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How does coronavirus affect the economy? – World Economic Forum

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  • China shows that we can stop coronavirus through containment – but at a significant economic cost.
  • Globally, the coronavirus shock is severe even compared to the Great Financial Crisis in 2007–08.
  • Policymakers must support vulnerable households and smaller businesses to mitigate the impact of this severe shock.

The impact of the coronavirus is having a profound and serious impact on the global economy and has sent policymakers looking for ways to respond. China’s experience so far shows that the right policies make a difference in fighting the disease and mitigating its impact—but some of these policies come with difficult economic tradeoffs.

Hard choices

Success in containing the virus comes at the price of slowing economic activity, no matter whether social distancing and reduced mobility are voluntary or enforced. In China’s case, policymakers implemented strict mobility constraints, both at the national and local level—for example, at the height of the outbreak, many cities enforced strict curfews on their citizens. But the tradeoff was nowhere as devastating as in Hubei province, which, despite much help from the rest of China, suffered heavily while helping to slow down the spread of the disease across the nation.

Mitigating the impact of this severe shock requires providing support to the most vulnerable.

This makes it clear that, as the pandemic takes hold across the world, those hit the hardest—within countries but also across countries—will need support to help contain the virus and delay its spread to others.

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The impact of strict measures on limiting the spread of coronavirus.

Image: CEIC; and IMF staff calculations

High costs

The outbreak brought terrible human suffering in China, as it is continuing to do elsewhere, along with significant economic costs. By all indications, China’s slowdown in the first quarter of 2020 will be significant and will leave a deep mark for the year.

What started as a series of sudden stops in economic activity, quickly cascaded through the economy and morphed into a full-blown shock simultaneously impeding supply and demand—as visible in the very weak January-February readings of industrial production and retail sales. The coronavirus shock is severe even compared to the Great Financial Crisis in 2007–08, as it hit households, businesses, financial institutions, and markets all at the same time—first in China and now globally.

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China’s economic slowdown due to the coronavirus will be deeply felt.

Image: Haver and IMF staff calculations

Quick action

Mitigating the impact of this severe shock requires providing support to the most vulnerable. Chinese policymakers have targeted vulnerable households and looked for new ways to reach smaller firms—for example, by waiving social security fees, utility bills, and channeling credit through fintech firms. Other policies can also help. The authorities quickly arranged subsidized credit to support scaling up the production of health equipment and other critical activities involved in the outbreak response.

Safeguarding financial stability requires assertive and well-communicated action. The past weeks have shown how a health crisis, however temporary, can turn into an economic shock where liquidity shortages and market disruptions can amplify and perpetuate. In China, the authorities stepped in early to backstop interbank markets and provide financial support to firms under pressure, while letting the renminbi adjust to external pressures. Among other measures, this included guiding banks to work with borrowers affected by the outbreak; incentivizing banks to lend to smaller firms via special funding from China’s central bank; and providing targeted cuts to reserve requirements for banks. Larger firms, including state-owned enterprises, enjoyed relatively stable credit access throughout—in large part because China’s large state banks continued to lend generously to them.

Of course, some of the relief tools come with their own problems. For example, allowing a broad range of debtors more time to meet their financial obligations can undermine financial soundness later on if it is not aimed at the problem at hand and time-limited; subsidized credit can be misallocated; and keeping already non-viable firms alive could hold back productivity growth later. Clearly, wherever possible, using well-targeted instruments is the way to go.

While there are reassuring signs of economic normalization in China—most larger firms have reported reopening their doors and many local employees are back at their jobs—stark risks remain. This includes new infections rising again as national and international travel resumes. Even in the absence of another outbreak in China, the ongoing pandemic is creating economic risks. For example, as more countries face outbreaks and global financial markets gyrate, consumers and firms may remain wary, depressing global demand for Chinese goods just as the economy is getting back to work. Therefore, Chinese policymakers will have to be ready to support growth and financial stability if needed. Given the global nature of the outbreak, many of these efforts will be most effective if coordinated internationally.

