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Japan's economy grows more than expected on support from trade, capex – The Journal Pioneer

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By Leika Kihara and Tetsushi Kajimoto

TOKYO (Reuters) – Japan’s economy expanded more than expected in the fourth quarter, extending its recovery from its worst postwar recession as a rebound in overseas demand boosted exports and capital expenditure.

But the recovery slowed from the third quarter’s blistering pace, underscoring the challenge policymakers face in preventing the spread of the coronavirus without choking off a fragile recovery.

The world’s third-largest economy grew an annualised 12.7% in October-December, government data showed on Monday, marking the second straight quarter of increase and exceeding a median market forecast for a 9.5% gain.

It was a slowdown from a revised 22.7% surge in the previous quarter, when the economy got a lift from pent-up demand after a previous state of emergency was lifted in May.

“The fourth-quarter recovery turned out stronger than expected,” said Masaki Kuwahara, senior economist at Nomura Securities.

“It’s true the economy contracted for the year 2020. But it has been steadily picking up since summer, driven by domestic and external demand.”

Private consumption, which makes up more than half of the economy, rose 2.2%, slowing from the 5.1% increase in the previous quarter but exceeding market forecasts for a 1.8% gain.

A global rebound in manufacturing activity also gave exports and capital expenditure a much-needed boost, the data showed.

External demand, or exports minus imports, added 1.0% point to fourth-quarter GDP growth. Capital expenditure grew 4.5%, marking the first increase in three quarters, the data showed.

For the full coronavirus-stricken year, Japan’s economy contracted 4.8%, marking the first annual fall since 2009.

Japan’s economy has gradually emerged from last year’s initial state of emergency curbs thanks to a rebound in exports.

But the government’s decision to roll out new restrictions from January has heightened the chance of another recession, clouding the outlook for a fragile recovery.

Takumi Tsunoda, senior economist at Shinkin Central Bank Research, expects a complete recovery from the pandemic slump to be difficult as Japan lags western economies in vaccine distribution.

“The conditions are such that Japan will not be able to avoid negative growth in the first quarter,” he said.

“There is a high possibility that there will be a repeating cycle of coronavirus infections spreading and being contained this year, which means that consumption is not likely to recover at the expected pace.”

(Reporting by Leika Kihara and Tetsushi Kajimoto; Additional reporting by Kaori Kaneko and Daniel Leussink; Editing by Chris Gallagher and Sam Holmes)

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BMO: West will be best as Canadian economy bounces back – Wealth Professional

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Ontario has suffered from high infection rates and lockdown measures. However, its economic recovery will meet the national forecast with 5.0% growth, taking the lead nationally later in the year as vaccinations take effect. Housing and consumer spending will play a key part in the provincial economy.

Quebec will also see improvement in the second half of the year as the COVID impacts ease. BMO expects growth of 4.8% for 2021.

In the Prairies, improved conditions for the energy markets will boost Saskatchewan to a 4.4% growth rate while Manitoba’s diversified economy will help it shake of tougher restrictions for 4.6% growth in real GDP.

Meanwhile, although Atlantic Canada has coped relatively well with the pandemic from a healthcare perspective, some industries such as leisure and tourism have suffered badly in the past year.

BMO notes that Atlantic Canada’s pre-pandemic population boom, a key economic booster, has stalled and there is no certainty of when that might resume.

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Bank of Canada governor indicates readiness to let economy run hot to include more people in recovery – Financial Post

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‘We can expect a long adjustment process and a protracted recovery’

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Sadie Tanner Mossell Alexander, the first African-American to earn a PhD in economics, in 1944 observed that Black workers would be the “last to be hired and the first to be fired” unless the economy was at full employment.

The economics profession is finally catching up, as policy-makers such as Bank of Canada governor Tiff Macklem and U.S. Federal Reserve chair Jerome Powell are as focused on levelling the playing field for marginalized groups as they are on traditional worries such as inflation.

Systemic racism still blocks ethnic minorities from fully participating in the economy unless white bosses are forced to choose between either confronting their prejudices or missing an order due to a lack of staff. Ancient gender roles force women to choose between careers and children. The long-term unemployed become victims of both atrophy and those managers who are conditioned to prefer poaching active workers to fill open positions, rather than taking a chance on someone who has been on the sidelines for six months.

