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Japan's economy vaults back from COVID-induced recession, but outlook murky – The Journal Pioneer

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By Leika Kihara and Tetsushi Kajimoto

TOKYO (Reuters) – Japan’s economy grew at the fastest pace on record in the third quarter, rebounding sharply from its biggest postwar slump, as improved exports and consumption helped the country emerge from the damage caused by the coronavirus pandemic.

However, analysts painted the sharp bounceback as a one-off from the depths of recession, and cautioned that any further rebound in the economy will be moderate as a resurgence in infections at home and abroad clouds the outlook.

The world’s third-largest economy expanded an annualised 21.4% in July-September, beating a median market forecast for an 18.9% gain and marking the first increase in four quarters, government data showed on Monday.

It was the biggest increase since comparable data became available in 1980 and followed a 28.8% plunge in the second quarter, when consumption took a hit from lock-down measures to prevent the spread of the virus.

“The strong growth in July-September was likely a one-off rebound from an extraordinary contraction caused by the lock-down steps,” said Yoshiki Shinke, chief economist at Dai-ichi Life Research Institute.

“The economy may not fall off a cliff. But given uncertainty over the outlook, I would err on the side of caution in terms of the pace of any recovery,” he said.

The rebound was driven largely by a record 4.7% surge in private consumption, as households boosted spending on cars, leisure and restaurants, a government official told a briefing.

External demand also added 2.9 percentage points to gross domestic product (GDP) growth thanks to a rebound in overseas demand that pushed up exports by 7.0%, the data showed.

But capital expenditure fell 3.4%, shrinking for a second straight quarter in a worrying sign for policymakers hoping to revitalise the economy with private-sector spending.

Economy Minister Yasutoshi Nishimura said the economy still had over 30 trillion yen ($287 billion) of negative output gap, or spare capacity, part of which must be filled by a new stimulus package now in the works.

“We can’t make up for all of the output gap just with public works spending. We also need to spur private investment. But the size (of the output gap) is something we’ll look at” in compiling the new spending package, he told a news conference.

A negative output gap occurs when actual output is less than the economy’s full capacity and is see as a sign of weak demand.

Without additional stimulus, Japan may experience a fiscal cliff next year as the effect of two big packages deployed earlier this year – worth a combined $2.2 trillion – peter out.

Prime Minister Yoshihide Suga has instructed his cabinet to come up with another package, which analysts say could be sized anywhere between 10-30 trillion yen.

“Nishimura’s remark on the 30-trillion-yen output gap suggests the size of the new package would come by as much,” said Takeshi Minami, chief economist at Norinchukin Research Institute.

The Bank of Japan is also expected to extend its corporate funding programme beyond its March deadline, with a decision expected next month or January, analysts say.

Despite some signs of improvement in recent months, analysts expect the world’s third-largest economy to shrink 5.6% in the current fiscal year ending in March 2021 and say it could take years to return to pre-COVID levels.

($1 = 104.5200 yen)

(Reporting by Leika Kihara and Tetsushi Kajimoto; Additional reporting by Kaori Kaneko; Editing by Richard Pullin)

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Charting the Global Economy: Recession Recovery Is Wildly Uneven – BNN

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The world’s economic recovery is wildly uneven — and that again was on display this week.

U.S. data on the eve of the Thanksgiving holiday offered signs of both strain and strength, while Germany’s resilience was again on display in European PMI numbers — even amid new lockdown measures that have knocked the economy back.

No matter where in the world you are, the economic consequences of the pandemic are falling disproportionately on the young. Though if you could chose where to weather the crisis, a new scorecard suggests New Zealand should be high on the list.

Here are some of the charts that appeared on Bloomberg this week on the latest developments in the global economy:

U.S.

U.S. business activity is powering ahead and housing market remains red hot. The annualized rate of new-home sales has averaged 1 million from August through October, the strongest demand since 2006, and a increase in builder backlogs suggest residential construction will remain robust through at least the end of the year.

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Still, some of the ground looks shaky. Americans’ income declined more than forecast in October, the number of people applying for state unemployment benefits unexpectedly increased in consecutive weeks for the first time since July, and consumer sentiment dipped to a three-month low.

Europe

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European economies are contracting again as the latest coronavirus restrictions take a massive toll on services. The Purchasing Managers Index for the euro area slipped back into contraction in November, as did the U.K. Germany, however, is coping with the latest restrictions relatively well.

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U.K. Chancellor of the Exchequer Rishi Sunak sought to balance more jobs support with controversial spending cuts this week to get control of the government’s pandemic debts. According to Bloomberg Economics, the U.K. will struggle to avoid economic scarring, though the hit will probably be smaller than from previous recessions. That’s in part because of the scale of the policy response.

Asia

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Australian Prime Minister Scott Morrison is trying to break a standoff with China that has stalled delivery of more than US$500 million worth of coal from the world’s biggest exporter as tensions between the two trading partners mount.

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China’s economic recovery stabilized in November, underpinned by solid global demand for exports ahead of the Christmas period and the stock market’s gain to its highest since 2015.

Emerging Markets

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Consumer prices in Latin America’s two largest economies diverged in early November, complicating Brazil’s plans to hold its benchmark interest rate at a record low while suddenly giving Mexico space to cut.

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Bloomberg Economics doesn’t expect Nigeria’s recovery to gain momentum until next year, when the deep oil production cuts agreed in 2020 are eased and the emergence of a vaccine lifts global demand.

