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Guardians of the world economy stagger from rescue to recovery – BNNBloomberg.ca

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The world’s governments and central banks are shifting from rescue to recovery mode as the deepest slump since the Great Depression shows signs of bottoming out.

After rolling out trillions of dollars worth of measures to prevent their economies and markets from collapsing, they are now doubling down with even more spending to backstop a recovery as coronavirus lockdowns ease. In what counts for good news these days, Bloomberg Economics’ global GDP growth tracker showed economies contracted at an annualized rate of 2.3 per cent in May, less than the 4.8-per-cent slump in April.

“Policy-makers are moving from triage to recovery,” said Deutsche Bank Securities Chief Economist Torsten Slok. “They are realizing that more fiscal support will be needed to households and small businesses to prevent this liquidity crisis from turning into a solvency crisis.”

The new wave of stimulus has both governments and central banks moving in sync to continue flooding lenders, markets and companies with cheap credit at an unprecedented pace.

The European Central Bank last week expanded its asset purchases by 600 billion euros (US$677 billion) to 1.35 trillion euros, and extended them until at least the end of June 2021. And Germany’s government agreed another 130 billion-euro fiscal stimulus push and said it will back a proposed new 750 billion-euro European Union recovery fund.

“Action had to be taken,” ECB President Christine Lagarde said in a press conference.

It’s a similar story in Asia.

Japan is planning another US$1.1 trillion worth of spending in its biggest splurge yet and the central bank in May called an emergency meeting to roll out 30 trillion yen (US$274 billion) of loan support for small businesses.

China last week unveiled another 3.6 trillion yuan (US$508 billion) in spending and South Korea’s 76 trillion won (US$63 billion) ‘New Deal’ fiscal package is its largest to date.

In the U.S., lawmakers continue to debate extra fiscal stimulus and the Federal Reserve, which meets on June 10, has just launched a new Main Street Lending Program, the latest in trillions of support it has already poured into the economy and markets.

While the Fed is unlikely to signal any moves when its officials gather this week, many economists expect it to harden its commitment to easy monetary policy later in the year and perhaps even start pursing a Japan-style campaign to control long-term borrowing rates.

The latest U.S. jobs numbers give some hope that the stimulus unleashed so far is beginning to kick in. A record 2.5 million workers were added by employers during May while unemployment declined to 13.3 per cent, wrong footing economists who had forecast widespread job losses.

To be sure, there’s far from consensus that the latest wave of support will be enough to get growth back to where it was at the start of the year. Some of the steps being taken are merely to replace existing policies as they start to expire.

“It seems clear already approved packages are perceived to be not enough,” said Alicia Garcia Herrero, chief Asia-Pacific economist at Natixis SA.

There are other concerns that monetary policy can only do so much to revive growth before it loses its potency.

“How does the Fed actually get money to millions and millions of households and small businesses, that is difficult to do operationally,” former New York Federal Reserve Bank President William Dudley told Bloomberg Television.

“It’s much easier to intervene in the capital markets where the Fed can rely on counterparties, primary dealers and others,” Dudley said. “It is much more difficult to lend one by one to millions of different entities.”

Another risk is a return to austerity, even if it seems unlikely now. JPMorgan recently predicted a fiscal thrust of 3.3 per cent of GDP this year and 1.5 per cent drag next year.

U.S. senators have put the brakes on a US$3-trillion fiscal package that was approved by lower house lawmakers. China’s government has ruled out a return to the kind of large scale stimulus it rolled out after the global financial crisis, preferring to keep a lid on rising debt.

Still, because the crisis meant economies were forced into shutdown, much of the emergency response so far has been less about driving growth and more about avoiding total collapse. It’s that dynamic which is leaving governments with little option but to borrow harder.

“We shouldn’t look at the positive immediate growth impact of the opening up process as being the rate of growth that may last,” said David Mann, chief economist for Standard Chartered Plc.

Creating jobs will be mission critical to cementing any upswing. That will need support for firms to retrain employees, incentives to hire older workers and for governments to continue with wage subsidies. More than one in six people have stopped working since the onset of the crisis, according to the International Labour Organization, which in April estimated more than 1 billion workers were at high risk of a pay cut or losing their job.

“A faster job market recovery will speed up the economic healing and reduce the risk from widening income inequality and social stress,” said Chua Hak Bin, senior economist at Maybank Kim Eng Research Pte.

Ultimately, the rescue of economies will go well beyond quantitative solutions and into the realm of story telling too, as policy makers will need to inject confidence back into wary consumers and executives, said Stephen Jen, who runs hedge fund and advisory firm Eurizon SLJ Capital in London.

“Human psychology is the same and is now as important as the mechanics of delivering the fiscal stimuli themselves,” he said.

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Does the Trudeau government have a plan to end the pandemic economy? – CBC.ca

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In a normal year, the federal government tables a budget in the spring and then an economic statement or fiscal update in the fall.

But this is not a normal year. The budget that was supposed to be presented in March was pushed back and then completely swamped by the first wave of COVID-19, the economic shutdown that resulted and the federal aid that soon followed.

