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New virus poses threat to fragile world economy

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This should be peak season for a 12-room hotel near the train station in the New virusindustrial hub of Wuhan. The Chinese New Year usually brings in plenty of travellers and delivers profits of around $3,000 a month.

But the place is empty. Wuhan, the centre of a deadly viral outbreak, is on lockdown. “There is not a single customer,’’ said the hotel’s owner, who gave only his surname, Cui. He still has to pay rent and his utility bills. Instead of counting his earnings, he’s expecting to lose $1,500 a month.

The outbreak arrives at a bad time for Wuhan, China and the world economy.

China, with the world’s No. 2 economy, was decelerating even before the coronavirus hit.

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And the world economy is coping with an unexpectedly sharp slowdown in No. 7 India, which prompted the International Monetary Fund last week to downgrade its outlook for global growth this year.

The coronavirus is drawing comparisons to the SARS outbreak, which paralyzed the economies of China and Hong Kong for weeks in 2003. But what happens in China carries a lot more weight these days: In 2003, China accounted for 4% of global output. Now its share is 16%, according to the World Bank.

“A growth slowdown in China could have sizable ripple effects across Asia and the rest of the world, given the size of China’s economy and its role as the key driver of global growth in recent years,” said Eswar Prasad, a Cornell University economist and former head of the International Monetary Fund’s China division.

No one knows exactly how the outbreak will play out or what its economic impact will be.

Authorities are still trying to better understand the new virus. It is from the coronavirus family, which also can cause the common cold as well as more serious illnesses such as SARS.

So far, China has confirmed more than 4,500 coronavirus cases and more than 100 deaths.

The Chinese government has locked down Wuhan and 16 other cities in Hubei province, isolating more than 50 million people. The United States and other countries prepared Tuesday to airlift their citizens out of Wuhan. The outbreak has brought every day business to a standstill and closed down such popular tourist attractions as Beijing’s former imperial palace, Shanghai Disneyland, Hong Kong Disneyland and the city’s Ocean Park.

The significant decline in travel has already caused United Airlines to suspend some flights to Beijing, Hong Kong and Shanghai, the airline said in a statement.

“It’s still too soon to measure what the impact is going to be from an economic perspective,’’ said Jim Baird, chief investment officer at Plante Moran Financial Advisors.

The SARS experience offers some reason for economic optimism. That outbreak, centred in southern China, initially clobbered the Chinese economy. In the April-June quarter of 2003, China’s economic growth dropped to an annual rate of 9.1% from 11.1% the previous quarter, noted economists Tommy Wu and Priyanka Kishore of Oxford Economics. But as the health crisis subsided, growth picked back up, recovering to a 10% annual rate in the second half of the year.

“From what we know, it’s likely to be similar this time,’’ said Andy Rothman, investment strategist at Matthews Asia. “People shouldn’t get panicked that growth is going to slow sharply’’ over a sustained period.

Still, the Chinese economy isn’t the dynamo it was in the early and mid-2000s when growth routinely hit double digits.

The IMF expects China’s growth to drop from 6.1% in 2019, already the slowest since 1990, to 6% this year and 5.8% next. The slowdown reflects China’s difficult transition from fast but unsustainable growth built around often-wasteful investments to steadier but less striking growth built on consumer spending by the country’s growing middle class.

The Chinese economy has also been buffeted by a trade war with the United States. The two countries signed a truce earlier this month that was expected to provide some economic relief. Then the viral outbreak hit.

As part of the so-called Phase 1 deal, China agreed to increase purchases of U.S. products by $200 billion over this year and next. That goal sounded ambitious even before the viral outbreak isolated tens of millions of Chinese consumers and delivered a wallop to consumer and business confidence.

Rothman suspects the United States might give the Chinese a little leeway. “Both governments really want the deal to work,’’ he said. “Ïf it is clear that (Chinese purchases) are off to a slow start not because the Chinese government is not trying its best but because of the virus, the Trump administration is likely to be sympathetic.’’

There has been no immediate impact on China’s vast manufacturing industries because factories already were closed for the Lunar New Year holiday and weren’t due to reopen until this week or later.