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History and our own stupid human behaviour mean we continue to leave considerable talent on the bench — or in the stands. As a result, the economy is less productive than it could be, which makes balancing budgets, closing output gaps and hitting inflation targets that much harder.

Macklem, who took over as Bank of Canada governor in June, is making inequality the focus of policy, as Powell in the United States and Christine Lagarde at the European Central Bank have also done. On Feb. 23, Macklem made it clear that he intends to let the economy run hotter for longer than most mainstream economists would have thought safe only a few years ago, reinforcing both the likelihood that interest rates will remain extremely low for at least another couple of years and that more people will potentially get to participate in the recovery.

The reason: to test the bounds of full employment in order to crowd more people into the workforce.

Macklem noted that the unemployment rate had been unusually low for an extended period of time before the pandemic, and yet inflation never took off. It could have been a fluke. But in case it wasn’t, Macklem indicated that he and his deputies on the Governing Council agreed to probe the limits of their previous understanding of the relationship between employment and inflation. The pre-pandemic experience suggests the central bank needn’t fear inflation quite as much as it has in the past, which would allow policy-makers a freer hand to stoke economic growth.

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“Based on past economic cycles, we would have expected inflationary pressure to begin to rise,” the governor said in a virtual speech hosted by the Calgary and Edmonton chambers of commerce. “But inflation wasn’t threatening to take off. As the pandemic recedes and the recovery continues, we will keep that experience in mind.”

The unemployment rate dropped below six per cent at the end of 2017 and averaged 5.8 per cent until the governments shut down most of the economy in March 2020 to fight COVID-19.

That level is essentially full employment, according to the Bank of Canada’s understanding of how the economy works. That is, when the jobless rate drops that low, economists at the central bank have long assumed that everyone who wants a job would have one and, therefore, growth would be such that inflationary pressures start to build.

But inflation never became a major concern during that entire period. The Consumer Price Index (CPI) averaged annual growth rates of about two per cent, which is what the Bank of Canada is obligated to achieve. The relationship between the unemployment rate and prices appears to have changed, so why not try for fuller employment?

“There’s a shared responsibility and monetary policy has a role to play,” Macklem said on a call with reporters after his remarks. “If we can all play that part, we can get Canadians back to work, we can grow the labour force and we can achieve a complete, shared recovery. If we don’t do that, it’s going to be an even more protracted recovery. It won’t be as shared, and there will be less potential to grow going forward.”

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The Bank of Canada is benefiting from a path cleared by the Fed. The American central bank cut interest rates three times in 2019, even as the economy continued to grow. Powell was accused of courting trouble, and he may yet have to contend with a collapse of the stock-market bubble. But the jobless rate had dropped to 3.5 per cent by the eve of the pandemic, the lowest since the late 1960s. Millions of Blacks and other marginalized workers found jobs, and inflation remained dormant.

Inequality isn’t as acute in Canada as it is in the U.S., but it’s still an issue. “Some measures suggest that Canada is among the top jurisdictions for inclusion and equity in the distribution of education and skills attainment,” a new report by the Brookfield Institute for Innovation and Entrepreneurship said, “but troubling inequities persist, and many face barriers to the use of their skills in the labour market, leading to stubbornly high levels of income and wealth inequality.”

Women in Canada are 17.5 percentage points more likely to have a post-secondary credential than men, and yet the gender-pay gap has barely changed in decades, according to Brookfield’s study. Some 71 per cent of non-Indigenous Canadians aged 25 to 34 have earned a certificate or a degree beyond high school, compared with 29 per cent for Blacks and 40 per cent for First Nations.

Macklem’s latest remarks suggest policy-makers are prepared to take these sorts of divisions at least as seriously as inflation. The jobless rate was 9.4 per cent in January, a long way from full employment, no matter how you measure it. “The economy will need support for quite some time, and the bank will continue to do its part,” he said.

• Email: kcarmichael@postmedia.com | Twitter:

In-depth reporting on the innovation economy from The Logic, brought to you in partnership with the Financial Post.

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Coronavirus: Public need 'home truths' on economy – Hammond – BBC News

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Former Chancellor Lord Hammond has said the government must risk unpopularity and tell “some difficult home truths” about the state of the economy.

