People are reflected on the electronic board of a securities firm in Tokyo, Wednesday, March 18, 2020. (AP Photo/Koji Sasahara)
TOKYO (Kyodo) — Hit hard by the coronavirus outbreak, Japan’s economy faces its biggest challenge in more than a decade, with analysts warning of a technical recession and even the worse if this summer’s Tokyo Olympics is cancelled.
The epidemic has also hurt the credibility of Abenomics, a policy mix adopted by Prime Minister Shinzo Abe after he took office in 2012, which the government says has helped, together with a robust stock market, expand the economy.
But as the Bank of Japan is widely seen as running short of policy tools to further boost the economy after years of massive monetary easing, Abe is now forced to turn to state coffers for budgetary stimulus as large as the one offered in the 2008-2009 global financial crisis, even though it could deteriorate the country’s fiscal health.
“It’s possible Japan will slip into its worst recession since the 2008 crisis,” said Toshihiro Nagahama, chief economist at the Dai-ichi Life Research Institute.
Nagahama is one of those calling on the government to reduce consumption tax from 10 percent back to 8 percent on all products — not just food and daily items — as a provisional measure until the economy returns to normal.
Ahead of the tax hike, Abe and other ruling party lawmakers repeatedly said the increase would be nixed if the economy faced a situation as serious as the financial turmoil.
The Japanese economy shrank an annualized real 7.1 percent in the October-December period as the higher tax dented consumer spending. And it could further contract in the current quarter through this month, entering a technical recession, defined as at least two consecutive quarters of declining gross domestic product.
First-quarter GDP is expected to contract 2.9 percent, according to the average estimate of 34 economists surveyed by the Japan Center for Economic Research, as the viral outbreak has disrupted production and exports and cast a shadow over the global economic outlook.
The government’s policy of restricting public events to prevent infections “is causing great damage” to the economy, Yoshimasa Maruyama, chief market economist at SMBC Nikko Securities Inc., said.
The worldwide spread of the virus has also threatened the Tokyo Olympics, slated to begin on July 24. Abe still hopes the games will help sustain a tourism boom in Japan and support growth.
Amid growing speculation that the event could be postponed for a year or two, or even be cancelled, analysts have started simulating tremendous losses to the economy.
“If it’s cancelled, the damage would be unmeasurable. This could also deteriorate public sentiment significantly,” said Nagahama.
The focus is on how large the next fiscal stimulus by the government will be.
Following the financial crisis, the government unleashed an emergency policy package worth 57 trillion yen ($513 billion) in April 2009 to shield the economy from negative fallouts under then Prime Minister Taro Aso, who is now finance minister.
The upcoming package, which Abe aims to put together early next month, could match the 2009 stimulus in size, some analysts said.
To buoy household spending, the emergency steps are likely to include cash handouts, extension of a government reward points program for cashless payments, as well as lowering the just-hiked consumption tax rate, sources close to the matter said.
Austerity is also in focus, however.
Abe has already introduced policy packages worth more than 1 trillion yen to fight the coronavirus, in addition to the 26 trillion yen stimulus launched in December to address shocks from the Oct. 1 tax hike.
The latest measures will likely be financed under a supplementary budget for fiscal 2020 with the government issuing new debt, adding to pressure on Japan’s fiscal health, the worst among major developed countries.
But Maruyama said, “Now is the time to temporarily shelve the viewpoint of fiscal discipline, and to give priority to putting the economy back on a growth path.”
TORONTO – Canada’s main stock index was higher in late-morning trading, helped by strength in energy stocks, while U.S. stock markets also moved up.
The S&P/TSX composite index was up 34.91 points at 23,736.98.
In New York, the Dow Jones industrial average was up 178.05 points at 41,800.13. The S&P 500 index was up 28.38 points at 5,661.47, while the Nasdaq composite was up 133.17 points at 17,725.30.
The Canadian dollar traded for 73.56 cents US compared with 73.57 cents US on Monday.
The November crude oil contract was up 68 cents at US$69.70 per barrel and the October natural gas contract was up three cents at US$2.40 per mmBTU.
The December gold contract was down US$7.80 at US$2,601.10 an ounce and the December copper contract was up a penny at US$4.28 a pound.
This report by The Canadian Press was first published Sept. 17, 2024.
OTTAWA – Canada’s inflation rate fell to two per cent last month, finally hitting the Bank of Canada’s target after a tumultuous battle with skyrocketing price growth.
The annual inflation rate fell from 2.5 per cent in July to reach the lowest level since February 2021.
Statistics Canada’s consumer price index report on Tuesday attributed the slowdown in part to lower gasoline prices.
Clothing and footwear prices also decreased on a month-over-month basis, marking the first decline in the month of August since 1971 as retailers offered larger discounts to entice shoppers amid slowing demand.
The Bank of Canada’s preferred core measures of inflation, which strip out volatility in prices, also edged down in August.
The marked slowdown in price growth last month was steeper than the 2.1 per cent annual increase forecasters were expecting ahead of Tuesday’s release and will likely spark speculation of a larger interest rate cut next month from the Bank of Canada.
“Inflation remains unthreatening and the Bank of Canada should now focus on trying to stimulate the economy and halting the upward climb in the unemployment rate,” wrote CIBC senior economist Andrew Grantham.
Benjamin Reitzes, managing director of Canadian rates and macro strategist at BMO, said Tuesday’s figures “tilt the scales” slightly in favour of more aggressive cuts, though he noted the Bank of Canada will have one more inflation reading before its October rate announcement.
“If we get another big downside surprise, calls for a 50 basis-point cut will only grow louder,” wrote Reitzes in a client note.
The central bank began rapidly hiking interest rates in March 2022 in response to runaway inflation, which peaked at a whopping 8.1 per cent that summer.
The central bank increased its key lending rate to five per cent and held it at that level until June 2024, when it delivered its first rate cut in four years.
A combination of recovered global supply chains and high interest rates have helped cool price growth in Canada and around the world.
Bank of Canada governor Tiff Macklem recently signalled that the central bank is ready to increase the size of its interest rate cuts, if inflation or the economy slow by more than expected.
Its key lending rate currently stands at 4.25 per cent.
CIBC is forecasting the central bank will cut its key rate by two percentage points between now and the middle of next year.
The U.S. Federal Reserve is also expected on Wednesday to deliver its first interest rate cut in four years.
This report by The Canadian Press was first published Sept. 17, 2024.
FREDERICTON – New Brunswick‘s finance minister says the province recorded a surplus of $500.8 million for the fiscal year that ended in March.
Ernie Steeves says the amount — more than 10 times higher than the province’s original $40.3-million budget projection for the 2023-24 fiscal year — was largely the result of a strong economy and population growth.
The report of a big surplus comes as the province prepares for an election campaign, which will officially start on Thursday and end with a vote on Oct. 21.
Steeves says growth of the surplus was fed by revenue from the Harmonized Sales Tax and federal money, especially for health-care funding.
Progressive Conservative Premier Blaine Higgs has promised to reduce the HST by two percentage points to 13 per cent if the party is elected to govern next month.
Meanwhile, the province’s net debt, according to the audited consolidated financial statements, has dropped from $12.3 billion in 2022-23 to $11.8 billion in the most recent fiscal year.
Liberal critic René Legacy says having a stronger balance sheet does not eliminate issues in health care, housing and education.
This report by The Canadian Press was first published Sept. 16, 2024.
