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Modi's Key Reforms Stall as Pandemic Upends India's Economy – BNN

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(Bloomberg) — India’s delay in appointing a new central bank committee to decide interest rates is just the latest of Prime Minister Narendra Modi’s key economic reforms that are failing to gain traction during the nation’s worst crisis in decades.

Three of his keystone reforms — the goods and services tax, a bankruptcy and insolvency law and the Monetary Policy Committee — have been mired in problems since the Covid-19 outbreak upended economic activity.Modi’s administration has delayed payments it promised India’s 28 states as compensation under the new consumption tax regime, increasing tension between the two tiers of government. The bankruptcy law has been suspended, frustrating the loan recovery efforts of lenders already saddled with one of the world’s worst bad-loan problem. And on top of that, the government didn’t appoint members to the central bank’s MPC in time for its scheduled policy decision last week, delaying possible stimulus that the economy desperately needs.

“In such uncertain times, the least we can do is avoid unnecessary uncertainty. The MPC episode has just added to the ongoing chaos,” said Amol Agrawal, an assistant professor in the department of economics and public policy at Ahmedabad University. “Reforms have surely been dealt a blow by the pandemic.”

K.S. Dhatwalia, a spokesman for the government, didn’t immediately respond to a call on his mobile phone for comment.

Record Slump

Modi has been hailed by investors for his business-friendly reforms, which had been under discussion for years but pushed through in the first three years when he first took office in 2014.The stall in reforms is weighing on the outlook for Asia’s third-largest economy, which has gone from one of the fastest growing in the world to among the worst hit during the pandemic. India’s gross domestic product contracted a record 23.9% in the June quarter from a year ago, and Goldman Sachs Group Inc. is predicting the economy will shrink 14.8% in the fiscal year through March 2021.

The government is still pushing through reforms in the farm sector and seeking changes to the nation’s rigid labor rules.

The GST dispute is particularly worrying. Modi’s government is short of 2.35 trillion rupees ($32 billion) of the 3 trillion rupees it owes states this year, and is encouraging them to borrow the shortfall amount until it can resume payments when tax revenue improves. With states unable to deliver key spending programs, some have threatened to take the matter to court.

On the bankruptcy law, banks were broadly against the government’s blanket suspension of it to provide relief to businesses hurt by the pandemic. The move will further delay bankruptcy settlements for banks grappling with huge bad-debt ratios.

MPC Delay

The Insolvency and Bankruptcy Code “is the most effective instrument available to banks for recovering their defaulted loans to the best extent possible,” Subhash Chandra Garg, a former top bureaucrat at the Finance Ministry in the Modi government, told businessmen recently. “Suspension of IBC should be revoked,” he said, adding that the code had created an “institutional path and a shift in the effectiveness of dispute resolution.”

The delay in appointing new MPC members at the Reserve Bank of India after their terms ended in August adds a new layer of complication for bankers. It could weigh on lending at a time when credit growth is already weak.

Finance Minister Nirmala Sitharaman said last week the delay in appointments to the MPC wasn’t by design, and the names of three new external members would be announced shortly. She is due to meet her counterparts from states Monday on the GST compensation matter.

While investors continue to be optimistic about India’s pro-market reforms, “we have seen a number of events that at least raise eyebrows in a very short period of time and could be considered bad from an institutional quality perspective, said Hugo Erken, head of international economics at Rabobank. That could show up “sooner or later in ratings, yields, risk appetite and even economic growth.”

©2020 Bloomberg L.P.

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Ottawa's economy to shrink 5.7% in 2020 before rebounding next year: Conference Board – Ottawa Business Journal

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Even the insulating effect of the federal government won’t be enough to prevent Ottawa-Gatineau’s economic output from contracting for the first time in nearly a quarter-century in 2020 as COVID-19 continues to wreak havoc with key sectors, a leading think-tank says.

The National Capital Region’s GDP is expected to shrink by nearly six per cent this year, the Conference Board of Canada predicts in its latest economic outlook released this week. To put that number in context, the city’s economy has grown by an average of 2.7 per cent annually over the last five years.

“Ottawa-Gatineau’s position as the nation’s capital and home to the federal government often insulates the city from big swings in economic growth,” said the organization, which forecast back in May that the region’s economy would contract by 2.4 per cent in 2020. “However, the city will not escape the impacts of the COVID-19 pandemic.”

