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It's official — Canada's economy is in a recession, C.D. Howe says – CBC.ca

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Canada is officially in a recession that’s been caused by the COVID-19 pandemic, the C.D. Howe Institute’s Business Cycle Council declared Friday.

The council, which monitors recessions and recoveries in Canada, said the economy peaked in February, just before drastic measures to slow the spread of the coronavirus that causes COVID-19 were implemented across the country.

“Members agreed that by applying the council’s methodology to the preliminary data available, Canada entered a recession in the first quarter of 2020,” the council said in a statement.

There are no hard and fast rules for declaring a recession, although one rule of thumb used by economists is that an economy is probably in one if it has shrunk for two three-month periods in a row.

The council rejects the “two quarters” rule and instead defines a recession as a “pronounced, persistent and pervasive decline in aggregate economic activity” based largely on GDP and the job market.

The COVID-19 pandemic is still less than two months old in Canada, but the council said Friday that the slowdown is already so swift and deep that it’s safe to declare a recession already.

The loss of jobs in March 2020 completely obliterated the previous record, set in January 2009. (CBC)

“The council agreed the magnitude of the contraction makes it extremely unlikely that any future adjustments will overturn the conclusion of a major drop in economic activity in the first quarter,” the council said.

Declaring a recession is always controversial, since there is no unanimous view as to what qualifies as one. By the “two quarters of economic decline” definition, Canada had a brief, slight recession in late 2014 and early 2015, as the price of oil crashed.

But the Business Cycle Council still says that slowdown didn’t meet the bar as an official recession by their metrics.

In the council’s view, this is the first recession Canada has seen since the financial crisis that began in 2008. And the data suggests this one is on track to be quite a bit worse than that one.

The March jobs report showed more than a million jobs were lost in the month, while a preliminary estimate by Statistics Canada suggested the economy contracted by nine per cent in the same month. Those are the biggest one-month plunges in jobs and GDP on record in Canada.

More pain expected in April data

While the decline in March was record-setting, economists expect the data for April will show an even bigger drop, with the measures taken to slow the spread of the coronavirus in place for the entire month.

The eight-person council, which normally meets once a year in December, decided to meet twice last month, once it became clear that something dramatic was happening to Canada’s economy.

Stephen Gordon, an economics professor at Université Laval and member of the council, says the current economic slowdown is a great example of how the “two quarters of contraction” definition of a recession is too dogmatic.

In a series of tweets on Friday, he noted that if the slowdown had started in April as opposed to March, the entire first quarter would have been excluded. And since a rebound in the summer is quite plausible, that would make the current recession only one-quarter long — deep though it may be.

“This episode would fail the two-quarter test, even though it’s obviously a recession,” he said.

Statistics Canada reported Thursday that economic growth had stalled going into the crisis, with real gross domestic product essentially unchanged in February due to teacher strikes in Ontario and rail blockades across many parts of the country.

The official estimates of GDP for March and the first quarter of 2020 will be released on May 29.

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Eurozone in fresh emergency action to boost economy – BBC News

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The European Central Bank has taken further dramatic measures try to boost the eurozone economies, amid their biggest recession since World War Two.

Just months after emergency measures, the central bank said it would increase the size of its bond buying programme by €600bn (£546bn) to €1.35tn.

The programme will run until June 2021, six months longer than planned.

The move will keep borrowing costs low for countries and firms as they face huge budget deficits and recessions.

The purchases support “funding conditions in the real economy, especially for businesses and households,” the ECB said.

The central bank also decided to hold its interest rates at record lows.

The extra bond buying “is likely to push European government bond yields even further into negative territory, and investors in search of positive returns will be forced to take more risk,” said Rachel Winter, associate investment director at investment firm Killik & Co.

The bond purchases are often referred to as Quantitative Easing (QE). When central banks buy bonds with printed money, the value of the bonds rise and borrowing costs drop.

Some market commentators wonder how much money can safely be printed without causing the value of money to decrease.

‘Fiscal box’

“Although inflation is currently very low, these levels of asset purchases are causing some concern about inflation further down the line,” said Ms Winter.

