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India’s Economy Plunges by Record 23.9% After Lockdown

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India’s Economy Plunges by Record 23.9% After Harsh Lockdown

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(Bloomberg) — India’s economy contracted by the most on record last quarter as the world’s biggest lockdown to stem the coronavirus pandemic brought key industries to a halt and rendered millions of people jobless.

Gross domestic product shrank 23.9% in the three months to June from a year earlier, the Statistics Ministry said in a report Monday. That’s the sharpest decline since the nation started publishing quarterly figures in 1996, and was worse than any of the world’s biggest economies tracked by Bloomberg. The median estimate in a survey of economists was for an 18% contraction.​

​Once the world’s fastest-growing major economy, India is now on track for its first full-year contraction in more than four decades. While there are early signs that activity began picking up this quarter as lockdown restrictions were eased, the recovery is uncertain as India is quickly becoming the global epicenter for virus infections.

Read More: India on Course to Top Brazil on Unrelenting Surge in Infections

India reported more than 78,000 new infections on Sunday, the most by any country, with total cases nearing 4 million in a nation of 1.3 billion. That could delay the consumption-driven economy from fully reopening.

“The dismal quarterly GDP print confirms the substantial cost that the harsh lockdown and lack of fiscal support inflicted on the economy,” said Priyanka Kishore, head of India and Southeast Asia economics at Oxford Economics Ltd. in Singapore. “While the start of the July-September quarter has likely benefited from a post-lockdown boost, those gains are already at risk of being lost amid the ongoing pandemic and New Delhi’s hesitance to open the fiscal taps.”

Plunging Output

The yield on India’s 10-year government bonds fell three basis points to 6.12% ahead of the data, with the securities capping their worst monthly decline in more than two years. The rupee weakened 0.3% to 73.62 per U.S. dollar.

Details of the GDP report:

Financial services — the biggest component of India’s dominant services sector — shrank 5.3% last quarter from a year ago.Trade, hotels, transport and communication declined 47%Manufacturing shrank 39.3%, while construction contracted 50.3%Mining output fell 23.3%, and electricity and gas dropped 7%Agriculture was the lone bright spot, growing at 3.4%

A mix of monetary and fiscal measures so far to prop up the economy won’t prevent it from sliding into recession. The government has provided only limited fiscal support given constraints on revenue growth, while the central bank has cut interest rates by 115 basis points so far this year, boosted liquidity and transferred billions of rupees in dividends to the state.

A separate report on Monday showed the government already breached its full-year budget deficit target in the first four months of the fiscal year that began April 1 as revenue receipts collapsed.

Krishnamurthy Subramanian, the government’s chief economic adviser, said the quarterly slump was largely expected and due to an “exogenous shock that has been felt globally.” The economy is “experiencing a V-shaped recovery” after the lockdown eased, he said in comments distributed to reporters, adding “we should expect better performance in subsequent quarters.”

Banking Woes

​Even before the pandemic struck, Asia’s third-largest economy was in the midst of a slowdown as a crisis in the shadow bank sector hurt new loans and took a toll on consumption, which accounts for some 60% of India’s GDP. The lockdown from mid-March to contain the pandemic brought activity to a virtual halt as businesses shut down and millions of workers fled the cities for their rural homes.

The pandemic has caused historic GDP contractions in economies around the world. In India, the situation is made worse by an acceleration in virus cases, more recently in rural areas where the bulk of the population live.

The gloomy outlook puts pressure on authorities to deliver more stimulus, but there’s limited room to act. The government is facing a budget deficit of more than 7% of GDP this fiscal year, more than double its original target, while inflation is above the central bank’s 2%-6% goal, reducing the chances of more rate cuts.

Even so, Reserve Bank of India Governor Shaktikanta Das told the Financial Times that the government is set to announce more growth-supporting measures and inflation will likely ease.

Some economists expect growth to rebound to above 7% next year, mostly led by pent-up domestic demand, and a pickup in farming and exports. Yet, that’s likely to fall short of the recovery that followed the global financial crisis more than a decade ago, when growth averaged 8.2% in the two fiscal years after the crisis, boosted by massive fiscal spending, monetary easing and a swift global rebound.

“Growth recovery will also be hinged to the curb of the Covid spread and removal of even localized lockdowns,” said Suvodeep Rakshit, senior economist at Kotak Institutional Equities in Mumbai. “The choice for the government will be on whether the consumption or the investment side needs to be pushed.”

(Updates with economist’s comment in last paragraph)

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An economist explains what COVID-19 has done to the economy – World Economic Forum

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  • COVID-19 has caused an economic shock three times worse than the 2008 financial crisis.
  • Europe and emerging markets have been hit hard economically, China has escaped a recession.
  • But the worst could be behind us, and a greener economy could emerge after the pandemic, according to the Chief Economist at IHS Markit.

