In just a few months Covid-19 has ballooned into a global pandemic, leading governments to close borders and lock down entire cities. Economists have struggled to come up with estimates of the economic damage, but their projections, such as they are, are becoming grimmer.
According to Ethan Harris, head of global economics research at Bank of America, global growth in gross domestic product is set to drop to zero this year, with the US and Europe sinking into a recession and China growing at just 1.6 per cent. At the end of January, Mr Harris’s team had expected the global economy to grow 3.1 per cent and China 5.6 per cent.
Gregory Daco, chief US economist at Oxford Economics, believes the US is already in recession and will experience a 12 per cent contraction in output in the second quarter before bouncing back to end the year flat. Such an outcome could lead to about one million job losses, he said.
“The coronavirus pandemic will lead to profound, pervasive and persistent, but not permanent, reductions in activity,” said Mr Daco.
Policymakers have rushed to limit the worst of the economic pain, with central banks announcing broad-based stimulus programmes and governments committing to multi-trillion-dollar fiscal initiatives.
But given the uncertainty surrounding just how many people will become infected and how long businesses will stay shut, it remains unclear if these measures will be sufficient.
As Michael Feroli, chief US economist at JPMorgan, cautioned in a recent note: “The current environment is one of pervasive ‘Knightian uncertainty’ — that is, an unknown for which we cannot even quantify the odds of various outcomes.” Colby Smith
How quickly can China rebound from its outbreak?
As the pandemic has moved from China to Europe, some analysts have taken heart in apparent progress made by Beijing in containing the virus. But the coming week is unlikely to lend much comfort to investors hoping the worst has already passed.
After a poor performance in 2019, heavy industry in China looks set for its worst start to a year since the global financial crisis. Industrial profits data for January and February, due to be released on Friday, will provide insights into the depth of the nation’s economic gloom.
Industrial output fell by 13.5 per cent in January-February from the same period a year earlier, which was the weakest reading on record. Profits at big industrial firms were already on a downward spiral thanks to the US-China trade war, dropping 6.3 per cent year on year in December, which helped drag profits for Chinese industry during 2019 down 3.3 per cent.
And while industrial profits data may confirm what many reasonably suspect was a terrible start to 2020, more frequently updated data do not provide much to cheer.
The FT’s own China Economic Activity index — a weighted measure of six daily data series tracking the country’s economic recovery — has stalled at about 60 per cent of pre-outbreak levels in recent weeks.
Western investors banking on a quick recovery in Europe and the US may therefore want to think twice about buying the dip based on China’s recovery story. Hudson Lockett
What next for the Bank of England after rate cuts?
Bank of England policymakers were unable to wait until a scheduled meeting this Thursday, instead announcing another interest rate cut last week that took the UK’s key benchmark to 0.1 per cent. However, this week’s meeting could still give some clues to the central bank’s next steps.
RBC Capital Markets strategists say that, for now, the BoE is not likely to attempt to support the economy by pushing rates into negative territory. But, while governor Andrew Bailey has said he is not a fan of negative rates, he has not ruled out the option.
Mr Bailey said last Thursday, a day after offering unlimited support to big companies through a new commercial paper facility, that the situation was “absolutely unprecedented” and that the government bond market was “bordering on disorderly”. Interest rates on gilts were swinging wildly, and the pound appeared to be in freefall, as investors sought to flee UK assets.
Turmoil in financial markets could therefore force the central bank into more unconventional areas, akin to the European Central Bank’s long-running negative rates policy.
On Friday sterling clawed back more than 2 per cent against the dollar but it remained below $1.18, down more than 10 per cent over the previous fortnight.
“Unless markets calm down, $1.10 can no longer be ruled out,” said Petr Krpata, a currency strategist at ING Bank in London. Eva Szalay
Coronavirus: Premier François Legault offers glimmer of hope for Quebec’s economy – Global News
Quebec Premier François Legault expressed optimism about the possibility of getting Quebec’s economy back on track, after taking a hit due to the COVID-19 pandemic.
Non-essential businesses have been shuttered for weeks in an effort to contain the spread the virus, which has had an impact on the economy.
Legault said he was encouraged by COVID-19 projections — made public on Tuesday — and believes Quebec is leaning towards a best-case scenario because of its social-distancing measures.
Coronavirus outbreak: Quebec projections show COVID-19 peak likely in mid-April
Public health officials project the number of cases will peak around April 18 and Legault said he was hopeful businesses could start opening next month.
“But we have to restart the economy without restarting the pandemic,” he warned.
Quebec’s public health director Dr. Horacio Arruda said social-distancing measures will continue be as important as ever. He also stated that most gatherings will still be forbidden in order to avoid a resurgence of the virus.