“Economic theory tells us that that inflation is linked to the supply of money in the economy, and if the money supply is being drastically increased to fund quantitative easing then long-term inflation ought to rise too. These fears of long-term inflation have stoked demand for gold recently.”

Gold is trading at about $1,717 (£1,368) an ounce, down from highs of $1,766 earlier in the month, but up compared to a price of $1,324 one year ago.

In many ways, the ECB is playing catch-up with other central banks, said Neil Williams, senior economic adviser at US-based money manager Federated Hermes.

“After lagging the US and UK, the fiscal box is now opening, he said. The planned spending works out at about €100bn a month, higher than the €80bn spent in the wake of the European sovereign debt crisis, he points out.

The UK added £200bn of bond buying in March.

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Impact of new social unrest on the US economy in two charts – Yahoo Canada Finance

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<p class="canvas-atom canvas-text Mb(1.0em) Mb(0)–sm Mt(0.8em)–sm" type="text" content="To those Wall Street strategists saying the social unrest currently sweeping the country isn’t enough to derail the market’s shocking rally from the March lows, we present new charts from Goldman Sachs.” data-reactid=”16″>To those Wall Street strategists saying the social unrest currently sweeping the country isn’t enough to derail the market’s shocking rally from the March lows, we present new charts from Goldman Sachs.

In the charts — which you could see below — it’s clear that social unrest as measured by real-time user comments about the economy on Twitter is beginning to weigh on consumer confidence.

<p class="canvas-atom canvas-text Mb(1.0em) Mb(0)–sm Mt(0.8em)–sm" type="text" content="Consumer sentiment (left chart) had begun to stabilize in early to mid-May with states reopening and people returning to work after months of COVID-19 lockdowns. But then came the senseless killing of George Floyd by Minnesota police in late May and rampant protests and looting, and a plunge in consumer sentiment per Twitter data analyzed by Goldman.” data-reactid=”20″>Consumer sentiment (left chart) had begun to stabilize in early to mid-May with states reopening and people returning to work after months of COVID-19 lockdowns. But then came the senseless killing of George Floyd by Minnesota police in late May and rampant protests and looting, and a plunge in consumer sentiment per Twitter data analyzed by Goldman.

Meanwhile, negative sentiment on the economy (right chart) as measured by tweets not mentioning coronavirus has spiked over the past week. Some strategists have pushed back on a chart like this one, noting it’s part of a larger issue holding the economy back.

Ultimately it’s hard to determine if weakening consumer confidence over the past two weeks has seriously derailed a U.S. economy already in a sharp recession due to COVID-19. But for those on the Street betting for a V-shaped economic recovery later this year (stat: the S&P 500 is only 7.8% below its February record highs), the data presented by Goldman hints that is far from a sure bet as social unrest is sustained, weighs on consumer psyche and spending decisions.

<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=”25″>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=”26″>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=”38″>Follow Yahoo Finance on Twitter, Facebook, Instagram, Flipboard, SmartNews, LinkedIn, YouTube, and reddit.

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Higgs calls for 'cultural shift' to turn N.B.'s economic fortunes around – CBC.ca

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Like a malfunctioning time machine, the COVID-19 crisis is threatening to transport New Brunswick’s economy back to where it was in 2010 or earlier, and that has Premier Blaine Higgs calling for radical changes in the province’s work ethic and entrepreneurial instincts coming out of the pandemic.

“We need a cultural shift here in New Brunswick. We need momentum that’s going to be created from this COVID crises,” Higgs said last week during a wide-ranging talk about New Brunswick’s economic problems on the provincial business podcast “Turning Point.”

“This may be a wake-up call for the country and for New Brunswick. I’m hoping we can springboard off of this.”

The explosion at Irving Oil’s refinery in October 2018 cut output and dragged on New Brunswick’s economy throughout 2019. It helped keep growth in provincial GDP below one per cent for the year for the 11th time in the last 13 years. (Submitted by Doug McLean)

On Monday, Statistics Canada reported New Brunswick’s economy had another underwhelming year prior to the pandemic, growing by just 0.98 per cent in 2019. It’s the 11th time in 13 years that growth in the province’s economy has been one per cent or less, ranking lowest among Canada’s ten provinces.  