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Economy

Statistics Canada reports August retail sales up 0.4% at $66.6 billion

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OTTAWA – Statistics Canada says retail sales rose 0.4 per cent to $66.6 billion in August, helped by higher new car sales.

The agency says sales were up in four of nine subsectors as sales at motor vehicle and parts dealers rose 3.5 per cent, boosted by a 4.3 per cent increase at new car dealers and a 2.1 per cent gain at used car dealers.

Core retail sales — which exclude gasoline stations and fuel vendors and motor vehicle and parts dealers — fell 0.4 per cent in August.

Sales at food and beverage retailers dropped 1.5 per cent, while furniture, home furnishings, electronics and appliances retailers fell 1.4 per cent.

In volume terms, retail sales increased 0.7 per cent in August.

Looking ahead, Statistics Canada says its advance estimate of retail sales for September points to a gain of 0.4 per cent for the month, though it cautioned the figure would be revised.

This report by The Canadian Press was first published Oct. 25, 2024.

The Canadian Press. All rights reserved.

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Minimum wage to hire higher-paid temporary foreign workers set to increase

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OTTAWA – The federal government is expected to boost the minimum hourly wage that must be paid to temporary foreign workers in the high-wage stream as a way to encourage employers to hire more Canadian staff.

Under the current program’s high-wage labour market impact assessment (LMIA) stream, an employer must pay at least the median income in their province to qualify for a permit. A government official, who The Canadian Press is not naming because they are not authorized to speak publicly about the change, said Employment Minister Randy Boissonnault will announce Tuesday that the threshold will increase to 20 per cent above the provincial median hourly wage.

The change is scheduled to come into force on Nov. 8.

As with previous changes to the Temporary Foreign Worker program, the government’s goal is to encourage employers to hire more Canadian workers. The Liberal government has faced criticism for increasing the number of temporary residents allowed into Canada, which many have linked to housing shortages and a higher cost of living.

The program has also come under fire for allegations of mistreatment of workers.

A LMIA is required for an employer to hire a temporary foreign worker, and is used to demonstrate there aren’t enough Canadian workers to fill the positions they are filling.

In Ontario, the median hourly wage is $28.39 for the high-wage bracket, so once the change takes effect an employer will need to pay at least $34.07 per hour.

The government official estimates this change will affect up to 34,000 workers under the LMIA high-wage stream. Existing work permits will not be affected, but the official said the planned change will affect their renewals.

According to public data from Immigration, Refugees and Citizenship Canada, 183,820 temporary foreign worker permits became effective in 2023. That was up from 98,025 in 2019 — an 88 per cent increase.

The upcoming change is the latest in a series of moves to tighten eligibility rules in order to limit temporary residents, including international students and foreign workers. Those changes include imposing caps on the percentage of low-wage foreign workers in some sectors and ending permits in metropolitan areas with high unemployment rates.

Temporary foreign workers in the agriculture sector are not affected by past rule changes.

This report by The Canadian Press was first published Oct. 21, 2024.

— With files from Nojoud Al Mallees

The Canadian Press. All rights reserved.

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PBO projects deficit exceeded Liberals’ $40B pledge, economy to rebound in 2025

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OTTAWA – The parliamentary budget officer says the federal government likely failed to keep its deficit below its promised $40 billion cap in the last fiscal year.

However the PBO also projects in its latest economic and fiscal outlook today that weak economic growth this year will begin to rebound in 2025.

The budget watchdog estimates in its report that the federal government posted a $46.8 billion deficit for the 2023-24 fiscal year.

Finance Minister Chrystia Freeland pledged a year ago to keep the deficit capped at $40 billion and in her spring budget said the deficit for 2023-24 stayed in line with that promise.

The final tally of the last year’s deficit will be confirmed when the government publishes its annual public accounts report this fall.

The PBO says economic growth will remain tepid this year but will rebound in 2025 as the Bank of Canada’s interest rate cuts stimulate spending and business investment.

This report by The Canadian Press was first published Oct. 17, 2024.

The Canadian Press. All rights reserved.

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