It would be the first time Ottawa-Gatineau’s GDP has contracted since 1996, but the think-tank says the capital region is still in better economic shape than most other Canadian centres. 

The Conference Board forecast says Canada’s overall GDP will shrink by 6.6 per cent in 2020 as households tighten their pursestrings and many sectors struggle to recover from a devastating spring and summer. The organization paints an even grimmer long-term picture for industries such as air transportation, accommodations and food and beverage services, declaring they “might never fully return to normal.”

The organization says public administration is the only sector of the local economy that’s expected to grow in 2020. Not surprisingly, the accommodation and food services industry – which has been largely shuttered for much of the pandemic as part of public health efforts to contain the virus – is expected to take the biggest hit, with the Conference Board’s forecast calling for the sector to decline by a whopping 35.6 per cent.

Other sectors facing big declines include retail, which is expected to shrink 6.4 per cent ​– only the third time in the last two decades its output has fallen year-over-year.

Still, the think-tank says it expects both the local and national economies to bounce back in a big way in 2021, with Ottawa-Gatineau’s GDP expected to grow by 5.2 per cent and the national GDP forecast to rise by 5.6 per cent. 

The Conference Board is predicting Ottawa-Gatineau to continue on a growth path in the years ahead, albeit at a slower rate, forecasting GDP increases of 3.6 per cent in 2022 followed by consecutive 1.3 per cent bumps in 2023 and 2024.

The organization made several other economic forecasts, including:

  • Ottawa-Gatineau’s unemployment rate – which peaked at 9.5 per cent in June – will finish at 7.4 per cent for the year, compared with a mark of 4.8 per cent in 2019. Employment in accommodation services will feel the biggest impact, plummeting 34 per cent from last year;
  • Housing starts – which reached a 35-year high of 11,200 units in 2019 – will fall to 10,700 units this year before dipping below 10,000 in 2021 and the next few years ahead;
  • The region’s population will grow 1.5 per cent in 2020, its smallest annual increase in the last five years;
  • Ottawa-Gatineau’s per capita household income will rise 3.8 per cent this year, while per capita disposable income is forecast to grow 5.8 per cent.

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Why the US economy won't gain any traction until 2021 – CNN

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The economy’s travails are evident in the Back-to-Normal index (BNI) developed by Moody’s Analytics and CNN Business. The index is a compilation of a wide range of economic statistics available from the government and third-party sources. The BNI measures how the economy is performing compared to its pre-pandemic normal. Currently, the index is sitting at just over 80%. In other words, the economy is operating 20% below where it was when the pandemic hit back in March. That is a long way from normal, and only about halfway back from where the economy was at its April low.
The BNI also indicates the economic recovery has more or less stalled since the summer. The index isn’t much higher today than it was back in June when it was closer to 75%. The re-intensification of the pandemic has been a major cause of this painfully slow recovery. There is a clear relationship between the health care crisis created by the pandemic and the economic crisis: More infections result in a weaker economy.
Based on our analysis tying confirmed Covid-19 infections with unemployment rates across states and since the pandemic began, rising infections result in fewer jobs and higher unemployment one month later. This relationship is not materially different between states like New York that have aggressively shut down businesses and states like Florida that have kept businesses largely open. We also found that it isn’t true that the recession caused by the pandemic was our own doing because we shut businesses down. There would have been a recession regardless, as worried households and businesses would have pulled back on their activities whether or not businesses were shut down.
It is thus not surprising that as infections have significantly increased across Europe over the past several weeks, the European economy is faltering again. Europe had meaningfully brought down infections with its stringent lockdowns early on in the pandemic, and its economy had begun a strong comeback in the summer, but that recovery looks to be flagging with the re-intensifying pandemic. The same dynamic also appears to have begun here at home. As people start to move indoors with the colder weather, infections in recent weeks are up in much of the country. This doesn’t bode well for our economic recovery.
The impending presidential election could also weigh on our economy. The process of electing a president has historically been neither here nor there when it comes to the economy. Even the highly contentious George W. Bush vs. Al Gore election in 2000 had no meaningful impact, save perhaps for a few bad days in the stock market, which was already struggling with the dot-com stock bust. This time may be different. The nation feels like it could boil over if we have a close election and one side or the other believes that the election is being stolen.
This would be much less of a concern if the winner wins handily, making it indefensible to question the outcome. Current polling suggests this may happen. However, our election model of the state Electoral College, which takes into account a range of political factors, including previous state voting patterns and the President’s approval rating, and a range of economic factors, such as unemployment, housing and stock prices, suggests the results will be much closer. Assuming that turnout by Republicans and Democrats isn’t lopsided, then our modeling shows Biden winning the Electoral College with 279 votes. Of course, 270 votes are needed to win. If the election is this close, it seems certain to be contested, which could make the next couple of months difficult as the mess gets sorted out. There is nothing but downside to the economy in such a disquieting scenario.
But perhaps the most serious blow to the economy as this monumental year ends will be the failure of President Trump and Congress to come to terms on providing more help to those hit hardest by the pandemic. It makes economic sense for lawmakers to agree on legislation providing substantial additional fiscal support, including more aid to the unemployed, small businesses, the airlines, state and local governments and a long list of others. Without these additional funds, the already fragile recovery threatens to come undone. It also makes political sense given the approaching election and the need for lawmakers to demonstrate that they have voters’ backs. Yet a deal has not come to fruition and it appears we will have to wait until the next president and Congress take office before any real help is put in place.
Until then, much could wrong, driving the economy off the proverbial rails. It would be prudent to buckle in.