“I think the first quarter looks like it will take quite a significant hit,” said Rajiv Biswas, chief Asia economist for IHS Markit. “This still is escalating, so it’s hard to talk about when this will be contained.”

Further delays in restarting production could send shock waves through Asian suppliers of components and exporters of iron ore, copper and other commodities as far away as Australia, Brazil and Africa.

Foreign suppliers usually see a surge in Chinese orders as factories restock after shutting down for 10 days or more during the holiday.

“The loss of economic output could be quite substantial, and that has consequences for the Asian manufacturing supply chain, because orders won’t come in the way people expect,” Biswas said.

The impact in other developing Asian countries might reduce their 2020 economic growth by 1.5 to 2 percentage points, according to a forecast by Edward Glossop of Capital Economics.

Growth in Asian emerging markets “will slow sharply in the first quarter of the year,” Glossop said in a report.

Japanese Economy Minister Yasutoshi Nishimura told reporters Tuesday that Japanese exports, production and corporate profits could be pinched by the new virus, stressing that he was closely monitoring the situation.

A more direct hit is already coming from the decline in tourist traffic from China. Nishimura said Chinese travellers usually account for about a third of tourists from abroad.

Chinese tourists to Japan tend to be relatively big spenders. The virus has hit right at the time when Chinese travel for the lunar new year.

Japan’s economy suffered from the SARS outbreak in 2003, but the damage was limited to several months. The big difference is that Japan has far more Chinese tourists these days.

Now “the impact on the Japanese economy would be far greater,” said Takahide Kiuchi, executive economist at Nomura Research Institute, while adding that much depends on how widespread the outbreak proves to be.

“There is hardly anything good that can be hoped for economically because of the new virus,” he said. Increased sales of masks and other protective gear, he noted, will hardly pick up the slack.

___

Wiseman reported from Washington, McDonald from Beijing and Kageyama from Tokyo. AP researcher Yu Bing in Beijing and AP Airlines Writer David Koenig in Dallas contributed to this report.

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Securing good jobs, clean air, and a strong economy – Prime Minister of Canada

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Autoworkers have been a keystone of the Canadian economy for generations. By investing in the future of the auto industry, we are not only securing good middle-class jobs, we are fighting climate change, and building an economy that works for generations to come. 

Since January alone, Canada has secured several historic manufacturing deals for electric vehicles (EVs), hybrids, and batteries – deals that will create and secure thousands of good, middle-class jobs and provide the world with clean vehicles. Today, we are seeing the results of one of those deals start to roll off the line.

The Prime Minister, Justin Trudeau, was joined today by Premier of Ontario, Doug Ford, to open Canada’s first full-scale EV manufacturing plant, General Motors of Canada Company’s (GM) CAMI assembly plant in Ingersoll, Ontario. Starting today and going forward, the plant will build fully electric delivery vans – the BrightDrop Zevo 600 – which will help cut pollution and keep our communities healthy for our children and grandchildren.

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Thanks in part to a $259 million investment from the Government of Canada, GM’s CAMI assembly plant was able to retool its operations to build these electric vans. By 2025, the plant plans to manufacture 50,000 EVs per year. This investment has helped secure thousands of well-paying, high-quality jobs across GM facilities, and is helping advance the electrification of Canada’s automotive sector.

The Government of Canada will continue to work to attract investment from companies around the world as we build our EV supply chain – from mining critical minerals to manufacturing batteries, and vehicles. By taking action today, we are positioning Canada as a global leader in EVs, fighting climate change, securing good jobs, and building an economy that works for all Canadians – now and into the future.

Quotes

“When we invested in GM’s project to build Canada’s first full-scale electric vehicle manufacturing plant in Ingersoll, we knew it would deliver results. Today, as the first BrightDrop van rolls off the line, that’s exactly what we’re seeing. This plant has secured good jobs for workers, it is positioning Canada as a leader on EVs, and will help cut pollution. Good jobs, clean air, and a strong economy – together, that’s the future we can build.”

The Rt. Hon. Justin Trudeau, Prime Minister of Canada

“Today is proof that our historic investments in EV manufacturing are paying off. With the first BrightDrop vans coming off the assembly line, we’re seeing the skill of Canadian workers making a huge difference as the world moves to EVs. Our government, in partnership with GM, is cementing Canada’s leadership in the EV supply chain.”