World

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In 2019, the U.S.-China trade war blew a hole in global growth, in 2020, the pandemic caused a historic crash, but 2021 could be the year when U.S.-China ties stabilize and a vaccine draws a long-awaited line under the Covid crisis, according to Bloomberg Economics.

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While the people at greatest risk of suffering severe cases of Covid-19 are of retirement age, the economic fallout has been greatest on the young. A look at unemployment rates across Group of Seven economies shows how severely the crisis has hurt 15-24 year olds.

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Bloomberg crunched the numbers to determine the best places to be in the coronavirus era. New Zealand had the highest score. Japan, at No. 2, was the only G-7 country to make the top 10.

–With assistance from Dan Hanson (Economist), Tom Orlik (Economist), Björn van Roye (Economist), Catherine Bosley, Sophie Caronello, Rachel Chang, Eileen Gbagbo, Max de Haldevang, Mario Sergio Lima, Alex Morales, Jason Scott and Kevin Varley.

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Province reports lower deficit, touts recovering economy in mid-year report – CBC.ca

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The provincial government released its mid-year report today and projected a deficit almost $400 million lower than expected. 

Earlier this year, the provincial government forecasted a $2.4 billion deficit but today’s report showed that to be sitting around $2 billion, an improvement of $381.5 million from this year’s budget.

Revenue projections also saw an increase, to the tune of $503.5 million, or 3.7 per cent from the provincial budget announcement.

“The increase from budget is due to higher federal transfers, higher government business enterprise net income and higher non-renewable resource revenue,” a statement from the Ministry of Finance said. 

Tax revenues were projected to decrease by $41.2 million as a reduction in the small business tax rate was factored in. Other tax and own-source revenue forecasts were unchanged from the budget.

Expenses were forecasted to be $16.2 billion, an increase of $122 million, or 0.8 per cent. The increase covered money for the health, education, municipal and tourism sectors and was partly offset by lower-than-budgeted pension expenses and crop insurance claims expenses.

The mid-year forecast included the impacts of the government’s election commitments, totalling $91.7 million.

Finance Minister Donna Harpauer said $260 million was set aside as contingency, which she said is a substantial cushion that’s built in for the remaining six months of the year. She said data from the first six months of the year will help guide the province through the remainder of the year. 

She noted that the contingencies are set aside to protect the healthcare system and said the province will do “whatever it takes” to ensure the system is supported through the COVID-19 pandemic. 

“There is no way to say what the magic number will be … compensation salaries is going to be a big part of that, and that is something that we couldn’t pre-pay,” Harpauer said on Friday. 

“At 160 million, that will deal with quite a bit of that pressure for the next few months.” 

In reflecting on the numbers, Harpauer said she was pleased to see the provincial economic indicators were stronger than what was initially anticipated. 

She said she’s concerned because the province is reliant on two items in particular: consumer confidence and trade. Consumer confidence is affected by COVID-19 numbers, she said, and because the province is trade-dependant, Saskatchewan is heavily affected by what happens in other jurisdictions in Canada and around the world. 

“I will always have a nervousness for those two factors because they will affect this budget in a big way,” Harpauer said. 

Drop in public and net debt

The ministry said public and net debt are both down compared to the budget’s forecasts.

Estimates showed Saskatchewan’s net debt-to-GDP ratio, as of March 31, 2021, would be at 19.6 per cent, one of the lowest in the country, and the ministry touted Saskatchewan’s credit rating as the second-highest in Canada.

“Saskatchewan’s economy has performed better than originally anticipated in the June 2020 budget,” Harpauer said in the provncial release.  

“Real GDP is forecast to decline 5.0 per cent, compared to a decline of 6.3 per cent forecast at budget. Saskatchewan’s unemployment rate was the lowest in Canada in October and total employment, on an unadjusted basis, is nearing pre-pandemic levels.  As a result, our planned path to balance in 2024-25 is unchanged.”

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Bank of Canada says vaccine could cause economy to rebound faster than expected – TheChronicleHerald.ca

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By Julie Gordon and David Ljunggren

OTTAWA (Reuters) – Canada’s economy could rebound faster than expected if consumer spending jumps in the wake of a successful coronavirus vaccination effort, Bank of Canada Governor Tiff Macklem said on Thursday.

On the other hand, if the economy weakens amid a second wave of infections, Macklem indicated the central bank could if necessary cut already record low interest rates.

In late October, the bank said it assumed a vaccine would not be widely available until mid-2022. Since then, several manufacturers have announced potential vaccines that could be distributed starting early next year.

“It is possible, especially when there is a vaccine, that households will decide to spend more than we have forecast and if that happens the economy will rebound more quickly,” Macklem said in response to questions from the House of Commons finance committee. He described the news about vaccines as promising.

In late October, the bank forecast the economy would not fully recover until some time in 2023, a forecast Macklem repeated in his opening remarks.

The path to recovery still faced risks, he said. Earlier this year the bank slashed its key interest rate to 0.25%.

“We could potentially lower the effective lower bound, even without going negative. It’s at 25 basis points, it could be a little bit lower,” Macklem said, repeating that negative interest rates would not be helpful.

The U.S. Federal Reserve has a target for its key rate of 0 to 0.25%. The Reserve Bank of Australia this month cut its policy rate to 0.1%.

Some other central banks also have benchmark rate that are less than 0.25%, such as the European Central Bank and the Bank of England.

“We want to be very clear – Canadians can be confident that borrowing costs are going to remain very low for a long time,” Macklem said.

(With additional reporting by Fergal Smith in Toronto; Editing by Rosalba O’Brien, Tom Brown and Aurora Ellis)

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