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OECD sees global economy led by Chinese recovery

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An employee works on an automobile assembly line at a factory owned by Daimler in Kawasaki, Japan, on May 18, 2020.

Issei Kato/Reuters

The outlook for the global economy is improving despite a second wave of coronavirus outbreaks in many countries as vaccines emerge and a Chinese-led recovery takes hold, the OECD said on Tuesday.

The global economy will grow 4.2 per cent next year and ease to 3.7 per cent in 2022, after shrinking 4.2 per cent this year, the Organisation for Economic Cooperation and Development said in its latest Economic Outlook.

After a second wave of infections hit Europe and the United States, the Paris-based policy forum trimmed its forecasts from September, when it expected a global contraction of 4.5 per cent before a 5 per cent recovery in 2021. It did not have a 2022 forecast at the time.

“We’re not out of the woods. We’re still in the midst of a pandemic crisis, which means that policy still has a lot to do,” said OECD chief economist Laurence Boone.

Overall global gross domestic product will return to pre-crisis levels by the end of 2021, led by a strong recovery in China, the OECD said.

But that masked wide variations among countries, with output in many economies expected to remain about 5 per cent below pre-crisis levels in 2022.

China will be the only country covered by the OECD to see any growth at all this year, at 1.8 per cent, unchanged from the last forecast in September. It will gain speed to 8 per cent in 2021 – also unchanged – before easing to 4.9 per cent in 2022.

The United States and Europe are expected to contribute less to the recovery than their weight in the global economy.

After contracting 3.7 per cent this year, the U.S. economy will grow 3.2 per cent in 2021 and 3.5 per cent in 2022, assuming a new fiscal stimulus is agreed. In September, the OECD had forecast a contraction of 3.8 per cent this year and a rebound of 4 per cent next year.

The euro area economy will contract 7.5 per cent this year, with many economies finishing the year in a double-dip recession after re-imposing lockdowns. Its economy will see growth return in 2021 at 3.6 per cent and 3.3 per cent in 2022.

Though hard hit, the forecasts were an improvement from September, which had foreseen a contraction of 7.9 per cent this year and a 5.1 per cent rebound in 2021.

Finance Minister Chrystia Freeland says the Liberals plan a stimulus program of up to $100-billion once the COVID-19 pandemic is on the run, but until then attacking the virus and helping those who need support is their top priority. The Canadian Press

 

 

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Hong Kong plans lower budget deficit as economy expected to recover – The Guardian

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By Twinnie Siu and Clare Jim

HONG KONG (Reuters) – Hong Kong plans to run a much lower budget deficit in the coming fiscal year as the economy is expected to recover from its longest recession on record, Finance Secretary Paul Chan said on Wednesday.

The Chinese-ruled city’s recovery hopes are now pinned on coronavirus vaccines. Often-violent protests and U.S.-China trade tensions in 2019 had plunged the global financial hub into recession even before the pandemic hit.

Chan told legislators he expected the budget deficit for the upcoming year to hit HK$101.6 billion ($13.10 billion), smaller than the record HK$257.6 billion expected for 2020/21.

The deficits followed a 15-year period of accumulating surpluses.

Kevin Lai, chief economist for Asia ex-Japan at Daiwa Capital Markets, said the budget signalled that Hong Kong was trying to revert to living within its means.

“The overall budget appears generous, but it is tightening in fact,” Lai said. “Overall spending is actually a reduction as compared to last year.”

Pandemic relief measures, including cash handouts to residents and tax breaks and other benefits to businesses, left the city with a much deeper deficit last year than the planned HK$139.1 billion.

“With the epidemic still lingering, our economy is yet to come out of recession,” Chan said in his budget speech. “This year’s budget focuses on stabilising the economy and relieving people’s burden.”

To support a recovery in consumer and business activity, spending in the coming year includes HK$5,000 vouchers to residents, cuts in the profits and salaries tax, and a waiver on business registration fees. The tourism and technology sectors will also receive some support.

On the revenue side, the government will increase the stamp duty for stock trading to 0.13% from 0.1% — a surprise move which has sent the shares of the operator of the Hong Kong Stock Exchange tumbling.