The Hon. François-Philippe Champagne, Minister of Innovation, Science and Industry

“This milestone represents GM at our best – fast, flexible and first in the industry. The BrightDrop Zevo is a prime example of GM’s flexible Ultium EV architecture, which is allowing us to quickly launch a full range of electric vehicles for our customers. And, as of today, I am proud to call the CAMI EV Assembly team the first full-scale all-electric manufacturing team in Canada.”

Mark Reuss, President, General Motors

“This is a very exciting moment – a revolution in the way we transport people and goods. Today marks a huge day for BrightDrop, as we expand our footprint and begin producing the Zevo electric vans at scale, and a huge milestone for Canada on the road to a brighter future. Opening the CAMI plant is a major step in providing EVs at scale and delivering real results to the world’s biggest brands, like DHL Express, who will be our first Canadian customer.”

Travis Katz, President and CEO, BrightDrop

Quick Facts

  • The Government of Canada’s $259 million investment supports GM’s more than $2 billion project to reignite production at its Oshawa assembly plant, after operations stopped in 2019, and transform its CAMI assembly plant in Ingersoll.
  • The investment is being made through both the Strategic Innovation Fund and its Net Zero Accelerator Initiative.
  • The Government of Ontario made a matching contribution of up to $259 million toward the project.
  • Founded in 1918, General Motors of Canada Company (GM) is one of the largest automotive manufacturers worldwide. It is headquartered in Oshawa, Ontario, and is one of Canada’s largest automotive manufacturers.
  • GM is planning to introduce 30 new electric vehicles by 2025, eliminate tailpipe emissions from new light-duty vehicles by 2035, and become carbon neutral in its global products and operations by 2040.
  • The automotive sector contributes $16 billion to Canada’s gross domestic product and is one of the country’s largest export industries.
  • The automotive sector supports the employment of nearly 500,000 Canadians.
  • The 2030 Emissions Reductions Plan, released in March, puts Canada on track to achieving our goal of cutting emissions by 40 to 45 per cent below 2005 levels by 2030 while continuing to build a strong economy.
  • To make zero-emission vehicles more affordable and accessible, the Government of Canada offers incentives of up to $5,000 off the purchase or lease of a light-duty zero-emission vehicle through the Incentives for Zero-Emission Vehicles (iZEV) Program. Since May 2019, close to 176,000 Canadians have taken advantage of this program.
  • Since 2015, the Government of Canada has invested $400 million in building approximately 35,000 zero-emission vehicle charging stations across the country.

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UK's Economy To Dip Into Recession This Winter – OilPrice.com

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UK’s Economy To Dip Into Recession This Winter | OilPrice.com

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The UK’s recession will officially begin this winter and is likely to last for most of next year, a closely watched survey out today suggests.

S&P Global and the Chartered Institute of Procurement and Supply’s (CIPS) final purchasing managers’ index (PMI) measuring private sector activity in November was unchanged at 48.2, the lowest number since January 2021 when the UK was in the constrained by tough pandemic lockdowns.

The reading was below analysts’ expectations but held steady from an earlier estimate. The services PMI was unchanged at 48.8. Services firms generate about two thirds of UK GDP.

The figure prompted experts to predict the forewarned recession will start during the final weeks of this year. 

A recession is typically defined as two consecutive quarters of contraction. The UK economy shrank 0.2 percent over the summer.

PMI has slid this year

Source: S&P Global

Britain’s PMI has now been below the 50 point threshold that separates growth and contraction for four months now, indicating consumers and businesses started cutting spending during the summer when the cost of living crisis gathered pace.

Chris Williamson, chief business economist at S&P Global Market Intelligence, said Britain is now in the teeth of the worst economic slowdown outside the Covid-19 pandemic since the financial crisis in 2008.

The economy is being spiked by the worst inflation crunch in 41 years, with prices rising 11.1 percent over the year to October.

Pay is failing to keep pace with inflation, putting households on track for the biggest living standards shock on record. The Office for Budget Responsibility reckons real incomes will fall 7.1 percent over the next two years.

That living standards squeeze is expected to drive a spending slowdown, keeping the UK in recession for at least a year. However, experts think the amount of GDP lost during the slump will be small compared to past recessions.