It has been a crisis like no other, shutting shops and schools, closing borders and putting half of humanity under some form of lockdown during the spring of 2020. And it’s not over, with cases continuing to mount worldwide as the death toll approaches one million.

To find out more about what the Coronavirus pandemic has done to the global economy so far, and what might lie ahead, I spoke to Nariman Behravesh, Chief Economist at the consulting firm IHS Markit.

Below is an edited transcript of the conversation.

In a nutshell, what has COVID-19 done to the world economy?

Nariman Behravesh: It has certainly plunged the world economy into a very deep but mercifully a short recession. Everybody’s been hurt. I don’t think anybody’s really been spared by this – it’s a combination of fear, uncertainty and the reaction to the lockdowns. Now, a lot of people blame this deep recession on the lockdowns, but I don’t think that’s a fair assessment. If you look at a country like Sweden, even though they didn’t do a lockdown, their economy still suffered pretty severely. It is mostly the uncertainty and the fear of catching the virus that is stopping consumers going to the places they normally would, and that’s hurting the economy.

Looking at historical precedents, it’s about three times as bad as the global financial crisis of 2008 in terms of GDP decline on an annual basis. It’s not quite as bad as the Great Depression in the 1930s, where the output drop was sustained over a three to four-year period, and the unemployment rate went up to 25% in the US. This time so far it only went up to 13% in the US, but it’s the worst downturn we’ve had globally since the 30s.

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Growth has declined much more sharply than during the 2008 financial crisis

Image: IHS Markit

Do you think that, on a global level, the worst economic damage is behind us?

NB: Well, in some sense, the worst may be behind us. In many parts of the world, in many countries the numbers are coming down – although not everywhere. They’re going up in India, they’re going up in Brazil, they’re really not coming down much in the US. So I would say probably globally, the worst is behind us. But you can also argue that the easy part is behind us, because this thing is going to flare up again and again. We’re not out of the woods. So even when we think we’re done, as a number of countries have, we’re not. It probably won’t be as bad as it was last round, in part because the healthcare systems are prepared, but we’re not done with this.

If you look at 2020 to date, which regions have been the hardest hit, and which have weathered it well so far?

NB: Let’s look at countries first. Among the countries that have weathered it well is, of course, China. China technically did not have a recession. It had one quarter of negative growth and then it came right out the other side. Other countries that have done relatively well are South Korea and Taiwan, which did a lot of testing and tracing so they managed to keep things under wraps compared to the countries that have done the worst in terms of the virus, such as the US, Brazil and India. That judgement is based on the total number of deaths. But for the death rates, if you look at it on a per capita basis, the US is number 10 rather than one, which is lower than Belgium or Spain, so a lot depends on how you measure it.

In terms of economic performance, Europe has been hit quite hard – the European recession is quite a bit deeper than the US or Canadian or Japanese recession. So, Europe and the emerging world have been hit pretty hard.

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Image: IHS Markit

As we go through autumn, how do you expect things to evolve?

NB: We’re coming out of a very deep recession, so we’ll get what we call a technical bounce. Growth in the US for example will look remarkably strong in the third quarter, but then it will fade. We’re looking at what we call a bounce and fade pattern of growth throughout the world. But the bounce is because it went so far it had to come up – but it won’t continue at that strong rate. Just to give you a sense of the US, GDP was down 32% in the second quarter, we think it’s going to be up 30% in the third quarter, but by the fourth quarter back down to 2.5%.

How optimistic are you for a global recovery and what kind of shape do you think that recovery will take?

NB: I think we will see global growth in the third, fourth quarters and into 2021. It will not be a robust growth rate and a lot of it will depend on a vaccine. Obviously, the sooner a vaccine is available and widely distributed, the better the chances of growth, but we don’t really see that happening until the second half of 2021. A vaccine may get developed, but in terms of its pervasive availability, it’s going to take a while.

There’s been a whole alphabet soup of shapes discussed. One could say that manufacturing is probably enjoying a V-shaped recovery, at least temporarily, but services, which were among the hardest hits – especially airlines, travel and entertainment – these are in U-shaped recoveries. People have talked about a W. You probably won’t get a W unless there’s a serious second wave, which I don’t think is likely but it’s possible.

Could you tell us more about the sectors that have been hardest hit, and the ones that are thriving?

NB: Well, the hardest hit are clearly any activities or any industries that depend on large groups of people coming together in a spot, so airlines are a perfect example of this. Air traffic is barely at 25% of what it was at the end of 2019 and it’s not really going to recover for at least another couple of years. Hotels are another example. And there are huge amounts of excess capacity on cruise ships. Anything to do with conferences has also been hard hit.

In terms of the industries that have done well, high tech is of course an example. Obviously, everybody’s ordering from Amazon rather than going to stores but beyond that a lot of industries are looking to accelerate the digital revolution. Ironically, healthcare is also benefiting in some sense, because of the demand.