Some opposition MPs and economists subsequently pushed for a fiscal update. The Liberal government contended, with some justification, that making long-term projections in a time of such incredible uncertainty would be — to use Prime Minister Justin Trudeau’s words — “an exercise in invention and imagination.”

What’s being released this afternoon is being described instead as a fiscal “snapshot” — a status report on where things stand after four months of the pandemic.

It should provide some insight into what the last four months have meant for the federal government’s balance sheet and Canada’s economy. Ideally, it also would offer some sense of what the future might look like — at least the near future.

The deficit is going to be alarming

Finance Minister Bill Morneau’s presentation is not expected to offer new policy announcements, but it could further quantify both the economic disruption and the government’s response to that shock. That undoubtedly will include the projection of a large deficit for the current fiscal year.

The exact number might be new, but it’s already clear that the deficit likely will be in excess of $250 billion.

Last fall, months before the first cases of COVID-19 were detected in China, Morneau projected that the deficit for 2020-2021 would be $28.1 billion. Since then, a lot has changed.

A health care worker does a test at a drive-thru COVID-19 assessment centre at the Etobicoke General Hospital in Toronto on Tuesday, April 21, 2020. (Nathan Denette/The Canadian Press)

This spring’s pause in economic activity and employment meant a drop in the revenue the government receives from taxes. Meanwhile, more money has been going out in the form of government support measures to help individuals and businesses get through the shutdown.

Since April, the Liberal government has provided bi-weekly updates on its relief spending to the finance committee of the House of Commons. The most recent tally, provided on June 25, showed $174.1 billion in direct support for individuals and businesses and $19.4 billion in federal funding for health and safety measures.

The office of the Parliamentary Budget Officer also has provided a regularly updated “scenario analysis” that projects the broad economic and fiscal implications. In its most recent analysis, released on June 18, the PBO projected a deficit of $256 billion for 2020-2021.

Sticker shock

As a percentage of Canada’s GDP, a deficit of that size would be the largest for the federal government since the Second World War.

There has been little to no debate about the need to spend the money on emergency relief; if anything, the Liberals have been under political pressure to spend more and faster. Recent analysis by Scotiabank found that failing to provide that relief would have led to much worse economic results and an only slightly lower level of federal debt.

But after any deficit-related sticker shock wears off, the next question will be how well the government is positioned to manage that accumulated debt.

Governments are not like households — a government can effectively carry debt in perpetuity — so their primary goal is to manage that debt rather than pay it off outright. Most of the fiscal analysis of government debt focuses on its size in comparison to the national economy.

The PBO estimated that the federal debt-to-GDP ratio will reach 44.4 per cent, while Scotiabank projects that the ratio will be closer to 48 per cent.

It’s bad — but it’s been worse

Either number would be a significant increase over what Morneau projected last fall, when the Liberals forecast a debt-to-GDP ratio of 31 per cent in 2020-2021, declining annually thereafter.

But something around 45 per cent also would still be well below Canada’s historic peak of 66.6 per cent back in 1995-1996. That debt ratio, coupled with high interest rates and nervous international markets, led Jean Chrétien’s government to make drastic cuts to balance the budget and get the national debt under better control.

If the federal debt-to-GDP does increase to 45 per cent, it will be back to where it was in 2001.

But the fiscal story of COVID-19 will be only partly about what has happened over the last four months. It also will be about what happens over the next few months — and then several years after that.

Where do we go from here?

It’s not clear how far into the future the Liberal government is willing to look, but there are a number of questions it could start trying to answer.

What are the potential pathways for economic recovery? How much longer might the temporary relief measures be needed? How much more new spending might be necessary? And how does Morneau see the recovery and the debt being managed?

“There will be significant unemployment across Canada for the duration of the recovery,” Rebekah Young, director of fiscal and provincial economics at Scotiabank, told CBC’s Power & Politics on Tuesday.

“The [employment insurance system] was not and is not sufficient to cover all Canadians that will be out of work, but the [Canadian Emergency Response Benefit] clearly is too expensive for that duration. So I think … we would like to see some signals that they have a plan for the next 18 months in terms of addressing his persistent shock that the economy will be facing.”

Hospitality workers, members of UNITE HERE Local 40, hold a car caravan protest in Vancouver June 3, 2020. They were calling on provincial and federal governments to ensure workers are hired back as the economy recovers from the pandemic. (Maggie MacPherson/CBC)

In an email, Young said she thinks Wednesday’s “snapshot” could set up a fall budget that lays out longer-term plans.

“In addition to an updated statement of transactions, the country needs a fiscal plan from the federal government,” said Kevin Page, the former parliamentary budget officer who is now president of the Institute of Fiscal Studies and Democracy at the University of Ottawa. “We need a fiscal plan to understand what role federal fiscal policy will play to support the recovery.”

A proper plan, Page said, would boost consumer confidence and investor confidence and mitigate the possibility of further downgrades to Canada’s credit rating.

Finance officials might be quick to note the unprecedented amount of uncertainty at the moment, but Page said a plan could be debated and adjusted.

