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How Canadian consumers can be an economic engine driving Canada toward recovery – The Globe and Mail

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John McNain is head of personal banking products and experience at Bank of Montreal.

COVID-19 has left the Canadian economy reeling. Lockdowns have dealt small businesses a severe blow with uncertain prospects for recovery, and many people are waiting anxiously through a precarious employment period.

But at the same time, others have experienced an unexpected side effect: a significant increase in personal savings driven by reduced spending and vital government support programs.

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A recent report from BMO Economics found the household savings rate hit a massive 27.5 per cent in the second quarter, compared with an average rate last year of just 1.4 per cent. They estimate this savings surge equates to a $150-billion increase over normal standards – a whole 7 per cent of GDP.

What does this mean? As vaccines roll out and the world returns to normal, we can expect our spending habits will, too. This savings reservoir will almost inevitably lead to its own form of stimulus for the Canadian economy in the months ahead. Considering last summer’s partial reopening led to vigorous spending, it’s clear Canadians need little convincing to ramp up their economic participation once the opportunity presents itself.

But this is not the time to act without caution and care. The recovery will no doubt be fragile, and we all need to do our part thoughtfully when activity resumes. To achieve this, we want all Canadians to consider a broader approach of what responsible spending looks like.

Post-COVID, being responsible with spending means thinking about how we act on a household, marketplace and community level. Each plays a vital role in the recovery and must be considered seriously.

Starting at home, on a personal and family level, we need to be responsible by maintaining some of the good habits the pandemic may have prompted. Continue good savings habits and working to pay down debt. Pre-COVID, Canadian household debt was hovering near historic highs, but government support, mortgage deferrals and significant growth in savings has led to a major improvement in the debt picture. There is an opportunity to maintain this progress, and it has the potential to support both households and the broader economy for years to come.

Second, we need to be responsible by supporting local businesses that have suffered from the pandemic’s economic dislocation. We know that many businesses – particularly smaller ones – have struggled to stay afloat with so many customers staying home. According to Statistics Canada, almost one-quarter of businesses with 19 or fewer employees saw their August revenue drop 40 per cent compared with last year. Meanwhile, 6 per cent of businesses with one to four employees are considering bankruptcy or closing altogether. These businesses are the backbone of our economy and the beating heart of communities across the country. When we can, we must support them to ensure the stability of their operations and opportunity to succeed.

Finally, we need to be responsible by actively participating in philanthropy. A report from Imagine Canada suggests 68 per cent of charities have seen a decline in donations since the start of the pandemic – during a time when the services they provide are needed more urgently than ever. The same report shows that while most Canadians know the need has increased, only about half are planning to make donations this holiday period.

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The reticence to give is understandable at a time of financial fragility and it’s no surprise to see less spending on anything that’s not a household necessity. But the pain and suffering caused by the pandemic won’t disappear right away, even after we get back to normal. The need for charitable services will no doubt be elevated for years to come. All of us who can give must take the opportunity to help more of us weather the storm and come out the other side in the best possible position.

The arrival of vaccines has given all of us hope that the COVID-19 pandemic is nearing an end. As the close of the public-health crisis alleviates pressure on the economy, we can all play a part in a speedier recovery by ensuring our spending choices are responsible ones. Canadians have an important opportunity to stand up for both themselves and each other. Let’s not squander it.

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Coronavirus: How the pandemic has changed the world economy – Yahoo Finance

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Coronavirus economic graphic
Coronavirus economic graphic

The coronavirus pandemic has reached almost every country in the world.

Its spread has left national economies and businesses counting the costs, as governments struggle with new lockdown measures to tackle the spread of the virus.

Despite the development of new vaccines, many are still wondering what recovery could look like.

Here is a selection of charts and maps to help you understand the economic impact of the virus so far.

Global shares in flux

Big shifts in stock markets, where shares in companies are bought and sold, can affect the value of pensions or individual savings accounts (Isas).

The FTSE, Dow Jones Industrial Average and the Nikkei all saw huge falls as the number of Covid-19 cases grew in the first months of the crisis.

The major Asian and US stock markets have recovered following the announcement of the first vaccine in November, but the FTSE is still in negative territory.

The FTSE dropped 14.3% in 2020, its worst performance since 2008.

Stock market chart - Jan 2021Stock market chart - Jan 2021
Stock market chart – Jan 2021

In response, central banks in many countries, including the UK, have slashed interest rates. That should, in theory, make borrowing cheaper and encourage spending to boost the economy.

Some markets recovered ground in January this year, but this is a normal tendency known as the “January effect”.

Analysts are worried that the possibility of further lockdowns and delays in vaccination programmes might trigger more market volatility this year.

A difficult year for job seekers

Many people have lost their jobs or seen their incomes cut.

Unemployment rates have increased across major economies.

