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Likely Tokyo Emergency Adds to Fears Economy Will Shrink Again – BNN

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(Bloomberg) — Prime Minister Yoshihide Suga’s heavy hint that he will declare an emergency in the area around Tokyo later this week has deepened fears that Japan’s economy will shrink again even with the support of a recent $700 billion stimulus package.

Bloomberg Economics’ Yuki Masujima sees a Tokyo emergency declaration shaving up to 0.7% off the economy for each month it lasts.

Gross domestic product could contract by 5% on an annualized basis in the three months through March and by 10% if the declaration is made nationwide, according to Ryutaro Kono, chief Japan economist at BNP Paribas, writing in a report Monday.

The looming decision will set back Suga’s hopes of stoking growth with his recent stimulus measures and restarting travel subsidies criticized for contributing to the uptick in infections.

“Japan is off to a dire start this year,” said Atsushi Takeda, chief economist at the Itochu Research. “Tokyo and surrounding areas account for a big chunk of the whole economy and this will also cool sentiment and economic activity throughout the nation.”

The prime minister’s warning of action to limit activity mainly at restaurants and bars and a possible emergency declaration comes amid record virus cases in the capital in recent days. Eating and drinking establishments are seen as one of the key locations for the recent spread of infections.

While the action is likely to be less stringent than a nationwide emergency called in April, economists say the likelihood of the economy shrinking this quarter has clearly increased.

Tokyo and its surrounding prefectures account for about a third of Japan’s economic output and would rank as the world’s ninth largest economy based on a breakdown of the Cabinet Office’s regional data from 2017.

The capital logged another 884 cases on Monday, down from more than 1,300 on New Year’s Eve, but still at a relatively high level for Japan. Suga said he will consult with an advisory panel to finalize plans on a possible emergency declaration covering Tokyo, Kanagawa, Saitama and Chiba.

What Bloomberg Economics Says…

“Another state of emergency would put substantial pressure on the economy, which was showing a loss of momentum in 4Q 2020, and disrupt government efforts to support demand.”

— Yuki Masujima, economist

To read the full report, click here.

Analysts said any contraction would be smaller than last year’s record 29.2% annualized slide in the second quarter. That’s because the declaration won’t bring full scale business closures like it did last year, according to Masamichi Adachi, economist at UBS Securities.

“This would be different from the previous declaration,” said Adachi. “Still, the psychological impact is hard to measure. What is clear is that Japan’s recovery is now going to be even more underwhelming than other developed nations.”

©2021 Bloomberg L.P.

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Grace: Post-COVID, the economy will not recover unless we properly support women – Ottawa Citizen

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Article content continued

Compared to men, more women in Canada have stopped working during the pandemic. Not surprisingly, women with children under the age of six have been the most likely to leave paid employment, followed by women with kids aged six to 17. This isn’t just because of entrenched beliefs that women should be primary caregivers. Women in Canada still earn less than men, especially if they are mothers – they earn 29 per cent less than men if they are between the ages of 25 and 44 and have at least one child. So for many families it comes down to a calculation. Who earns more and gets to keep working? Who lets go of their career and heads back to the kitchen?

Back in the spring of 2020, experts were warning that the impact on women was going to be severe if real measures were not introduced to support their roles as employees. Last summer, women’s participation in the labour force in Canada fell to its lowest level in three decades. How much farther down are we going to go?

This downward trend is not just concerning because of the massive setback in gender equality. It represents a significant loss to the economy overall. In recent years, earnings by women between ages of 25 and 54 accounted for 47 per cent of their family’s employment income. Without women’s income, families reduce spending and the tax base drops. In short, the economy will not recover without women’s participation.

Ford’s stay-at-home strategy might be able to slow the spread of infection. But it does nothing to slow the economic fallout of this pandemic. What is needed is forward thinking and long-term planning, such as job protections for those with caregiving roles, and leave protections designed with gender and class equality in mind so that more men are encouraged to share in caregiving.

I recognize that the safest thing to do right now is to stay home and stop the spread of COVID. But eventually this pandemic will end. Measures need to be taken now to ensure that once it is safe to return to work, women are not still stuck at home.