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Fed's Brainard calls for more fiscal aid for economy – TheChronicleHerald.ca

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By Dan Burns and Ann Saphir

(Reuters) – Despite a “heartening” bounceback from the initial hit to the U.S. economy delivered by the COVID-19 pandemic, the recovery is uneven and uncertain and will require continued support to ensure it becomes broadbased and sustainable, Federal Reserve Governor Lael Brainard said on Wednesday.

The economy’s overall improvement, however, masks big disparities among sectors and among Americans that could hold back the recovery.

The Fed, she told an online conference of the Society of Professional Economists, is committed to providing “sustained accommodation” to the economy for as long as needed, and won’t raise rates if inflation rises temporarily above 2%.

That could happen as early as next spring, she said, as data registers year-over-year gains from the nadir of the coronavirus crisis.

At the same time, the biggest risk to her outlook for recovery is that fiscal support from the federal government will be withdrawn too soon. It’s a view widely shared by her Fed colleagues. Talks on a new pandemic relief package are ongoing, but prospects remain dim for the Republican-controlled Senate to approve any aid before the Nov. 3 election.

“This strong support from monetary policy – if combined with additional targeted fiscal support – can turn a K-shaped recovery into a broad-based and inclusive recovery that delivers better outcomes overall,” Brainard said.

Brainard’s reference to a “K-shaped” recovery nods to an increasingly popular description of the rebound from the spring’s low point in activity, under which many households and small businesses have seen little improvement.

“Premature withdrawal of fiscal support would risk allowing recessionary dynamics to become entrenched, holding back employment and spending, increasing scarring from extended unemployment spells, leading more businesses to shutter, and ultimately harming productive capacity,” Brainard said.

Among the more troubling developments from the recession caused by the pandemic, she said, are that job losses have occurred disproportionately among minority populations and, more recently, that prime-age working women have left the labor force.

“If not soon reversed, the decline in the participation rate for prime-age women could have longer-term implications for household incomes and potential growth,” she said.

Brainard signaled that the Fed will not only keep rates at their current near-zero level for years, but will, even after liftoff, raise them only gradually to keep rates at levels designed to stimulate economic growth.

That approach, laid out in a newly adopted framework that Brainard repeatedly called “powerful” on Wednesday, ensures the Fed will not tighten policy too soon.

Brainard said it will take time to see a sustainable rise in inflation, which she expects to linger below the 2% target for the next few years.

The central bank will also “have the opportunity” in the months ahead to clarify how the Fed’s asset purchase program could best work in combination with forward guidance on rates, she said.

Asked about the risk of a potentially contested U.S. presidential election, Brainard sidestepped a direct response but said the Fed is in a “good place” to maintain financial stability through its extensive monitoring and its existing backstop facilities.

(Reporting by Ann Saphir and Dan Burns; Editing by Andrea Ricci)

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