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Increasing the minimum downpayment would negatively impact the economy –



Evan Siddall, president and CEO of the Canada Mortgage and Housing Corporation (CMHC), has shocked real-estate watchers with at least two comments regarding Canadian housing markets.

Speaking to the House of Commons Finance Committee on May 19, Siddall said CMHC is forecasting a decline in average house prices of nine to 18 percent over the next 12 months.

He also said a 10 percent minimum downpayment, rather than the current minimum of five percent, would offer first-time home buyers a cushion against possible losses.

The comments caught industry insiders off guard, some calling it irresponsible.

Phil Soper, president and CEO of Royal LePage, uses another word.

“A lot of people were puzzled by CMHC’s statement because, if you recall, they delayed their forecast at the end of the first quarter, saying ‘we don’t have enough data, so we’re not forecasting.’ Royal LePage brought our forecast out at the end of the first quarter and, at that time, Siddall said prices won’t recover until 2022,” says Soper. “It was a throwaway comment, there was no data there, was no supporting argument, from effectively the head of Canada’s federal government housing agency, so it’s not some random citizen making this statement.

“Now we fast forward to last week, again a quite aggressive statement for an agency that’s put in place to support peoples’ ability to buy homes. It’s clearly a view that people should own fewer homes; it’s the only outcome you could draw.”

The fear is homeowners would see the statements and scramble to sell their homes. A huge increase in listings would depress average prices, making Siddall’s comment a self-fulfilling prophecy and not just for housing.

“The challenge I have with his statements go well beyond housing,” says Soper. “If people took his statement at the headline level and saw the head of CMHC was calling for prices to be down almost 20 percent, they think it was really an odd statement. You have to go back to the eighties to have seen prices fall that much. If you dig into the details, there was modelling and it was an extreme case, not an expected case but still, throwing out that kind of number is a huge reset in the value of Canadian housing stock and that could act as a real drag on the recovery of the housing market.”

As Soper notes, CMHC does not set the minimum downpayment required to buy a home and receive insurance. That decision is made by the Department of Finance.

“To suggest publicly downpayments should double, while predicting huge price drops, could be seen as an effort to curb the recovery of the housing market, which is very odd given its source,” says Soper. “The challenge I have with this in broader economic terms is, I believe in the housing market and the consumer spending that’s driven from it, and there are many ancillary economic benefits that grow in housing spinoffs — you have gardening, home improvements, real estate and legal services, movers, painting — a home sales transaction triggers a whole raft of other consumer spending. If you look at the 2009 post great-recession recovery, it was housing that did the heavy lifting, and since 2015, real estate has been the single largest slice of the Canadian economy. If you look at the size of the energy sector and the real estate sector, it’s very close, but real estate is slightly larger and it has been since the value of oil dropped at the end of 2014.”

Of the two comments, Soper’s biggest concern is the potential of a 10 percent downpayment.

“The statement of price drops will have some impact, but there’s enough credible forecasters, including the Bank of Canada, including the major banks, including Royal LePage, that have counter opinions that I think his statements of close to a 20 percent price decrease may be dismissed as extreme,” he says. “Doubling the downpayment required for homeownership would have an immediate negative impact on economic recovery.”

It’s important for Canadians to know there are many other checks and balances in place to protect them from getting over-leveraged, says Soper.

“Firstly is the mortgage stress test. If you can’t prove that you can handle a mortgage that’s actually much larger than the one you’re going to buy at retail, you’re not going to get a mortgage,” he says. “Secondly, there’s the historically low interest rate and concerns about deflation, not inflation, for the medium term, call it the next two or three years. It’s very unlikely interest rates will be anything but historically low and finally it’s the lenders themselves who take great concern. They don’t just approve someone because they can, they approve someone they want to be able to make those payments and translate into a long-term bank customer. So you’ve got a series of measures in place to manage risk without doubling the downpayment required. Structurally, and particularly at this stage, those measures seem to be the prudent way forward.”

And, again, Soper’s word for the comments.

“We have a proven engine of economic recovery and the head of the housing agency making public statements that could hamper overall economic recovery,” he says. “It flies in the face of the billions of dollars of support the federal government is pumping into the economy to trigger a recovery post-lockdown.

“It’s puzzling, it’s very puzzling and I think potentially damaging to the economy overall.”

Copyright Postmedia Network Inc., 2020

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German economy likely to grow again from October or November: minister – The Guardian



BERLIN (Reuters) – Europe’s largest economy will likely start to grow again from October or November, German Economy Minister Peter Altmaier said on Wednesday.

The German economy has been battered by the coronavirus crisis, with economic output contracting by 2.2% in the first quarter, its steepest rate since 2009.

The government expects the economy to shrink by 6.3% this year, its worst recession since World War Two.

(Reporting by Michelle Martin, editing by Thomas Escritt)

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Does the Trudeau government have a plan to end the pandemic economy? –



In a normal year, the federal government tables a budget in the spring and then an economic statement or fiscal update in the fall.

But this is not a normal year. The budget that was supposed to be presented in March was pushed back and then completely swamped by the first wave of COVID-19, the economic shutdown that resulted and the federal aid that soon followed.

Some opposition MPs and economists subsequently pushed for a fiscal update. The Liberal government contended, with some justification, that making long-term projections in a time of such incredible uncertainty would be — to use Prime Minister Justin Trudeau’s words — “an exercise in invention and imagination.”

What’s being released this afternoon is being described instead as a fiscal “snapshot” — a status report on where things stand after four months of the pandemic.

It should provide some insight into what the last four months have meant for the federal government’s balance sheet and Canada’s economy. Ideally, it also would offer some sense of what the future might look like — at least the near future.