Is there anything that surprises you, as an economist?

NB: One sector that I didn’t mention that’s done well, and that surprises me, is housing. Why would housing boom? It is in the US, maybe less so elsewhere. Basically, a lot of people are fleeing to suburbs. A lot of people are buying homes, building homes – in my neighbourhood in Boston we’ve seen two people come from New York. We’re seeing people who can afford it just kind of deciding, “Now I’m done with the urban life. I want more space between myself and my neighbours.”

COVID-19 has hit even the richest countries in the world hard. What is it doing to developing economies? And are there lessons from the emerging world that could be applied to wealthier places?

Taiwan and South Korea are notable for their testing and tracing. If there’s one lesson from the experience there, it’s that massive testing and massive back tracing of contacts is crucial to keeping this thing under control. So that’s a definite lesson. But the rest of the emerging world, from Latin America to Africa, are struggling, there’s no question. Aside from the virus itself, they’re being hurt by collapsing global growth and trade and for a while, the collapse in commodity prices. It’s not only the virus itself but events outside of their countries that are then coming back to hurt them.

Looking at the big picture, are we going to see a different kind of economy and a green recovery emerge from the pandemic?

I don’t think it’s going to be business as usual: I think there are going to be some big, big changes happening. We may not see them overnight. It may take some time. But let’s go through a few of them. I think this will accelerate the movement towards a green economy. This is a perfect opportunity for a lot of companies as they look at new, green technologies. I think that’s going to be very positive. But we are going to see a substitution of capital for labour. Skill and labour-intensive industries are very worried about the vulnerability to viruses of all kinds, so you’ll see greater emphasis on robotics, which creates its own challenges, of course. We think that the process of urbanization will slow. I don’t know if it will reverse, but it will definitely slow down. We’ve seen this so-called flight to suburbs occurring. Separately, in terms of the travel and tourism industry, one has to wonder what will come out the other end. Our best guess is that things like business travel will be curtailed quite dramatically. I think healthcare is another area where we will see some massive transformations as we go forward.

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Opinion: Smart solutions needed to create circular economy for plastics – Edmonton Journal

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Article content continued

Continued collaboration with stakeholders, including governments, are key to making a circular economy a reality. Industry has embraced targets to make plastic packaging 100-per-cent recyclable or recoverable by 2030 and 100 per cent reused, recycled or recovered by 2040. Industry is already developing advanced recycling technologies (ART) to turn waste plastic back into new plastics, allowing us all to get the maximum value from existing resources and move toward eliminating plastic waste from our environment.

However, we need additional investment in research to continue identifying innovative and cost-effective recycling methods, strategies and programs for different types of plastics. We also need to continue to create financial incentives to establish standards and end-markets for recycled plastic content in products.

A critical component for success is a robust harmonized extended producer responsibility (EPR) program across the province, which shifts the costs and operational responsibilities for managing recycling systems from local governments to producers. The economic and environmental benefits of doing so are abundantly clear. The Recycling Council of Alberta estimates that implementing an EPR program for packaging and paper products would save Alberta municipalities more than an estimated $100 million annually. The savings would only grow from there as we expand EPR programs to cover additional material streams.

Alberta has the opportunity to leverage its technical chemical expertise to lead the way through the design and implementation of innovative plastics industry approaches that will assist in our evolution to a circular economy in Canada.

Christina Seidel is the executive director of the Recycling Council of Alberta and co-chair for the Plastics Alliance of Alberta.

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Why stock markets are up 44% amid the worst economic contraction in history – CBC.ca

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The economy is in a ditch, and millions of Canadian workers still find themselves unemployed or underemployed compared with where things were before COVID-19. And still the stock market is posting some record gains.

You can’t blame anyone who throws their hands in the air and asks: Just what on earth is going on?

“It’s surprising how quickly they came back,” Robert Kavcic, senior economist at the Bank of Montreal, said of the markets. 

In March stocks crashed. They fell so steep and so far that many assumed it would take years to rebound. In the end, the stock market recovery took just 150 days. Since it bottomed out on March 23 of this year, the broadest marker of the U.S. stock market — the S&P 500 — is up 44 per cent

So, what gives?

It’s always important to remember that the stock market is not the economy. Stocks are meant to reflect the future value of a given company’s stock, not the state of Main Street today.

Kavcic said the sharp rise in equities shows how the pandemic has hit different sizes of businesses in different ways. For the most part, the big fish are doing OK, but the little ones are hurting.

Technology stocks that primarily trade on the Nasdaq have been on a tear during the pandemic, as demand for digital services has boomed from milllions of people being locked down in their homes for months on end. (Michael Nagle/Bloomberg)

“If you look where most of the economic damage was, it was and still is in smaller businesses and Main Street-type businesses that don’t necessarily trade on the equity market,” Kavcic said. “You don’t have a hair salon or a restaurant trading on the Nasdaq.” 

