(Bloomberg) — The guardians of the global economy will gather this week under the cloud of the worst recession since the Great Depression, and a recovery dependent on scientists finding a coronavirus vaccine.
The International Monetary Fund and World Bank will hold their annual meetings, with both calling on the Group of 20 largest economies to extend a freeze in debt payments from the world’s poorest nations that’s set to expire at year end.
While the fund last month flagged a “small upward revision” to its 2020 growth forecast from its June outlook, it warned the rebound will be long and uneven.
The IMF has been encouraging governments to spend whatever they need to confront the crisis, even while warning that debt as a percentage of GDP will rise to about 100% for the first time.
Fund officials earlier this month proposed reforms to debt restructuring for countries that struggle to meet obligations, a burden likely to rise as the pandemic batters economies. Debt vulnerabilities will be a key theme of the meetings, according to first deputy managing director Geoffrey Okamoto.
The G-20 agreed in April to waive billions of dollars in repayments by poorer nations until the end of the year under the Debt Service Suspension Initiative. The World Bank says this isn’t enough and wants borrowings reduced to prevent a bigger fallout.
The IMF has also been working to figure out how to transfer existing reserve assets known as special drawing rights from rich countries that don’t need them to poorer nations that do. A proposal to create $500 billion in SDRs was blocked in April by the U.S., the fund’s biggest shareholder, which criticized the plan as inefficient.
What Bloomberg’s Economists Say…
“With the virus count rising again in Europe, and stalled stimulus negotiations in the U.S., a better than expected third quarter is seguing into a worse than expected fourth. Looking into 2021, hopes for a strong rebound depend on containing the second wave of infections, a stimulus breakthrough in Washington DC, and widespread delivery of a vaccine by mid-year.”
–Tom Orlik, chief economist
Elsewhere, the Nobel Prize for Economics is awarded in Stockholm on Monday and central banks in Indonesia, Singapore, South Korea, Sri Lanka, Chile and Uganda hold monetary policy meetings.
Click here for what happened last week and below is our wrap of what is coming up in the global economy.
U.S. and Canada
Federal Reserve Board Vice Chairmen Richard Clarida and Randal Quarles are scheduled to speak Wednesday and Thursday at an Institute of International Finance event that takes place on the virtual sidelines of the IMF meetings.
Friday will be the highlight for U.S. economic indicators with releases for September retail sales and industrial production and the Michigan consumer sentiment survey for early October. That’s the day after the weekly jobless claims data.
For more, read Bloomberg Economics’ full Week Ahead for the U.S.
China returns from the Golden Week Holidays with trade data on Tuesday expected to show the export recovery continues, and inflation data on Thursday likely to show a moderation in price growth.
Indonesia, Singapore, South Korea and Sri Lanka have monetary policy meetings scheduled through the week. On Thursday, a speech from the Reserve Bank of Australia Governor will be closely watched for any signals he’s preparing to add stimulus, while employment data for September will be released.
For more, read Bloomberg Economics’ full Week Ahead for Asia
Europe, Middle East, Africa
Any surprisingly bad reading of U.K. labor-market data this week will likely convince a minority of skeptics that more stimulus from the Bank of England is all but inevitable.
By contrast, data in Sweden, which adopted much lighter virus restrictions than the rest of Europe, will reveal whether the trend of decreasing joblessness will continue. In eastern Europe, Poland, the Czech Republic, Romania and Serbia all release inflation data.
Central bank officials from across Europe take part at the IMF and World Bank meetings. But key policy makers will also make virtual appearances elsewhere: European Central Bank Chief Economist Philip Lane and Governing Council members Francois Villeroy de Galhau, Robert Holzmann and Pablo Hernandez de Cos speak at an event on rising public debt and how to cope with it.
Turkish data on Monday is likely to show the nation ran a current-account deficit for a ninth straight month, as households hoard imported gold and foreign currencies to protect against lira depreciation and inflation.
In Ghana, inflation data on Wednesday may show price growth slowed for a second month in September, but remained above the central bank’s target band of 6% to 10%. Nigeria on Thursday is expected to report inflation accelerated to 13.3%, while Uganda’s central bank will probably hold its key interest rate for a second meeting.
For more, read Bloomberg Economics’ full Week Ahead for EMEA
The IMF last week urged Mexico to boost government stimulus to speed up a weak recovery, and output and manufacturing figures posted Monday should underscore the point.
In Brazil by contrast, a less stringent lockdown and the government’s massive income support has buoyed demand, suggesting the August economic activity reading out Thursday will be consistent with that of a gradual recovery.
