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Opinion: Good times ahead for German post-virus economy – DW (English)

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The end of the coronavirus crisis is in sight, although patience and discipline are required to get there. DW’s Henrik Böhme is confident that the German economy will shift up a gear or two come 2021.

Many have said it before, but it’s never been as true as it is now: It has to get worse before it gets better. This long, dark winter will be quite a challenge for us pandemic-hit Germans.

We have to refrain from a lot of things; we need to be patient and considerate of others, and at the same time we’re called upon to stay confident. There are reasons, though, why we should raise our heads and look to the future without fear. But first, let’s take a brief look back.

During the first lockdown in spring of this year whole factories were shut down, meaning the production of machines and cars ground to a halt. Big and small stores were shuttered. There was no lack of gloomy forecasts, with some prophets predicting a 20% drop in GDP for the year.

At the end of the day, we’ll most likely log a 5% contraction for 2020 as a result of the COVID-induced standstill. That’s a lot, but we’ll manage. In summer, the German economy showed everyone what it is capable of: It finished the third quarter with a growth rate exceeding 8%. That was a truly unparalleled surge.

DW's Henrik Böhme

DW’s Henrik Böhme

Who’s going to foot the bill?

In a likewise historic development, the government has been spending unprecedented sums of aid money, with billions of euros coming from the otherwise thrifty Finance Minister Olaf Scholz.

True, the aid has not yet reached all of those who need it most, notably small entrepreneurs and self-employed people, and that’s because the software to handle their applications is not yet working as it should.

By and large, though, you can’t say the government hasn’t tried to provide quick help. Now we’re faced with €180 billion ($219 billion) in fresh borrowing to make the federal budget work next year. Looking at this figure can make you feel dizzy. And who’s going to pay for all this?

However, that’s a question you’re inclined to ask on various occasions these days. Just think of the €1.8 trillion European Central Bank’s emergency bond-buying program. Add to this the €1.8 trillion financial aid package that the European Union approved earlier this month following tough negotiations.

Soon shopping streets in Germany will fill up again like here Brunswick, Lower Saxony

Shopping streets in Germany will once again fill up like here in 2017

As early as this summer, aid packages globally amounted to at least $15 trillion, making global debt levels rise at lightning speed. According to the Institute of International Finance, a banking lobby association, global debt equals $275 trillion including liabilities of companies and lenders. By comparison, German economic output in 2019 amounted to $4.2 trillion.

Back to a balanced budget

Of course, we’re talking about mind-boggling figures. But was there really an alternative? Let’s not forget that during the Great Depression of the 1930s, banks and governments held back on financial aid, thus triggering catastrophic consequences.

That’s different today. During the crisis in Asia toward the end of the 1990s and in the years following the onset of the global financial crisis in 2008, comprehensive aid packages were initiated to prevent capital flows from drying up.

Naturally, the money will have to flow back into state coffers at some stage. A brief look back shows us that following the global financial crisis, the German economy expanded for almost a decade, boosting state revenues through tax income.

That increase in revenues — coupled with a policy of frugal economic management — has enabled the German finance minister to pull out the big guns in the current pandemic. It’s time to correct a misconception the author of this article himself once held as an outright opponent of a balanced budget policy. Experience tells me, though, that saving something for a rainy day while the economy is booming makes sense and is no bad recipe to brace for the future.

Will things get better next year? I believe so. The first COVID-19 vaccines have been authorized, meaning the pandemic will become less frightening in the foreseeable future. People will be able and will want to travel again and buy cars.

This year, Germans spent between €70 billion and €100 billion less than in ordinary years. That money will hopefully flow back into consumption soon and crank up the economy.

Some dents will remain

Exports are expected to pick up considerably. Should the global economy really expand by 4.2% next year as forecast by the OECD, some of that growth will no doubt be generated in the German engineering and automotive sectors and a couple of other industries.

As companies have been cutting back on investments over the past two years, there’s a lot of catching up to do. And let’s not forget that the many billions from the various government aid programs have to be spent on a number of infrastructure projects including the expansion of fiber-optic high-speed internet, the improvement of the road and rail networks, and digitization.