Legault said re-imagining the workplace should be top of mind.
“I think it’s important that managers, owners of different businesses, that they start thinking about a new way to work in the next weeks or months,” he said.
On Monday, the government announced a $100-million employee training program to help businesses adjust to a new reality. The idea is to ensure employees are trained to use new technologies and can learn new workflows.
Other measures put forward by the government to boost the economy include the Panier Bleu, an online platform to encourage Quebecers to buy locally, as well as various subsidies for businesses and individual workers alike.
Legault said government officials are also working with various company representatives to see how businesses will be able to re-open, provided the “figures stay good in the next few days.”
It’s a reminder that everyone has a crucial role to play in the pandemic.
“I know it’s tough, tough to continue all our efforts, but as we say in English: April showers bring May flowers,” he said.
— With files from Global’s Raquel Fletcher
© 2020 Global News, a division of Corus Entertainment Inc.
Expert weighs in on Kenney’s economic plan for Alberta, suggests PST could be an answer – Global News
While Jason Kenney’s televised address to the province on Tuesday night gave details on how the COVID-19 pandemic in the province could play out in terms of cases and deaths, some political scientists say the comments the premier made in regards to the economic future of Alberta didn’t provide a lot of specifics.
One political scientist in the province said there is one option for the government to increase revenue: implementing a provincial sales tax (PST).
Alberta premier warns devastating economic impact of COVID-19 could mean record unemployment, negative oil prices
Mensah said the pandemic has completely changed the circumstances of the province, and that while the UCP had campaigned on a platform of fiscal conservatism, there needs to be a way of balancing the books going forward.
“The only way available is to look at a modest PST, to provide options for the government to be able to fund programs.”
Kenney said in his Tuesday night address that the social distancing and closure orders in the province would be in place at least until the end of May. He also said that the province would eventually roll out a “relaunch strategy” to get the economy moving again, involving mass testing to get those with immunity back to work, and increasing border screening.
Explaining Alberta’s probable, elevated and extreme COVID-19 modelling numbers
However, once the premier addressed the situation with the global oil markets, experts said there was a lack of clarity on how the province could move past this.
“There didn’t seem to be a whole lot of answers, and just some real dangerous situations,” Mount Royal University political science professor Duane Bratt said.
“[Kenney] talked about a budget deficit that will triple to about $20 billion dollars, [he] talked about negative prices for energy — where we may have to pay people to take it — and there was no sense of how we’re going to get out of that,” said Bratt.
In his address Tuesday, Kenney said he could not “overstate how grave the implications of this will be for jobs, the economy and the financial security of Albertans.
“Much of this is due to the COVID-19 recession, but it has been made worse by a predatory price war led by Saudi Arabia and Russia, who are trying permanently to damage North America’s energy industry.”
Bratt said that while Kenney did reference the Keystone XL pipeline project as an important energy investment made by the government, as well as the work being put into collaborating with its federal counterpart and the U.S in regards to the energy sector, when it came to the province’s economic future, “he didn’t go into the same degree of details, the same strength of numbers as was on the health side.”
While the PST has been a difficult policy option for governments in the past, the COVID-19 situation has put the government into a spot that would be tricky to get out of without it, Mensah said.
“It’s the time to really put aside the ideology of fiscal conservatism,” Mensah said. “I think there’s room for a modest PST, to generate revenue in these uncertain times. You could even put a sunset on the PST— you could have it for five years or so, for the revenue to start to improve.
“The government really has to re-calibrate here and come up with an alternate approach to the province’s finances,” he said.
Kenney has shut down PST idea
However, on March 9, just over a week before Alberta declared a health emergency due to COVID-19, Kenney shut down the idea.
“I cannot imagine a dumber thing to do in the midst of a time of economic fragility, an oil price collapse and a global recession, than to add a multi-billion-dollar tax on the Alberta economy and on Alberta families,” he said.
Jason Kenney says government will not implement a PST
“You’re talking about a PST that would generate several billion dollars of revenue. That would take several thousand dollars out of the pockets of Alberta families at the worst possible time.
“This government is not going to take thousands of dollars out of people’s household budgets at a time of real economic challenge,” Kenney said.
On Wednesday, a spokesperson for the premier said in a statement that Kenney’s previous comments on the idea of a provincial sales tax still stand.
Cases of COVID-19 have spiked and mass layoffs have been handed out in Alberta since March 9, when there were just seven confirmed cases in the province. Just under a month later, on April 8, there were 1,423.
© 2020 Global News, a division of Corus Entertainment Inc.
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