Unemployment rate chart - Jan 2021Unemployment rate chart - Jan 2021
Unemployment rate chart – Jan 2021

In the United States, the proportion of people out of work hit a yearly total of 8.9%, according to the International Monetary Fund (IMF), signalling an end to a decade of jobs expansion.

Millions of workers have also been put on government-supported job retention schemes as parts of the economy, such as tourism and hospitality, have come to a near standstill.

The numbers of new job opportunities is still very low in many countries.

Job vacancies in Australia have returned to the same level of 2019, but they are lagging in France, Spain, the UK and several other countries.

Job vacancies - Jan 2021Job vacancies - Jan 2021
Job vacancies – Jan 2021

Some experts have warned it could be years before levels of employment return to those seen before the pandemic.

Most of countries now in recession

If the economy is growing, that generally means more wealth and more new jobs.

It’s measured by looking at the percentage change in gross domestic product, or the value of goods and services produced, typically over three months or a year.

The IMF estimates that the global economy shrunk by 4.4% in 2020. The organisation described the decline as the worst since the Great Depression of the 1930s.

Majority of countries in recession - Jan 2021Majority of countries in recession - Jan 2021
Majority of countries in recession – Jan 2021

The only major economy to grow in 2020 was China. It registered a growth of 2.3%.

The IMF is, however, predicting global growth of 5.2% in 2021.

That will be driven primarily by countries such as India and China, forecast to grow by 8.8% and 8.2% respectively.

Recovery in big, services-reliant, economies that have been hit hard by the outbreak, such as the UK or Italy, is expected to be slow.

Travel still far from taking off

The travel industry has been badly damaged, with airlines cutting flights and customers cancelling business trips and holidays.

New variants of the virus – discovered only in recent months – have forced many countries to introduce tighter travel restrictions.

Data from the flight tracking service Flight Radar 24 shows that the number of flights globally took a huge hit in 2020 and it is still a long way from recovery.

Commercial flights - Jan 2021Commercial flights - Jan 2021
Commercial flights – Jan 2021

Hospitality sector has shut its doors worldwide

The hospitality sector has been hit hard, with millions of jobs and many companies bankrupt.

Data from Transparent – an industry-leading intelligence company that covers over 35 million hotel and rental listings worldwide – has registered a fall in reservations in all the top travel destinations.

Global tourism industry - Jan 2021Global tourism industry - Jan 2021
Global tourism industry – Jan 2021

Billions of dollars have been lost in 2020 and although the forecast for 2021 is better, many analysts believe that international travel and tourism won’t return to the normal pre-pandemic levels until around 2025.

Shopping… at home

Retail footfall has seen unprecedented falls as shoppers stayed at home.

New variants and surges in cases have made problems worse.

Pedestrian numbers have fallen further from the first lockdown, according to research firm ShopperTrak,

Huge drop in shoppers - Jan 2021Huge drop in shoppers - Jan 2021
Huge drop in shoppers – Jan 2021

Separate research suggests that consumers are still feeling anxious about their return to stores. Accountancy giant EY says 67% customers are now not willing to travel more than 5 kilometres for shopping.

This change in shopping behaviour has significantly boosted online retail, with a global revenue of $3.9 trillion in 2020.

Pharmaceutical companies among the winners

Governments around the world have pledged billions of dollars for a Covid-19 vaccine and treatment options.

Shares in some pharmaceutical companies involved in vaccine development have shot up.

Moderna, Novavax and AstraZeneca have seen significant rises. But Pfizer has seen its share price fall. The partnership with BioNTech, the high cost of production and management of the vaccine, and the growing number of same-size competitors have reduced the investors’ trust in the company to have bigger revenue in 2021.

Pharmaceutical companies are the winners - Jan 2021Pharmaceutical companies are the winners - Jan 2021
Pharmaceutical companies are the winners – Jan 2021

A number of pharmaceutical firms have started already distributing doses and many countries have started their vaccination programmes. Many more – such as Johnson & Johnson and Sanofi/GSK – will join the vaccine distribution during 2021.

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Canadian retail sales jump in November, but December looks gloomier

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december retail sales

By David Ljunggren

OTTAWA (Reuters) – Canadian retail sales jumped by much more than expected in November, but preliminary figures for December suggest a sharp drop as novel coronavirus restrictions were re-imposed, Statistics Canada said on Friday.

Food and drink sales rose by 5.9% and helped push overall retail trade up by 1.3%, its seventh consecutive monthly gain and significantly greater than the 0.1% increase predicted by analysts in a Reuters poll.

Most retail businesses were open in November but as the second wave of the coronavirus spread, many provinces imposed clamp downs. Statscan said December retail sales looked set to drop by 2.6% but stressed this was a preliminary estimate.

