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How To Stop The Global Economy From Plunging Into A Depression? – Forbes

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There is little doubt that the global economy is in recession, which is defined by the IMF as growing less than 2% a year. Looming on the horizon is the even darker threat: global depression, which is characterized by a decline in real GDP exceeding 10% in more than one major economy and lasting for two or more years. This is the specter that governments are trying to stave off. In the U.S. and Europe, they are moving faster and throwing more resources at it than they did in response to the global financial crisis. The question is whether they will succeed. The answer hinges on knowing what stands between the current recession and a more catastrophic depression. 

The economic ravages caused by Covid-19 began with a disruption of supply that quickly weakened demand. It turns out that much of the economic impact of Covid-19 is due to the very measures needed to control the pandemic. When cities are locked down and people stay home to avoid contact with others, all economic activities in industries involving people in close proximity come to a halt. Consumer spending crashes because people are either too fearful or unable to go out and spend. As a consequence, businesses are in jeopardy; their revenues are drying up faster than they can cut costs, and many will have no choice but to lay off workers or even shut down.

The current recession will turn into a depression if business closures and layoffs spread unchecked, changing a temporary dip into a total collapse of demand that derails the economy. A self-reinforcing feedback loop will then lock revenue-starved companies and salary-starved households into a destructive, downward spiral—a global depression.

What stands between the current recession and a global depression is the survival of the business sector. Government efforts must therefore focus on supporting the business sector with policies that are direct, timely and effective. Tax holidays, rollover of loans, and suspension of payments of interest, rent and fees are a start.

What is really needed is for governments to help pay a portion of salaries so companies don’t have to lay off their workers as revenues dwindle. This will break the link between the initial decline in demand and a much more devastating economy-wide crash. Large companies and small businesses need help equally. Bernie Sanders and his comrades may rail against such a policy as a case of government of bailing out big businesses, but what they don’t understand is that large companies are key customers for many small businesses. And if big companies go down, small businesses will go down with them. And while giving every adult American $1,200 may be an expedient and certainly a popular measure for President Trump, it doesn’t do much to help households whose breadwinners are rendered jobless.

Time is running out. Job losses are rising rapidly. The U.S. Department of Labor reported March 26 that jobless claims that week rose to a record 3.3 million, up from 282,000 the week before. Ireland went from nearly full employment in February to losing an equivalent of 48% of all new jobs created in the last five years in March, according to Dublin’s Economic and Social Research Institute.

Governments may be throwing the kitchen sink at the problem, but the outcome depends on how, when and where the money is spent. The survival of the business sector is our best hope in warding off a global depression. We must ensure that it does.

Yuwa Hedrick-Wong is Chief Economics Commentator for Forbes Asia. He is also a visiting scholar at the Lee Kuan Yew School of Public Policy, National University of Singapore. Having worked as an economist across the Asia-Pacific, Europe, Middle East and Africa in the past 25 years, he regularly writes columns about the global economy for Forbes Asia. Views expressed are his own. He can be reached at: yuwa@forbesasia.com.

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Doug Ford rejects regional approach to reopening Ontario's economy – Toronto Star

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One size fits all.

That will be Ontario’s mantra for reopening the economy in the wake of the COVID-19 pandemic, insists Premier Doug Ford.

Even though the Greater Toronto Area accounts for 65.6 per cent of Ontario’s cases, leaving huge swaths of the province relatively unscathed, Ford is rejecting the regional approach of opening up as is being done in neighbouring Quebec, Manitoba and New York state.

“I have to follow science and the medical advice. I always have, I always will,” the premier said Thursday, emphasizing that provincial chief medical officer of health Dr. David Williams and other public health officials will make the call.

“I’ll take their advice and if Dr. Williams doesn’t think it’s the right thing to do, then I’m following his advice. I have from the beginning. I’ll continue to follow it,” he said.

Ford admitted he is under a lot of pressure to expedite the opening of the economy in regions beyond the GTA.

There are far fewer coronavirus cases in Kenora, Algoma, North Bay, Parry Sound, Sudbury, Kingston, Renfrew, Huron-Perth, Prince Edward County, and most of southwestern Ontario outside the Windsor city limits.

“I hear it at cabinet, I hear it at caucus. I hear it all the time from our own members,” the premier said.

Indeed, Progressive Conservative MPPs from outside the Golden Horseshoe privately confide that they are feeling heat from their constituents.