He told the BBC that dealing with the pandemic had been the financial equivalent of “fighting a war”.

But giving money away was easier than collecting it for “a populist government”, he added.

A Treasury spokesman said Chancellor Rishi Sunak “will be honest with the British people” about what is needed.

Next week’s Budget comes amid rising unemployment and follows the biggest UK annual economic shrinkage on record.

In an interview with BBC political editor Laura Kuenssberg, Lord Hammond – who resigned as chancellor when Boris Johnson became prime minister in 2019 – said the economy had taken a “huge hit” from Covid-19, but should “bounce back”.

There had been “long-term scarring”, with sectors like aviation and hospitality suffering “permanent damage”, and transport and retail “changed forever”, he added.

Official figures show the UK economy contracted by 9.9% in 2020 – more than twice as much as in any previous year on record.

On Tuesday, it was revealed unemployment had risen to 5.1% in the three months to December – the worst rate since 2015.

And the national debt – worsened by furlough, other pandemic help schemes and falling tax takes – stands at more than £2 trillion.

Lord Hammond said it was unlikely in the “foreseeable future” that ministers would be able to “do anything that will actually see the debt starting to fall”.

“But what matters is not the absolute size of the debt, but the size of the debt relative to our economy,” he said.

“If we can grow the British economy over the coming years, then just as we did after the Second World War, we can make the debt fade in significance, because, although it stays the same in absolute terms, it becomes a much smaller percentage of our national economy.”

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Analysis box by Laura Kuenssberg, political editor

Philip Hammond has never been Boris Johnson’s number one fan, to put it mildly.

They clashed on Brexit, with the former chancellor being booted out of Parliamentary Conservative Party during the wild political autumn of 2019.

But even though he is back in the party fold, and with the ermine of a Tory member of the House of Lords no less, the former occupant of No 11 isn’t mincing his words.

While he sticks to the broad consensus backing the government’s massive emergency economic support during the pandemic, Lord Hammond looks very pointedly to the challenges that will come next, questioning whether Downing Street will have the right priorities.

His not very subtle implication: Downing Street would rather be popular than do the right thing.

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Lord Hammond said the challenge facing the government was “how to move out of this crisis period”.

He praised Mr Sunak for getting the economic response right so far and said he was “very confident” his instincts were “the right ones”.

But he said his fear was “that as a populist government, giving money away is always easier than collecting it in”, and warned that ministers had “made very extravagant commitments to the British electorate in good faith before the coronavirus crisis”.

“Not all of those commitments can now sensibly be delivered on and that’s going to be a big challenge for a government that regards its short-term popularity as very, very important,” Lord Hammond added.

He said he was “not sure” the current “top leadership” had the “appetite for being unpopular, in order to do the right thing”.

The prime minister has said the chancellor will set out the government’s plans to “build back better” in next Wednesday’s Budget.

Mr Sunak has promised to lay out the “support we’ll provide through the remainder of the pandemic and our recovery”, adding: “I know how incredibly tough the past year has been for everyone, and every job lost is a personal tragedy.”

Responding to Lord Hammond’s comments, a Treasury spokesman said: “The chancellor has always put protecting jobs and livelihoods at the heart of everything he has done and that will not change.”This Budget will give people the reassurance they need in the immediate term, and he will be honest with the British people about how we are going to recover beyond this crisis.”

Labour leader Sir Keir Starmer said it was “not the time” for tax increases for individuals or businesses, given the ongoing impact of the pandemic.

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‘We need some help now’

James Green

James Green, who runs the Whitstable Oyster Company in Kent, says the impact of the pandemic has been “tough”.

“Obviously there’s Covid-19 at the beginning of the year, which affected us, the restaurant side of the business and the oyster sales. We were open over the summer. We were busy, like most coastal places, and then we shut again in November.”

But Mr Green adds: “For the oyster side of the business the impact of Brexit is probably had more of an effect than Covid-19, I would say.”

As a result of Britain leaving the single market, he says he has tons of oysters sitting on his farm that he cannot sell either to France or domestically.

Mr Green says the chancellor should give the shellfish industry “some help to get us through now – otherwise there won’t be one”.

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