting off in a deeper hole.”

Some economists have suggested that a strong rebound of the type Macklem and the bank’s Governing Council foresee would lead to a new burst of inflation that would require the bank to raise interest rates. There have been worries, including from the real estate industry, that a hike in the rock-bottom rates that have allowed Canadians to afford large mortgages would lead to a sudden slowdown.

But Macklem offered several reasons why that was unlikely to happen, for a while at least, and probably not until 2023.

For one thing, any decision to reduce stimulus would begin with a slow winding down of the Bank of Canada’s quantitative easing (QE) program. Currently the bank is still going to the market and buying at least $4 billion worth of government bonds every week, effectively releasing that cash into the economy. Macklem expects that to continue.

Another reason why the bank feels it won’t have to raise rates — the same logic for why it can continue QE — is the deep hole Macklem mentioned.

Despite the hundreds of billions of dollars in stimulus money from the Canadian government — plus the $900 billion US COVID-19 relief package already approved south of the border and the $1.9 trillion pandemic plan unveiled by newly installed U.S. President Joe Biden — the battered North American economy has lots of climbing to do.

Still lots of slack in the economy

Economics tells us that inflation does not kick in until the supply of goods, services and labour is used up such that people competing for those things start to bid up the price. But with so many unemployed, buildings empty, lots of raw material and plenty of money available to borrow and invest, the Canadian economy is not likely to reach those capacity limits until 2023, Macklem said.

Inflation numbers out Wednesday showed prices rising at the slowest rate since the financial crisis of 2009, plunging in December to an annual rate of 0.7 per cent — well outside the central bank’s target range of between one and three per cent.

A sign in Toronto’s upscale Yorkdale Shopping Centre on the first day of a renewed coronavirus lockdown on Nov. 23. When businesses start reopening, expect a burst of economic growth. (Carlos Osorio/Reuters)

The Bank of Canada expects that number to bounce back this year to an ostensibly comfortable two per cent, but as Macklem described, that will be deceptive.

“This is expected to be temporary,” he said. “The anticipated increase in inflation reflects the effects of sharp declines in gasoline prices at the onset of the pandemic, and as those base year effects fade, inflation will fall again, pulled down by the significant excess of supply in the economy.”

As well as being an unequal recession, this has been an unusual one in that those who kept their jobs have been building up a savings hoard that some have suggested will be released in a deluge of spending once the lockdowns end — as everyone heads out dancing and partying like in the Roaring Twenties.

Asked if a rush of spending was likely, Macklem once again explained why, even if it happens, a return to the days of the Great Gatsby is unlikely to unleash inflation. As retail experts explained in early December, those who have money to spend have been saving on services while continuing to spend plenty on goods. And even if we spend more on dancing, services do not lend themselves to a burst of excessive consumption.

WATCH | Bank of Canada predicts wealthier households will hold on to savings:

Bank of Canada governor Tiff Macklem spoke with reporters after the quarterly interest rate announcement on Wednesday. 2:21

“If you don’t get a haircut,” Macklem said, gesturing to his own longish style, “when you go back to getting haircuts, you don’t get extra haircuts.”

All that said, Macklem was clear to point out that with so many uncertainties, the bank’s outlook is not a foregone conclusion. The economy could recover faster. “That would be a good thing,” he said. A rising loonie, which would allow Canadians to spend more on imported goods and trips abroad, may slow the recovery as Canadian exports get pricier.

And with an unpredictable and evolving virus, things could stay bad for longer, too, in which case the Bank of Canada has tricks up its sleeve, including micro-cuts, to add a little more stimulus if that turns out to be necessary.

Someday the low interest rate party will be over, but for now, Macklem sees the most likely path as a strong if choppy and protracted recovery and continued rock-bottom borrowing costs until 2023 — or until a full recovery happens.

Follow Don Pittis on Twitter: @don_pittis

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Facing green push on farm, fertilizer makers look to sea for growth



By Rod Nickel and Victoria Klesty

WINNIPEG, Manitoba/OSLO (Reuters) – Two of the world’s biggest fertilizer producers, CF Industries Holdings Inc and Yara International Asa, are seeking to cash in on the green energy transition by reconfiguring ammonia plants in the United States and Norway to produce clean energy to power ships.

The consumption of oil for transportation is one of the top contributors to global greenhouse gas emissions that cause climate change, and fertilizer producers join a growing list of companies adjusting their business models to profit from a future lower-carbon economy.

By altering the production process for ammonia normally usedfor fertilizer, the companies told Reuters they can producehydrogen for fuel or a form of carbon-free ammonia usedeither as a carrier for hydrogen or as a marine fuel topower cargo and even cruise ships.

The shift may improve their standing with environment-minded investors as fertilizer emissions attract greater government scrutiny in North America and Europe.