While inflation is picking up again across the region, it’s never gone away in Argentina: analysts expect monthly rates of just under 3% and annual rates near 40%.
Chile’s economy is struggling, but the central bank’s key rate is at a record-low 0.5%. Look for policy makers to keep it there for a seventh month when they meet Thursday.
For more, read Bloomberg Economics’ full Week Ahead for Latin America
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Hong Kong leader to visit Beijing to discuss plans to revive economy – The Globe and Mail
Hong Kong leader Carrie Lam will travel to Beijing next week for a three-day visit to discuss plans to revive the global financial hub’s economy which has been battered by the COVID-19 pandemic and anti-government protests.
Lam, speaking at a weekly news briefing on Tuesday, said she would leave on Nov. 3 for the southern Chinese city of Shenzhen, where she will take a coronavirus test before travelling to Beijing.
“My trip to Beijing this time is solely on the economic side that is in light of the economic situation, which of course is very serious in Hong Kong,” Lam said on Tuesday.
“We need more support measures from the mainland of China, especially in light of the overall direction that Hong Kong should move to better integrate with the mainland of China especially in the Greater Bay Area.”
The Beijing-backed leader postponed her annual policy address earlier this month in order to travel to the mainland for talks on how the central government can support the former British colony’s economic recovery.
She said she still plans to deliver her policy address by the end of November.
Lam has repeatedly touted the importance of the Greater Bay area – a region that includes Hong Kong, Macau and nine cities in China’s Guangdong province – as a key pillar to provide economic benefits to the Chinese-ruled city.
Hong Kong is reeling from the double blow of anti-government protests that plunged the city into its biggest crisis in decades last year and the impact of coronavirus.
Beijing imposed a national security law on Hong Kong in June that punishes what authorities broadly define as secession, sedition and collusion with foreign forces with up to life in jail, following a year of sometimes violent demonstrations.
Western governments and international human rights groups have expressed concern the law will crush freedoms in Hong Kong.
Authorities in Beijing and Hong Kong have said the law is necessary to bring stability to the city.
The Real Winner of the Work-From-Home Economy – BNN
(Bloomberg Opinion) — South Korea is in something of a sweet spot for the Covid-19 era. Neighboring China, its biggest trading partner, is driving the global rebound and the world increasingly wants the technology that Korea sells.
Gross domestic product figures are encouraging. The economy expanded 1.9% in the third quarter from the prior three months, the government reported Tuesday, exceeding forecasts and the first positive reading this year. Growth retreated 1.3% on an annual basis, a milder decline than projected. The numbers are the second upbeat installment from North Asia in little more than a week. Recent figures indicate China is likely to be the only commercial power to show any growth this year. South Korea may come close, as could Taiwan.
South Korea’s bounce is built on what leaves the country. Exports account for about 40% of the economy. Memory chips and electronics have benefited from a shift to work-and study-from-home during the pandemic. Other things shipped by Korea, like chemicals and metal products, haven’t done so well. While this mix means Korea is vulnerable to an eventual rebellion against the kitchen-table conference room, that prospect doesn’t appear imminent. Even hubs for global finance with strong executive government, such as Singapore, are slow-walking the return to downtown. WFH remains the default for much of the world.
Seoul’s willingness to cast off decades of budget prudence, too. No matter how many container ships or cargo planes dot the horizon, there’s little substitute for cranking up the printing press in fallow times. President Moon Jae-in has rolled out four stimulus packages as part of a fiscal onslaught equivalent to about 14% of GDP. While the government is anxious to repair the books once the recovery is assured, it would be premature to ease up now. Moon has space to do even more. South Korea’s debt levels, relative to the economy, are among the lowest in the Organization for Economic Cooperation and Development.
Muscular fiscal policy means more borrowing. Moon has been aided by a central bank that’s prepared to buy bonds on a fairly regular basis in the name of market stability. While the Bank of Korea shies from the term “quantitative easing,” it is keeping a lid on the price the government pays for money.
Perhaps the real achievement is that the country kept coronavirus infections in check and returned to growth without a comprehensive lockdown or equally forced rapid reopening. China is aided by an authoritarian political system that can turn the key in either direction without dissent. South Korea is a democracy. Social distancing, contact tracing and dialing up (or down) other curbs on a localized basis worked pretty well.
Lots could still go wrong. The global economy might take a turn for the worse, given the recent jump in U.S. and European infections. And at home in Korea, the natural boost an economy gets after exiting recession will eventually wear off. The country was posting fairly sluggish growth numbers before the pandemic. Unemployment is rising. And while it’s a relief to see growth return, the second-quarter contraction was the worst in decades.