Hong Kong usually runs balanced budgets or surpluses, since its pegged currency system commits it to fiscal prudence. Its fiscal reserves are expected at HK$902.7 billion at the end of March 2021 and fall to HK$775.8 billion by end-March 2026.

The city’s economy was expected to expand by 3.5% to 5.5% this year and run at an average growth rate of 3.3% annually from 2022 to 2025.

Gross domestic product (GDP) shrank 6.1% in 2020, its worst annual performance on record since 1962.

U.S.-China tensions and uncertainty related to how a game-changing national security law introduced last year could affect non-Chinese investment appetite in the global financial hub remain significant risks for the recovery, analysts say.

Hong Kong has allocated HK$8 billion for “safeguarding national security”, more than 10 times as much as the money earmarked for boosting the barely-breathing tourism sector and almost two times the amount to be injected in the Innovation and Technology Fund in the coming year.

There is no breakdown on where the national security money goes or timeframe for spending it.

The city begins its vaccine rollout this week, having secured a total of 22.5 million doses of COVID-19 vaccines from Pfizer, Sinovac and AstraZeneca, lagging other developed cities.

(Additional reporting by Donny Kwok, Jessie Pang, Sharon Tam and Anne Marie Roantree; Writing by Marius Zaharia; Editing by Kim Coghill)

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India's economy likely returned to growth last quarter: Reuters poll – The Journal Pioneer

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By Shaloo Shrivastava

BENGALURU (Reuters) – India’s economy is likely to have returned to growth in the December quarter due to the easing of restrictions on movement after the first wave of the coronavirus epidemic peaked, a Reuters poll predicted.

The median forecast from a survey of 58 economists, conducted between Feb. 18-24, put year-on-year growth at 0.5% in the December quarter, as the economy stabilised after contracting 23.9% and 7.5% in April-June and July-Sept quarters respectively.

“We forecast a mild expansion in the December quarter owing to strong resumption in economic activity, festival led consumer spending and modest recovery in manufacturing,” said Rini Sen, economist at ANZ. “We believe services likely spearheaded growth.”

The previous poll, taken a month ago, had predicted a 2.0%contraction.

However, the wide range of forecasts in the latest poll – from a contraction of 4.7% to a 2.6% expansion – underscores the uncertainty.

India has reported the second highest number of coronavirus cases, lagging only behind the United States, but it is widely accepted that infections are far higher than officially recorded.

The economic recovery has been aided by the government’s spending plan and its commitment to not bring its fiscal deficit down to pre-pandemic levels for at least five years, and by the Reserve Bank of India’s pledge to keep monetary policy accommodative.

“Pent-up goods demand supported by elevated financial savings have led to a rise in manufacturing. Alongside this, a strong pick-up in government spending on social welfare schemes and capital expenditure has also helped,” noted economists at HSBC.

The central bank slashed its key repo rate by 115 basis points last year and has since held it steady at 4%.

“We expect liquidity normalisation to be calibrated and incremental during the course of the year. No change is expected in the repo rate this year,” said Radhika Rao, economist at DBS Bank in Singapore.

Minutes of the last RBI monetary policy committee meeting showed optimism for a recovery, but concerns have increased about a second wave of infections and renewed lockdowns in a few areas in the state of Maharashtra, which accounts for about 16% of India’s economic output.

(Reporting by Shaloo Shrivastava; Polling by Md. Manzer Hussain and Nagamani Lingappa; Editing by Rahul Karunakar & Simon Cameron-Moore)

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German economy to shrink some 1.5% in early 2021: DIW – TheChronicleHerald.ca

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BERLIN (Reuters) – Germany’s economy could shrink by around 1.5% in the beginning of the year, the DIW research institute said on Wednesday, as lockdown measures to restrict coronavirus infections take a toll on Europe’s biggest economy.

DIW said a surge in coronavirus cases was constraining economic growth but that the pandemic’s impact was less severe than in last spring when production facilities came to a standstill.

“Above all, industry has come through the winter robustly so far,” said DIW forecaster Claus Michelsen.

Strong exports and solid construction activity helped the German economy to grow by a better-than-expected 0.3% in the final quarter of last year, but stricter lockdown measures at home and abroad are clouding the outlook for Europe’s largest economy.

(Reporting by Riham Alkousaa, editing by Thomas Escritt)

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