The deficit is going to be alarming

Finance Minister Bill Morneau’s presentation is not expected to offer new policy announcements, but it could further quantify both the economic disruption and the government’s response to that shock. That undoubtedly will include the projection of a large deficit for the current fiscal year.

The exact number might be new, but it’s already clear that the deficit likely will be in excess of $250 billion.

Last fall, months before the first cases of COVID-19 were detected in China, Morneau projected that the deficit for 2020-2021 would be $28.1 billion. Since then, a lot has changed.

A health care worker does a test at a drive-thru COVID-19 assessment centre at the Etobicoke General Hospital in Toronto on Tuesday, April 21, 2020. (Nathan Denette/The Canadian Press)

This spring’s pause in economic activity and employment meant a drop in the revenue the government receives from taxes. Meanwhile, more money has been going out in the form of government support measures to help individuals and businesses get through the shutdown.

Since April, the Liberal government has provided bi-weekly updates on its relief spending to the finance committee of the House of Commons. The most recent tally, provided on June 25, showed $174.1 billion in direct support for individuals and businesses and $19.4 billion in federal funding for health and safety measures.

The office of the Parliamentary Budget Officer also has provided a regularly updated “scenario analysis” that projects the broad economic and fiscal implications. In its most recent analysis, released on June 18, the PBO projected a deficit of $256 billion for 2020-2021.

Sticker shock

As a percentage of Canada’s GDP, a deficit of that size would be the largest for the federal government since the Second World War.

There has been little to no debate about the need to spend the money on emergency relief; if anything, the Liberals have been under political pressure to spend more and faster. Recent analysis by Scotiabank found that failing to provide that relief would have led to much worse economic results and an only slightly lower level of federal debt.

But after any deficit-related sticker shock wears off, the next question will be how well the government is positioned to manage that accumulated debt.

Governments are not like households — a government can effectively carry debt in perpetuity — so their primary goal is to manage that debt rather than pay it off outright. Most of the fiscal analysis of government debt focuses on its size in comparison to the national economy.

The PBO estimated that the federal debt-to-GDP ratio will reach 44.4 per cent, while Scotiabank projects that the ratio will be closer to 48 per cent.

It’s bad — but it’s been worse

Either number would be a significant increase over what Morneau projected last fall, when the Liberals forecast a debt-to-GDP ratio of 31 per cent in 2020-2021, declining annually thereafter.

But something around 45 per cent also would still be well below Canada’s historic peak of 66.6 per cent back in 1995-1996. That debt ratio, coupled with high interest rates and nervous international markets, led Jean Chrétien’s government to make drastic cuts to balance the budget and get the national debt under better control.

If the federal debt-to-GDP does increase to 45 per cent, it will be back to where it was in 2001.

But the fiscal story of COVID-19 will be only partly about what has happened over the last four months. It also will be about what happens over the next few months — and then several years after that.

Where do we go from here?

It’s not clear how far into the future the Liberal government is willing to look, but there are a number of questions it could start trying to answer.

What are the potential pathways for economic recovery? How much longer might the temporary relief measures be needed? How much more new spending might be necessary? And how does Morneau see the recovery and the debt being managed?

“There will be significant unemployment across Canada for the duration of the recovery,” Rebekah Young, director of fiscal and provincial economics at Scotiabank, told CBC’s Power & Politics on Tuesday.

“The [employment insurance system] was not and is not sufficient to cover all Canadians that will be out of work, but the [Canadian Emergency Response Benefit] clearly is too expensive for that duration. So I think … we would like to see some signals that they have a plan for the next 18 months in terms of addressing his persistent shock that the economy will be facing.”

Hospitality workers, members of UNITE HERE Local 40, hold a car caravan protest in Vancouver June 3, 2020. They were calling on provincial and federal governments to ensure workers are hired back as the economy recovers from the pandemic. (Maggie MacPherson/CBC)

In an email, Young said she thinks Wednesday’s “snapshot” could set up a fall budget that lays out longer-term plans.

“In addition to an updated statement of transactions, the country needs a fiscal plan from the federal government,” said Kevin Page, the former parliamentary budget officer who is now president of the Institute of Fiscal Studies and Democracy at the University of Ottawa. “We need a fiscal plan to understand what role federal fiscal policy will play to support the recovery.”

A proper plan, Page said, would boost consumer confidence and investor confidence and mitigate the possibility of further downgrades to Canada’s credit rating.

Finance officials might be quick to note the unprecedented amount of uncertainty at the moment, but Page said a plan could be debated and adjusted.

“A ‘snapshot’ that is only backward-looking would be a major missed opportunity,” he said.

In the midst of managing a national response to a pandemic, it’s important to not get ahead of yourself — to focus on the crisis in the here and now.

But sooner or later, the federal government will need to confront the future.

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French economy seen rebounding 19% in third quarter, 3% in fourth quarter: INSEE –



PARIS (Reuters) – The French economy is set to rebound sharply in the second half of the year after an unprecedented slump in the first half due to the coronavirus lockdown, the INSEE statistics agency said on Wednesday.

The euro zone’s second-biggest economy likely contracted 17% in the second quarter from the previous three months, unchanged from a June forecast and already on the heels of a 5.3% slump in the first quarter, INSEE said.

The economy was set to rebound 19% in the third quarter and a further 3% in the fourth quarter with activity seen 1-6% below pre-crisis levels by December, it added.

Over the course of the year, INSEE estimated that the economy was set to contract 9%, France’s worst recession since modern records began in 1948 but not as bad as the 11% slump the government forecast in its last revision to the 2020 budget.

The government put France under one of the strictest lockdowns in Europe in mid-March, but the economy saw a “gradual, but sharp recovery” in the weeks after the government began lifting restrictions on May 11, INSEE said.

(Reporting by Leigh Thomas; Editing by Tom Hogue and Andrew Heavens)

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