But the green fuels are not yet commercial and willrequire significant investment to turn a profit – a realitythat has the world’s largest fertilizer producer, Canada’s Nutrien Ltd, staying out of the space for now. Oslo-based Yara is seeking government subsidies to proceed.

Still, renewable ammonia represents a 6 billion-euro ($7.25 billion) opportunity for fertilizer producers by 2030, according to Citibank, based on 20 million tonnes of annual sales globally for clean power and shipping fuel compared with virtually none now. Global ammonia sales currently amount to 180 million tonnes.

“We absolutely could be known more for being aclean energy company than an ag supplier,” CF ChiefExecutive Tony Will said in an interview, speaking of long-term prospects for the Illinois-based company.



Fertilizer plants separate hydrogen from natural gas and combine it with nitrogen taken from the air to make ammonia, which farmers inject into soil to maximize crop growth.

Production generates carbon emissions that CF says it can avoid by extracting hydrogen instead from water charged with electricity. It can then combine that hydrogen with nitrogen to make green ammonia, which the marine industry is testing as fuel.

CF is in discussions about selling green ammonia to a Japanese power consortium including Mitsubishi Corp, but buyers will break most of it down to pure hydrogen for use in transportation sectors.

“This is a market that easily can exceed what the total ammonia (fertilizer) market is,” Will said. “We’re going to grow into that over the next 20-25 years.”

Adopting green ammonia or green hydrogen to replace crude oil-based fuel would help the International Maritime Organization (IMO) meet a target to reduce emissions, and is suited to both short- and long-haul vessels.

Methanol and liquefied natural gas (LNG) are other clean alternatives.

“Everybody is looking for solutions and I think the jury is still out,” said Tore Longva, alternative fuels expert at Oslo-based maritime advisor DNV GL. “Of all the fuels, (green ammonia) is probably the one that we are slightly more optimistic on, but it’s by no means a given.”

Ammonia remains toxic and corrosive, requiring special handling on ships, Longva said.

Furthermore, combusting ammonia may produce nitrous oxide, a greenhouse gas, that ships would need to neutralize to prevent emissions, said Faig Abbasov, shipping director for European Federation for Transport and Environment, an umbrella group of non-governmental organizations. Fuel cells are another potential marine use for ammonia and hydrogen.

Still, Abbasov sees ammonia and hydrogen as the greenest and most practical shipping fuel alternatives, and cheaper than methanol.

Development of ammonia and hydrogen for shipping fuel holds decarbonization potential but is at the pilot stage for small vessels, while LNG and methanol are in use on ocean-going ships, an IMO spokeswoman said.

South Korea’s Daewoo Shipbuilding & Marine Engineering, one of the world’s biggest shipbuilders, plans to commercialize super-large container ships powered by ammonia by 2025, a spokesman said.



CF is reconfiguring its Donaldsonville, Louisiana, plant to produce green ammonia. It plans to spend $100 million initially to enable the plant to produce by 2023, about 18,000 tonnes. By 2026, production across its network could reach 450,000 tonnes, and 900,000 tonnes by 2028, Will said.

The hydrogen it will sell may have nearly 10 times the margin of ammonia fertilizer, according to CF, making the 75-year-old farm company’s newest product its most profitable.

Yara is developing a green ammonia project with power company Orsted in the Netherlands and also has green projects running in Australia and Norway.

Unlike CF, Yara is seeking government subsidies because green ammonia costs could be 2-4 times higher than conventional production, said Terje Knutsen, Yara’s head of Farming Solutions.

“The technology behind this is not mature enough today,” he said.

Yara, which aims to cut all CO2 emissions from its 500,000 tonnes-a-year Porsgrunn ammonia plant in Norway, wants funding from the Norwegian government to switch the plant’s production process to electricity by 2026.

Norway already supports hydrogen and green ammonia through a tax exemption on electricity used to produce hydrogen, Minister of Climate and Environment Sveinung Rotevatn said in an email.

“Hydrogen and hydrogen-based solutions, such as ammonia, will be important in reducing greenhouse gas emissions in the future,” Rotevatn said.

Global ammonia production would need to multiply five-fold if it is to replace all oil-based shipping fuel, Abbasov said. But given the abundance of nitrogen in the air, potential supply is almost unlimited if production costs drop, he said.

Nutrien is looking into green ammonia, but sees high costs and insufficient prices as major obstacles, Chief Executive Chuck Magro said.

Industry efforts underway to produce small volumes of green ammonia are largely “window-dressing,” said Nutrien Executive Vice-President, Nitrogen, Raef Sully.

“The reason (for Nutrien) to look at it is to position ourselves for when people are willing to pay,” Sully said.

“The problem is we’re just right at the start of development.”


(Reporting by Rod Nickel in Winnipeg, Manitoba and Victoria Klesty in Oslo; additional reporting by Jonathan Saul in London; Editing by Caroline Stauffer and Marguerita Choy)

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