“How am I supposed to keep telling businesses in my area to remain closed for what’s essentially a Toronto problem?” said one rural Tory MPP, speaking on condition of anonymity in order to freely discuss internal caucus discussions.

“At a certain point, we’ve got to reopen,” added the MPP, who personally lobbied Ford against the universal reopening approach.

But the premier, who began the first phase of reopening the economy last week when stores with street-front entrances were allowed to welcome customers, said “we just have to be cautious” to curb the spread of a virus that has killed 2,248 people in Ontario.

“On a long weekend in the summer, there’ll be half a million cottagers going up to the Muskokas, the Haliburtons, up to the cottage area — and they’re coming, primarily, they’re coming from the 905 and 416 area,” he said.

In Quebec, where 4,228 people have died from COVID-19, Premier François Legault has pushed a phased regional approach to opening.

Outside of Montreal, the epicentre of the pandemic in that province, much of the economy will be up and running next week, including indoor shopping malls.

“We have to continue to be careful because we cannot afford to have large increases in the next few days or weeks in the number of people in our hospitals in Montreal,” Legault said earlier this week.

In Manitoba, where only seven people have died of COVID-19, Premier Brian Pallister announced Tuesday that most businesses — including restaurants, bars, and gyms — will be open next week.

Pallister stressed “slow and careful movement in the direction of easing our restrictions is the right approach.”

New York state has suffered 23,282 deaths — more than 10 times as many as Ontario despite a population of 19.5 million compared to the province’s 14.5 million — but is pushing forward with phased regional reopening.

In New York, a region must meet seven different metrics before being allowed to move a broader stage of reopening, including a sustained decline in total hospitalizations over a three-day rolling average and a decline in deaths.

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Each region must have at least 30 per cent of its intensive care unit beds and 30 per cent of all hospital beds open and must meet diagnostic testing and contact tracing capacity.

Western New York, across the Niagara River from Ontario, currently meets all seven requirements for reopening selected businesses and services.

Earlier this month, Gov. Andrew Cuomo defended his plan.

“Close down everything, close down the economy, lock yourself in the home — you can do it for a short period of time, but you can’t do it forever.”

Robert Benzie is the Star’s Queen’s Park bureau chief and a reporter covering Ontario politics. Follow him on Twitter: @robertbenzie

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Province's decision to reopen economy still lacks some clarity: CFIB – HalifaxToday.ca

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The Atlantic Vice President of the Canadian Federation of Independent Business says he’s pleased with the province’s decision to reopen the economy, but adds it still lacks some clarity.

On Wednesday, Premier Stephen McNeil announced the province’s next steps to reopening the economy, saying businesses that were required to shut down due to the COVID-19 pandemic will be able to restart operations on June 5.

Jordi Morgan told NEWS 95.7 he’s happy to hear this, but adds there are still some questions that need to be answered.

“It remains to be seen how well this happens because we’re still not entirely clear on what all the requirements are for these individual businesses,” said Morgan.

Morgan is also pleased with the province’s new small business reopening and support grant, a $25 million fund that will help businesses welcome back customers safely.

“Very happy to see that because there are a number of businesses that are going to require some bridging to reopen, invest in personal protective equipment and other things that are necessary in order to operate the business,” said Morgan.

He says once they get all the guidelines in place, they’ll have a better idea of how to operate and keep both the public and employees safe.

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Nearly 40% of the economy may vanish in Q2 because of COVID-19, but then do something surprising – Yahoo Canada Finance

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The S&P 500 has crossed the 3,000 level again and investors are clearly riding high on hope for a second half economic recovery post the worst of COVID-19.

<p class="canvas-atom canvas-text Mb(1.0em) Mb(0)–sm Mt(0.8em)–sm" type="text" content="But that doesn’t mean the market is immune to a pullback this summer primarily because the economic data will likely continue to be horrible. Remember bulls, the U.S. economy has been kicked in the face by the pandemic, and a rebound won’t happen overnight simply because states are reopening. Corporate sales and profits remain under severe strain, sending many off to explore bankruptcy or cut thousands of workers even with quarantines being lifted.” data-reactid=”17″>But that doesn’t mean the market is immune to a pullback this summer primarily because the economic data will likely continue to be horrible. Remember bulls, the U.S. economy has been kicked in the face by the pandemic, and a rebound won’t happen overnight simply because states are reopening. Corporate sales and profits remain under severe strain, sending many off to explore bankruptcy or cut thousands of workers even with quarantines being lifted.