For now, though, let’s acknowledge a job that’s been relatively well done.
This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.
Daniel Moss is a Bloomberg Opinion columnist covering Asian economies. Previously he was executive editor of Bloomberg News for global economics, and has led teams in Asia, Europe and North America.
©2020 Bloomberg L.P.
ADRIAN WHITE: Underground economy is thriving – The Guardian
There is no doubt that COVID-19 has changed the way businesses function in Cape Breton. The pandemic has forced many entrepreneurs to reshape operating strategies for financial survival.
Think of the new safety protocols for restaurants to protect staff and customers from virus transmission. Think sporting events playing out before near-empty stadiums and instead focused heavily on revenues generated from media broadcast of the event.
There are just too many changes to business practices to list here in this column including the growth of digitization in our economy but I wanted to single out a few examples to illustrate some telling impacts.
One major impact comes from folks not feeling safe to travel outside the province or eat out in restaurants due to the pandemic. Instead, they are using some of those cash savings to fund home improvement projects right here in the Cape Breton economy. That is a good thing for our community and our workers and it supports the “Shop Local-Buy Local” mantra being promoted by the local business community.
Demand in the home improvement sector has soared and is so strong that it has led to a shortage of building materials, a rapid rise in material costs and a shortage of skilled labour to take on those home improvement projects.
Many new contractors have entered the home improvement business in 2020 and many anxious homeowners are in hot pursuit of their services. Sometimes these contractors show up when expected to do a job and sometimes not. This has been a long-standing problem with small contractors in Cape Breton.
Some contractors present an official written quote including HST for the project leaving a paper trail to follow while other contractors are quite prepared to take cash from the customer thereby avoiding HST. Cash leaves little trail for CRA to follow when it comes to reporting taxable income.
This practice leads me to shed some light on the underground economy and its impact on our well-being as a province. Statistics Canada defines the underground economy as “consisting of market-based activities, whether legal or illegal, that escape measurement because of their hidden, illegal or informal nature.”
I use the construction industry as an easy-to-understand example but you can imagine other opportunities for tax avoidance including buying illegal cigarettes, street sold cannabis, cash tips, paying cash for services, Airbnb cash rentals, or offshore bank accounts not being reported to CRA.
In Nova Scotia, according to Statistics Canada, the underground economy was estimated to be $1.28 billion in 2018. That is near 3 per cent of provincial GDP. This is revenue that escapes government taxation. Nova Scotia’s underground economy as a share of GDP is higher than the national average which is troubling. Taxes on $1.28 billion would go a long way to offset the forecasted 2020 Nova Scotia budget deficit of $853 million due to the pandemic.
Some of the underground economy is driven by the fact Nova Scotia has the second-highest personal income tax rates in the country. It remains one of three remaining provinces in the country that still practices “bracket creep” on your personal income tax deduction by not adjusting it to CPI on your annual income tax return.
The higher the taxes the more incentive it provides for individuals and companies to embrace tax avoidance. Alberta has one of the lowest personal income tax rates in Canada and no provincial sales tax. It abandoned “bracket creep” on its residents decades ago. It also has one of the lowest underground economy as a share of GDP rates in the country running at 1.8 percent of provincial GDP.
British Columbia has the highest ratio at 3.7 percent of GDP. In Canada, the underground economy was valued at a whopping $61 billion in 2018 amounting to 2.7 per cent of national GDP.
I can only imagine with the increased demand for home improvement projects in Canada due to the pandemic that underground economic activity will likely increase 50 per cent rising close to $90 billion for 2020.
In Nova Scotia, residential construction accounts for over 25 percent of the estimated underground economy GDP. The next six largest contributors to the underground economy amount to about 50 per cent of Nova Scotia’s underground economy. They are retail trade, accommodation/food services, finance/insurance/real estate, manufacturing, professional/technical services and health care/social assistance.
If we want to grow the Nova Scotia economy and thereby increase tax revenues to pay for the services we all expect, we are going to have to rethink the tax burden on individuals and businesses to bring balance and fairness to the tax environment. It is one of the reasons we struggle to recruit doctors to Cape Breton. Above-average taxes in Nova Scotia hinder economic expansion. High taxes will continue to drive the underground economy and tax avoidance until we address them.
Adrian White is CEO of NNF Inc, Business Consultants. He resides Sydney & Baddeck and can be contacted at firstname.lastname@example.org.
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