Sure, not everything will be rosy. Not everyone in the hospitality sector and not every small shop owner will survive the pandemic. The number of corporate insolvencies will increase sharply once special temporary regulations to head off bankruptcies expire.

Many a firm that’s currently keeping afloat solely because of government aid is bound to go under. Let’s hope that as few people as possible will lose their jobs — and find employment elsewhere quickly.

Be that as it may, 2020 was a unique year by many standards, and next year won’t be any less exciting, but hopefully one with a better ending.

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Canadian retail sales slide in April, May as COVID-19 shutdown bites

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december retail sales

Canadian retail sales plunged in April and May, as shops and other businesses were shuttered amid a third wave of COVID-19 infections, Statistics Canada data showed on Wednesday.

Retail trade fell 5.7% in April, the sharpest decline in a year, missing analyst forecasts of a 5.0% drop. In a preliminary estimate, Statscan said May retail sales likely fell by 3.2% as store closures dragged on.

“April showers brought no May flowers for Canadian retailers this year,” Royce Mendes, senior economist at CIBC Capital Markets, said in a note.

Statscan said that 5.0% of retailers were closed at some point in April. The average length of the closure was one day, it said, citing respondent feedback.

Sales decreased in nine of the 11 subsectors, while core sales, which exclude gasoline stations and motor vehicles, were down 7.6% in April.

Clothing and accessory store sales fell 28.6%, with sales at building material and garden equipment stores falling for the first time in nine months, by 10.4%.

“These results continue to suggest that the Bank of Canada is too optimistic on the growth outlook for the second quarter, even if there is a solid rebound occurring now in June,” Mendes said.

The central bank said in April that it expects Canada’s economy to grow 6.5% in 2021 and signaled interest rates could begin to rise in the second half of 2022.

The Canadian dollar held on to earlier gains after the data, trading up 0.3% at 1.2271 to the greenback, or 81.49 U.S. cents.

(Reporting by Julie Gordon in Ottawa, additional reporting by Fergal Smith in Toronto, editing by Alexander Smith)

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Canadian dollar notches a 6-day high

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Canadian dollar

The Canadian dollar strengthened for a third day against its U.S. counterpart on Wednesday, as oil prices rose and Federal Reserve Chair Jerome Powell reassured markets that the central bank is not rushing to hike rates.

Markets were rattled last week when the Fed shifted to more hawkish guidance. But Powell on Tuesday said the economic recovery required more time before any tapering of stimulus and higher borrowing costs are appropriate, helping Wall Street recoup last week’s decline.

Canada is a major producer of commodities, including oil, so its economy is highly geared to the economic cycle.

Brent crude rose above $75 a barrel, reaching its highest since late 2018, after an industry report on U.S. crude inventories reinforced views of a tightening market as travel picks up in Europe and North America.

The Canadian dollar was trading 0.3% higher at 1.2271 to the greenback, or 81.49 U.S. cents, after touching its strongest level since last Thursday at 1.2265.

The currency also gained ground on Monday and Tuesday, clawing back some of its decline from last week.

Canadian retail sales fell by 5.7% in April from March as provincial governments put in place restrictions to tackle a third wave of the COVID-19 pandemic, Statistics Canada said. A flash estimate showed sales down 3.2% in May.

Still, the Bank of Canada expects consumer spending to lead a strong rebound in the domestic economy as vaccinations climb and containment measures ease.

Canadian government bond yields were mixed across a steeper curve, with the 10-year up nearly 1 basis point at 1.416%. Last Friday, it touched a 3-1/2-month low at 1.364%.

(Reporting by Fergal Smith; editing by Jonathan Oatis)

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Economy

Toronto Stock Exchange higher at open as energy stocks gain

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Toronto Stock Exchange edged higher at open on Wednesday as heavyweight energy stocks advanced, while data showing a plunge in domestic retail sales in April and May capped the gains.

* At 9:30 a.m. ET (13:30 GMT), the Toronto Stock Exchange’s S&P/TSX composite index was up 16.77 points, or 0.08%, at 20,217.42.

(Reporting by Amal S in Bengaluru; Editing by Sriraj Kalluvila)

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