Economic growth in New Brunswick has been so weak since the global financial crisis of 2008 it is not out of the question for all of the gains of the last decade or longer to be rolled back just this year.

Two weeks ago, New Brunswick’s department of finance projected the province’s economy will shrink by 4.3 per cent in 2020, with an average of private sector forecasts predicting a larger decline of 5.5 per cent.

Contractions of those amounts would send New Brunswick’s economy back to the size it was somewhere between 2007 and 2010, erasing up to 12 years of accumulated growth.

By contrast in better performing neighbouring economies, a five per cent contraction would erase just three years of growth in Nova Scotia, two in Quebec and a little more than one year in P.E.I.

Think bigger 

Higgs often cites international entrepreneur Amarjeet Singh Jatana and his company Canadian National Growers as a model for New Brunswick economic development. The company saw the province as an ideal place to grow and export apples and has established multiple orchards in Kent County without government help to make that happen. (Twitter)

With that as a backdrop, Higgs said New Brunswick needs to forget about deficit spending as a way to stimulate economic activity and apply the collective effort it used to contain the COVID-19 virus to remake the province’s economy.   

He called on entrepreneurs to think bigger about what is possible and on citizens to place more value on work.

“i think we can do a whole lot here in New Brunswick and attitude plays a role — a cultural shift plays a role,” said Higgs.

Claiming a number of New Brunswick firms could grow their businesses through export — but don’t — and a number of citizens could work — but won’t — the premier said it was important to understand what is holding the province back economically and fix it.

Stung by the reluctance of locals to fill jobs left vacant by a short-lived ban on temporary foreign workers, Higgs acknowledged low pay may be causing disincentives to employment in some cases but expressed his own belief that a lack of work ethic in the population is also causing problems.

“I think we have to understand why the jobs that are available here are not jobs we’re proud of and want to be part of,” said Higgs.   

Wage hike?

“Are the wages high enough?  But wages have to be tied with productivity. You do have to see if you’re going to earn more money there has to be a working culture there to support that because they go hand in hand.

“How many of the processors said to me — the farmers, other industries — said to me, ‘You know I need four, five six New Brunswick workers to replace one temporary foreign worker.’ What does that say about us as a society?”

Higgs appeared to make an outdated reference to the operation of the federal government’s employment insurance program, claiming without citing the evidence that too many New Brunswick residents are happy to work for 10 weeks and collect assistance the rest of the year.

“We have a system where people think being on the 10-42 program is a way of life,” said Higgs. 

But according to rules posted by Employment and Social Development Canada that’s not how the employment insurance system works.

Prior to the pandemic New Brunswick residents were required to work a minimum of 490 hours, at least 12 weeks, to qualify for 23 weeks of regular EI benefits in provincial regions with the highest unemployment rates.  

Earning 42 weeks of regular benefits required at least 1,610 hours of work in the previous year, or about 40 weeks of full time work.

Broaden ambitions

In 2018, the company S&P Data was offered $2.2 million by the New Brunswick government to open two business services call centres. In 2019 it closed and laid off all 245 employees. Premier Higgs believes government grants are not the way to create jobs. (Opportunities NB)

The premier also called out business owners who he said need to broaden their ambitions.  

He pointed, as he often does, to entrepreneur Amarjeet Singh Jatana of Canadian National Growers Inc. who three years ago began purchasing hundreds of acres of farmland in Kent County without government help to grow and export apples. Higgs said it is an example of how local businesses often overlook opportunity. 

“They were actually told you can’t do that here in New Brunswick. They have orchards around the world and they looked at our climate and said that’s a really good spot.” said Higgs.

“Sometimes we under-sell ourselves. We can convince ourselves you can’t do that in New Brunswick and that was a clear case. Even the farmers and the associations were like, ‘Oh, they can’t do that here in New Brunswick.'”

Higgs said he hopes the pandemic has shown the province it can come together and achieve important goals, a lesson he wants applied to the economy to end years of lacklustre growth.

“We don’t go back to where we were,” said Higgs.  “We go well beyond where we were.”

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