“The expected tumble in December retail sales following the pop in November conforms to the Bank of Canada‘s outlook, which sees weakness at the turn of the year,” said Ryan Brecht, a senior economist at Action Economics.

The Bank of Canada forecast on Wednesday that the economy would shrink in the first quarter of 2021 due to the impact of temporary business closures.

Shortly after the data were released the Canadian dollar was trading 0.5% lower at 1.27 to the greenback, or 78.74 U.S. cents, with the currency giving back some of this week’s gains as oil and global shares fell.

Statscan is due to issue November GDP data on Jan. 29 and Royce Mendes, a senior economist at CIBC Capital Markets, said the agency’s flash estimate of 0.4% growth still seemed reasonable. The estimate was released on Dec. 23.

Overall November sales were up in 7 of 11 sub-sectors, representing 53.4% of retail trade, while in volume terms, retail sales rose 1.2%.

 

(Reporting by David Ljunggren in Ottawa and Fergal Smith in Toronto; Editing by Ken Ferris)

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Biden's rescue plan will give U.S. economy significant boost: Reuters poll – TheChronicleHerald.ca

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By Indradip Ghosh and Richa Rebello

BENGALURU (Reuters) – U.S. President Joe Biden’s proposed fiscal package will boost the coronavirus-hit economy significantly, according to a majority of economists in a Reuters poll, and they expect it to return to its pre-COVID-19 size within a year.

Biden has outlined a $1.9 trillion stimulus package proposal to jump-start the world’s largest economy, which has been at the epicenter of the COVID-19 pandemic having lost over 400,000 lives, fueling optimism and sending Wall Street stocks to record highs on Thursday.

Hopes for an upswing in U.S. economic growth, helped by the huge stimulus plan, was reflected in the Jan. 19-22 Reuters poll of more 100 economists.

In response to an additional question, over 90%, or 42 of 46 economists, said the planned fiscal stimulus would boost the economy significantly.

“There are crosswinds to begin 2021 as fiscal stimulus helps to offset the virus and targeted lockdowns. The vaccine rollout will neutralize the latter over the course of the year,” said Michelle Meyer, U.S. economist at Bank of America Securities.

“And upside risks to our…growth forecast are building if the Democrat-controlled government can pass additional stimulus. The high level of virus cases is extremely disheartening but the more that the virus weighs on growth, the more likely that stimulus will be passed.”

For a Reuters poll graphic on the U.S. economic outlook:

https://fingfx.thomsonreuters.com/gfx/polling/oakveynqovr/Reuters%20Poll%20-%20U.S.%20economy%20outlook.png

The U.S. economy, which recovered at an annualized pace of 33.4% in the third quarter last year from a record slump of 31.4% in the second, grew 4.4% in the final three months of the year, the poll suggested.

Growth was expected to slow to 2.3% in the current quarter – marking the weakest prediction for the period since a poll in February 2020 – amid renewed restrictions.

But it was then expected to accelerate to 4.3%, 5.1%, 4.0% in the subsequent three quarters, a solid upgrade from 3.8%, 3.9% and 3.4% predicted for those periods last month.

On an annual basis, the economy – after likely contracting 3.5% last year – was expected to grow 4.0% this year and 3.3% in 2022, an upgrade from last month.

For a graphic on Reuters Poll – U.S. economy and Fed monetary policy – January 2021:

https://fingfx.thomsonreuters.com/gfx/polling/azgpoljbkvd/U.S.%20economy.PNG

Nearly 90%, or 49 of 56 economists, who expressed a view said that the U.S. economy would reach its pre-COVID-19 levels within a year, including 16 who expected it to do so within six months.

“Even without the stimulus package, we had already thought the economy would get back to pre-COVID levels by the middle of this year,” said Jacob Oubina, senior U.S. economist at RBC Capital Markets.

“With the new stimulus package there will be more direct money in people’s pockets, easily boosting the economy, provided a vaccine rollout progresses in a constructive manner.”

But unemployment was not predicted to fall below its pre-pandemic levels of around 3.5% until 2024 at least.

When asked what was more likely for inflation this year, only one said it would ease. The other 40 economists were almost evenly split between “a significant pickup” and price pressures remaining “about the same as last year.”

Still, the core Personal Consumption Expenditures (PCE) price index – the Federal Reserve’s preferred inflation gauge – was forecast to average below the target of 2% on an annual basis until 2024 at least, prompting the central bank to keep interest rates unchanged near zero over the forecast horizon.

“I don’t think it will be an increase in underlying (inflation) trend, it is sort of a rebound in prices that have been depressed during the pandemic,” said Scott Brown, chief economist at Raymond James.

(For other stories from the Reuters global long-term economic outlook polls package:)

(Reporting by Indradip Ghosh and Richa Rebello; Additional reporting by Manjul Paul; Polling by Mumal Rathore; Editing by Rahul Karunakar and Hugh Lawson)

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