And yet, he said, digital companies like Netflix and Cisco and Microsoft have fared incredibly well. And those are the companies driving stock market gains. 

The suffering is happening among small and medium-sized businesses, which make up 70 per cent of private-sector employment in Canada. They are most exposed to a lockdown at least in part because they have the least cushion to weather bad times.

Companies in the digital sphere have prospered throughout the lockdown.

By almost every measure, we live in a digital world. The stock market is just reflecting that.

Marc Benioff, CEO of cloud computing company Salesforce, said the world has turned digital.

“We’re in a new digital world. An all digital world,” he said in an appearance on CNBC. “We are now in this new digital future, and we need to rebuild our companies and our organizations.”

Benioff didn’t mention the stock market. But he didn’t have to. Salesforce stock is up 74 per cent in the past six months.

Low rates fuelling the stock market fire

The other major factor driving equity gains is the sheer volume of cheap money out there.

Philip Petursson, chief investment strategist and head of capital markets research at Manulife Investment Management, said the world has never seen fiscal and monetary support like it’s seeing now.

“As of the end of July, global central banks had cut interest rates 164 times in 147 days and committed $8.5 trillion US in stimulus,” he said in a note to clients.

Petursson said investors were so sure stocks would remain low for a long time that they pulled staggering amounts of money out of markets. The Canadian mutual fund industry had its worst month ever in March, he said, with more than $14 billion Cdn in net redemptions — that’s people pulling their money out.

Investors pulled huge amounts of money out of the markets when the pandemic hit. The Canadian mutual fund industry had its worst month ever in March, with more than $14 billion Cdn in net redemptions. In the U.S., investors pulled $326 billion US from mutual funds and ETFs. (Cole Burston/Bloomberg)

“South of the border, investors pulled $326 billion US from mutual funds and ETFs, more than three times the $104 billion US in outflow in October 2008 during the Great Financial Crisis,” Petursson wrote.

But stock markets have a way of confounding even the best experts.

U.S. election volatility

And if you thought the wild ride was coming to an end, hold onto your hat.

The U.S. presidential election looms as the next major event on the volatility calendar.

No one knows what will happen on Nov. 3. And markets hate uncertainty. We also don’t really know how markets will react if either President Donald Trump, a Republican, or Democratic candidate Joe Biden wins.

When Donald Trump, right, won the 2016 U.S. presidential election, it was assumed to be bad news for stocks, but instead they continued their multi-year bull run. Regardless of whether Joe Biden, left, or Trump wins this November’s race, expect more of the unexpected on the markets. (Carlos Barria, Leah Millis/Reuters)

Kavcic said markets had it very wrong the last time, in 2016.

“Everyone thought Trump was negative for equities on election night, and it turned out to be the opposite,” he said.

Adding to this year’s uncertainty, there’s now a real possibility that the Democrats could sweep election night — winning the presidency and control of the House of Representatives and Senate.

Many Wall Street types have expressed concern that would lead to dramatic change, such as tax hikes that would hurt growth and slow markets.

But Frances Donald, managing director and chief economist at Manulife, said that may not be the case.

“While the popular perception is that a Democratic sweep would be broadly market negative,” she said in a report published this month, “we’d caution that we believe such fears are likely exaggerated.”

Donald said 2021 will be another “exceptionally challenging” year for the economy, with high levels of unemployment and an ongoing health crisis.

This year started out as another bull run for stock markets, but in March stocks crashed as the COVID-19 pandemic took hold of the economy. Many assumed it would take years for the market to rebound, but the recovery took just 150 days. (Mark Lennihan/The Associated Press)

“It isn’t likely to be an environment that can plausibly absorb higher tax rates on either the corporate or individual level,” she wrote. “Rather, it will be an environment that necessitates large-scale, continuous stimulus.”

That’s music to the ears of investors who are driven by hopes of further fiscal and monetary support.

Expect the unexpected

One final note of weirdness.

Stock markets have begun to show some jitters this week.

The S&P, the Dow Jones and the Nasdaq all fell sharply on Monday.

Some of that has been an overstretching of valuations of those tech companies that have performed so well since the pandemic struck.

But Kavcic has another theory.

He said traditionally, equity markets reflect a bet on what will happen in the future. So maybe some of the spring’s bull run was a reflection of how much things would improve over the summer.

“And maybe what we’re seeing today is reflective of what we’re going to see in the winter, which might be a rolling back of the economy again at least in some parts,” he said.

Winter, as they used to say, is coming. It will bring a whole host of unknowns and challenges. Whether the cold months to come will bring investors an icy chill or warm glow from fiery markets is anyone’s guess, but one thing is for certain: Even in the worst economic crisis since the Great Depression, hope springs eternal.

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