Businesses are being squeezed by soaring energy costs, forcing them to scale back unprofitable activity.

Gabriella Dickens, senior UK economist at consultancy Pantheon Macroeconomics, thinks businesses will have to shed workers to offset weaker spending.

“Firms will move decisively to reduce employment next year, as they are forced to consolidate costs in the face of higher financing costs and weaker demand,” she said.

The pound slumped 0.34 percent against the US dollar on the news. The FTSE 100 climbed 0.24 percent.

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B.C.’s economy forecast to remain steady, despite slower near-term economic growth | BC Gov News – BC Gov News

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Like other jurisdictions, B.C. is expected to see slower economic growth through 2023 because of global inflation and higher interest rates, before steady growth resumes in the medium term, according to projections from private-sector forecasters.

Each year, B.C.’s finance minister meets with the Economic Forecast Council (EFC), a 13-member council of private-sector forecasters from throughout Canada, in preparation for the next year’s budget. This is the second year that an additional set of discussions was added, providing an opportunity to consult with an Environmental, Social and Governance (ESG) Advisory Council to explore how the provincial government can continue to build a more inclusive, sustainable economy and support well-being in British Columbia.

The EFC anticipates the province’s economy will grow by 2.9% in 2022 and 0.4% in 2023; slower than their January 2022 forecasts of 4.2% and 2.7%, respectively. The updated figures are similar to what was presented in the Province’s Second Quarterly Report. Real gross domestic product (GDP) growth is then expected to pick up, with an increase of 1.6% in 2024, followed by gains of 2.3%, 2.3% and 2.1% in 2025, 2026 and 2027, respectively. The reduction in the near-term outlook is consistent with other jurisdictions and reflects persistent global inflation and interest rates rising higher and more rapidly than expected throughout Canada.

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“We’re entering this period of slower growth and challenging global economic times in a strong position to continue supporting people, because B.C.’s economy grew more than most last year,” said Selina Robinson, Minister of Finance. “We’ll use the resources we have to address the issues that matter most to people, including housing, health care and building a sustainable economy that works for everyone – but no matter what is on the horizon and no matter what the numbers show, this government will continue to be here to support people.”

Discussions with the EFC and the ESG Advisory Council focused on current events, issues affecting B.C.’s economy and the environmental, social and governance opportunities and challenges facing the province. Topics at the meetings included:

  • global inflation and monetary policy impacts;
  • government policies to stimulate investment and ensure shared prosperity;
  • socioeconomic factors in B.C., such as inequality, Indigenous partnerships, and well-being;
  • environment, climate change and the transition to a lower carbon economy;
  • housing affordability and supply;
  • labour market dynamics and immigration; and
  • opportunities for businesses to build on B.C.’s strong ESG profile.

“We are committed to building an inclusive economy, where environmental and social sustainability is the basis for future growth,” said Robinson. “A strong social, cultural and economic foundation is key to successful and resilient communities. We know this, and we know generations will benefit from the decisions we make right now.”

Forecasts and feedback from the two councils will be used to inform the next provincial budget, which will be released on Feb. 28, 2023. EFC members will also have an opportunity to submit revised forecasts in early January.

Quick Facts:

  • In the Province’s Second Quarterly Report, B.C. projected a revised operating surplus of $5.7 billion in the 2022-23 fiscal year.
  • Since the summer, B.C. has rolled out approximately $2 billion in affordability measures.
  • Environmental, Social and Governance are three main categories often discussed when evaluating sustainability performance, risk-mitigation planning and societal well-being.

Learn More:

To read B.C.’s Second Quarterly Report, visit: https://www2.gov.bc.ca/gov/content/governments/finances/reports/quarterly-reports

For information about new and existing support measures for B.C. residents, visit: https://strongerbc.gov.bc.ca/cost-of-living/

For more about the StrongerBC Economic Plan, visit: https://strongerbc.gov.bc.ca/plan/

To learn about the ways B.C. is committed to environmental, social and governance principles, read the ESG summary report here: https://www2.gov.bc.ca/assets/gov/british-columbians-our-governments/government-finances/debt-management/bc-esg-report.pdf

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