<p class="canvas-atom canvas-text Mb(1.0em) Mb(0)–sm Mt(0.8em)–sm" type="text" content="“We think that the reported unemployment rate may be around as high as 20% in May,” Barclays chief U.S. economist Michael Gapen warned on Yahoo Finance’s The First Trade. The unemployment rate in April increased by 10.3 percentage points to 14.7%.” data-reactid=”18″>“We think that the reported unemployment rate may be around as high as 20% in May,” Barclays chief U.S. economist Michael Gapen warned on Yahoo Finance’s The First Trade. The unemployment rate in April increased by 10.3 percentage points to 14.7%.

Gapen believes the U.S. economy may contract a whopping 40% annualized in the second quarter, then surprisingly grow by 25% in the third quarter and 8% in the fourth quarter.

Part of Gapen’s cautiousness on the economy in the second quarter stems from his outlook on the consumer, which comprises two-thirds of the U.S. economy as is often cited.

A woman shops for clothes Wednesday, May 27, 2020, in Los Angeles. California moved to further relax its coronavirus restrictions and help the battered economy. Retail stores, including those at shopping malls, can open at 50% capacity. (AP Photo/Marcio Jose Sanchez)
A woman shops for clothes Wednesday, May 27, 2020, in Los Angeles. California moved to further relax its coronavirus restrictions and help the battered economy. Retail stores, including those at shopping malls, can open at 50% capacity. (AP Photo/Marcio Jose Sanchez)

“I think when we move into the third quarter, the savings rate will start coming down. All else equal, we are expecting the consumer to remain cautious. I think you will see a blend. Some return to normalcy, but it will take time,” Gapen explains. “Negative wealth is still at play. Equity markets are doing well, but the average household may not feel that. And I think that there will be caution and a preference for saving.”

To be sure, recent economic data warrants the markets taking a short-term breather.

<p class="canvas-atom canvas-text Mb(1.0em) Mb(0)–sm Mt(0.8em)–sm" type="text" content="Another 2.123 million Americans filed for unemployment benefits&nbsp;in the week ending May 23. Over the past 10 weeks, more than 40 million Americans have filed for unemployment insurance. U.S. durable goods orders tanked 17.2% in April, U.S. Commerce Department data showed Thursday. Durable goods dropped 16.6% in March.” data-reactid=”34″>Another 2.123 million Americans filed for unemployment benefits in the week ending May 23. Over the past 10 weeks, more than 40 million Americans have filed for unemployment insurance. U.S. durable goods orders tanked 17.2% in April, U.S. Commerce Department data showed Thursday. Durable goods dropped 16.6% in March.

Pending home sales in April fell 33.8% year over year, the National Association of Realtors said Thursday. That marked the biggest decline since January 2001.

“I think the market has priced in that April is probably the worst of the economic data,” explained Sevens Report Research founder Tom Essaye. “While it looks like the worst is behind us — which is great — we need to start to see more improvement.”

<p class="canvas-atom canvas-text Mb(1.0em) Mb(0)–sm Mt(0.8em)–sm" type="text" content="Brian Sozzi is an editor-at-large and co-anchor of The First Trade at Yahoo Finance. Follow Sozzi on Twitter @BrianSozzi and on LinkedIn.” data-reactid=”37″>Brian Sozzi is an editor-at-large and co-anchor of The First Trade at Yahoo Finance. Follow Sozzi on Twitter @BrianSozzi and on LinkedIn.

<p class="canvas-atom canvas-text Mb(1.0em) Mb(0)–sm Mt(0.8em)–sm" type="text" content="Read the latest financial and business news from Yahoo Finance” data-reactid=”38″>Read the latest financial and business news from Yahoo Finance

<p class="canvas-atom canvas-text Mb(1.0em) Mb(0)–sm Mt(0.8em)–sm" type="text" content="Follow Yahoo Finance on Twitter, Facebook, Instagram, Flipboard, SmartNews, LinkedIn, YouTube, and reddit.” data-reactid=”50″>Follow Yahoo Finance on Twitter, Facebook, Instagram, Flipboard, SmartNews, LinkedIn, YouTube, and reddit.

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