Anita Grace is a postdoctoral researcher at the Sprott School of Business at Carleton University and a mother of two. 

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Results Of QE Benefit Stock Prices More Than Economy, Study Finds – Forbes

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Quantitative Easing (QE) has been a focus of American and British monetary policy since 2008. It largely continues to this day, with some modifications. Other central banks from Japan to Switzerland are following somewhat similar policies. However, recent research suggests that the main result of the policy is to push up stock prices without necessarily impacting the actual economy. If true, this is a problem since central bankers may have inadvertently triggered an asset price bubble without doing much to positively impact the metrics that they are typically targeting such as unemployment, growth and inflation.

The Research

In their paper titled, Did Quantitative Easing only inflate stock prices? Researchers from Henley Business School and the University of Reading explored the impacts of QE policies from central banks. They do this through building an economic model to capture the U.K. and U.S. experience with QE over recent years.

Of course, determining linkages from monetary policies is complex, but there is now at least a decade of data across countries which makes determining the effects a little easier. They find that though QE may have improved employment, it hasn’t done much else for the real economy. Also, in addition to pushing up stock prices QE may also have reduced volatility in the stock market and improved liquidity.

A Bubble?

If QE has created a stock-price bubble it’s a very long-lasting one. For example this piece from the UK’s Guardian newspaper outlines the arguments. Namely, that valuations are at excessive levels and growth is mediocre at best. However, the piece was written in 2014 and even despite extreme pandemic-related volatility in the interim, the bubble hasn’t burst yet almost 7 years later. Though equally, critics could point out that though any bubble hasn’t yet ended, nor has QE.

Nonetheless, the researchers argue that more could be done to make sure that QE targets the real economy. If the central banks are going to massively increase their balance sheets then it is perhaps more useful if the resulting spending goes into projects that help the real economy, rather than just boost stock prices. Of course, if rising stock prices had coincided with gains for the real economy, that would be more beneficial, but it is not the conclusions the researchers come to.

Economic models such as this are challenging, because correlation is not the same as causation and though we now have more of a historical perspective on the impacts of QE, the fact that QE hasn’t really ended means we perhaps still don’t know the full story. If and when QE should unwind, we may be able to better form a view as to its full impact. For now, that seems unlikely and it does appear that though the economic impact may be mixed, QE is perhaps one contributor to the strong run that we’ve seen in markets over recent years.

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Canadian dollar rises as investors weigh U.S. stimulus prospects

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Canadian dollar

TORONTO (Reuters) – The Canadian dollar edged higher against its U.S. counterpart on Monday as investors weighed the prospect of additional U.S. economic stimulus, with the currency steadying after a large decline on Friday.

The loonie was trading 0.1% higher at 1.2717 to the greenback, or 78.63 U.S. cents, having traded in a range of 1.2687 to 1.2736.

On Friday, the Canadian currency weakened 0.8%, its biggest decline in nearly three months, as new COVID-19 restrictions in China weighed on oil prices. Oil is one of Canada‘s major exports.

U.S. crude prices dipped 0.2% to $52.15 a barrel on Monday as worries about demand due to renewed lockdowns competed with support from U.S. stimulus plans.

Officials in President Joe Biden’s administration tried to head off Republican concerns that his $1.9 trillion pandemic relief proposal was too expensive on a Sunday call with Republican and Democratic lawmakers.

Biden and Canadian Prime Minister Justin Trudeau agreed to meet next month, the prime minister’s office said on Friday following a call between the two leaders in which they vowed to join forces to combat the pandemic in North America.

Canadian government bond yields were lower across a flatter curve in sympathy with U.S. Treasuries. The 10-year eased 2.1 basis points to 0.825%, extending a pullback from a 10-month high on Thursday at 0.892%.

Canada‘s GDP data for November is due on Friday, which could help guide interest rate expectations.

Last week, the Bank of Canada held its key overnight interest rate at 0.25%, saying the arrival of a COVID-19 vaccine and stronger foreign demand is brightening the outlook for the Canadian economy in the medium term.

 

(Reporting by Fergal Smith; Editing by Paul Simao)

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