“A ‘snapshot’ that is only backward-looking would be a major missed opportunity,” he said.

In the midst of managing a national response to a pandemic, it’s important to not get ahead of yourself — to focus on the crisis in the here and now.

But sooner or later, the federal government will need to confront the future.

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French economy seen rebounding 19% in third quarter, 3% in fourth quarter: INSEE – TheChronicleHerald.ca

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PARIS (Reuters) – The French economy is set to rebound sharply in the second half of the year after an unprecedented slump in the first half due to the coronavirus lockdown, the INSEE statistics agency said on Wednesday.

The euro zone’s second-biggest economy likely contracted 17% in the second quarter from the previous three months, unchanged from a June forecast and already on the heels of a 5.3% slump in the first quarter, INSEE said.

The economy was set to rebound 19% in the third quarter and a further 3% in the fourth quarter with activity seen 1-6% below pre-crisis levels by December, it added.

Over the course of the year, INSEE estimated that the economy was set to contract 9%, France’s worst recession since modern records began in 1948 but not as bad as the 11% slump the government forecast in its last revision to the 2020 budget.

The government put France under one of the strictest lockdowns in Europe in mid-March, but the economy saw a “gradual, but sharp recovery” in the weeks after the government began lifting restrictions on May 11, INSEE said.

(Reporting by Leigh Thomas; Editing by Tom Hogue and Andrew Heavens)

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Ontario Introduces Legislation to Protect Public Health as Economy Reopens – Government of Ontario News

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Proposed Bill Would Provide Flexibility to Address the Ongoing Threat of COVID-19

TORONTO — Today, the Ontario government introduced proposed legislation that, if passed, would give the province the necessary flexibility to address the ongoing risks and effects of the COVID-19 outbreak. The proposed legislation is part of the government’s plan for the continued safe and gradual reopening of the province once the declaration of emergency ends.

Details about the proposed legislation were provided today by Premier Doug Ford, Christine Elliott, Deputy Premier and Minister of Health, and Solicitor General Sylvia Jones.

“If passed, the proposed legislation would allow us to chart a responsible path to economic reopening and recovery without putting all the progress we’ve made in fighting this virus at risk,” said Premier Ford. “Even as we continue certain emergency orders under the proposed legislation to protect public health, we will always be a government accountable to the people of Ontario. That’s why I will ensure ongoing updates are provided and that a report is tabled within four months of the anniversary of this proposed Act coming into force.”

“While the declaration of emergency may come to an end shortly, the risk posed by COVID-19 is likely to be with us for some time to come,” said Solicitor General Sylvia Jones. “This new legislation would provide the government with the necessary flexibility to ensure select tools remain in place to protect vulnerable populations, such as seniors, and respond to this deadly virus.”

The Reopening Ontario (A Flexible Response to COVID-19) Act, 2020 would, if passed, ensure important measures remain in place to address the threat of COVID-19 once the provincial declaration of emergency has ended. Specifically, the legislation would:

  • Continue emergency orders in effect under the Emergency Management and Civil Protection Act (EMCPA) under the new legislation for an initial 30 days.
  • Allow the Lieutenant Governor in Council to further extend these orders for up to 30 days at a time, as required to keep Ontarians safe.
  • Allow the Lieutenant Governor in Council to amend certain emergency orders continued under the EMCPA if the amendment relates to:
    • labour redeployment or workplace and management rules;
    • closure of places and spaces or regulation of how businesses and establishments can be open to provide goods or services in a safe manner;
    • compliance with public health advice; or
    • rules related to gatherings and organized public events.
  • Not allow new emergency orders to be created.
  • Allow emergency orders to be rescinded when it is safe to do so.

The ability to extend and amend orders under the new legislation would be limited to one year, unless extended by the Ontario legislature. Appropriate oversight and transparency would be ensured through regular, mandated reporting that provides the rationale for the extension of any emergency order. The legislation would include the same types of provisions on offences and penalties as set out under the EMCPA to address non-compliance with orders.

Quick Facts

  • The termination of the provincial emergency declaration under the EMCPA, or the passage of the proposed Act, would not preclude a head of council of a municipality from declaring under the EMCPA that an emergency exists in any part of the municipality or from continuing such a declaration.
  • The termination of the provincial emergency declaration under the EMCPA, or the passage of the proposed Act, would not preclude the exercise of the powers under the Health Protection and Promotion Act by Ontario’s Chief Medical Officer of Health or local medical officers of health.
  • The Government of Ontario declared a provincial declaration of emergency under s.7.0.1 of the EMCPA on March 17, 2020. The declaration has been extended under s.7.0.7 of the EMCPA and is in place until July 15, 2020, allowing the province to continue to make new emergency orders or amend existing orders under the EMCPA until that date.
  • On June 26, 2020, emergency orders then in effect that were made under section 7.0.2 of the EMCPA were extended to July 10.
  • A full list of current emergency orders in effect under the EMCPA can be found on the e-Laws website under the EMCPA and at Ontario.ca/alert.

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