They decide which stores will have to shut down, who can stay open and under what conditions, who gets wage support, who gets loans, who gets bailed out, who is left to survive on their own.
The hands of governments are everywhere in the economy during the pandemic. And it’s becoming obvious that they’re not going away — even when we start to recover.
With vaccines slowly being distributed across the country and the prospects of freedom inching closer, federal planning for the recovery has started in earnest, with an important budget on the horizon and widespread consultations in the works.
While federal involvement in the economy will look a lot different in the recovery stage than it does in the midst of the brutal second wave, it will be omnipresent all the same.
And for the most part, that seems to be just fine with many business leaders. In fact, they’re inviting it.
“It is time for government, with an industrial policy, to support the overall direction” of the Canadian private sector, says Monique Leroux, the former CEO of Desjardins Group and now chair of the Industry Strategy Council, a group of top business leaders asked by the federal government to advise it on how to handle the economic side of the pandemic.
The council has been talking throughout the pandemic to businesses large and small in all corners of the country, advising senior government officials and cabinet ministers in real time how to tweak business supports, how to help labour, and how to safely restart the economy even as the coronavirus rages.
Now, it has set out a longer-term strategy to pull Canada out of its funk and make sure the path to recovery shakes us out of the complacency of the past.
But unlike the inclination from the private sector of previous eras to shove government out of the way and let unfettered capitalism thrive, they want to see government as a full-fledged partner, putting money, policy and research into propelling key sectors in the hopes that we can take on the rest of the world.
“The concept is to bring a strong portfolio of public investments and private investment in a kind of renewed partnership between government, Canadian companies and pension funds and financial institutions in Canada to fully position our leadership in the world, (in areas) where we think Canada as a middle-sized country could make a difference,” Leroux said in an interview. “That’s the rationale.”
This doesn’t come out of the blue.
The United States and the United Kingdom are doing it, Germany and Israel are doing it, China and South Korea too. The protectionist tendencies of U.S. President Donald Trump prompted a doubling down on government involvement in economic direction in countries around the world. And then came the pandemic, showing countries in no uncertain terms that governments needed to be activist and even aggressive to ensure they have adequate medical supplies and vaccines.
But Leroux’s network told her that Ottawa’s involvement can’t just end with vaccines. Instead, it needs to become more strategic — and government insiders across the board have heard the appeal.
At first, the government’s involvement will come in the form of stimulus — up to $100 billion that Finance Minister Chrystia Freeland has already set aside to repair the damage caused by the pandemic and get people back to work. Training, infrastructure and other time-limited spending will form the bulk of the stimulus package — standard fare in the wake of recessions.
But the government has signalled on many fronts that it won’t stop there.
Freeland has indicated she will actively push Canada’s digital prowess. And the government’s new climate strategy, to cut emissions significantly by 2030, is as much an industrial strategy as it is an environmental policy, with its many incentives to push the country’s energy use away from fossil fuels and into clean technology and renewables.
Leroux’s council also wants to see federal support for leveraging data and intellectual property, ramping up the agri-food sector and promoting advanced manufacturing. We’ve heard similar recommendations from the likes of the Business Council of Canada and the economic advisory council to former finance minister Bill Morneau, led by Dominic Barton, now-ambassador to China.
There’s every indication that the government is all ears.
But what if the government chooses wrong? Fans of a modern industrial strategy say they’re not advocating for government to pick winners. Rather, they say Ottawa spends billions every year on all sorts of incentives and subsidies for businesses. Instead of spending willy-nilly, they should have a strategy that pushes companies to be more competitive in the areas we are already good at.
It’s high risk. If governments, the financial sector and companies alike make the wrong bet, we will have wasted many billions of public and private money on mediocrity rather than excellence. But if they bet right, we’ll have jobs and profits for the next generation.
It looks like it’s a bet they’re all increasingly willing to take.
Brent crude edges up as optimism over economy trumps demand concerns – TheChronicleHerald.ca
By Florence Tan
SINGAPORE (Reuters) – Brent crude futures edged up on Tuesday as optimism that government stimulus will buoy global economic growth and oil demand trumped concerns that renewed COVID-19 pandemic lockdowns globally could cool fuel consumption.
Brent crude futures for March rose 17 cents, or 0.3%, to $54.92 a barrel by 0150 GMT after slipping 35 cents in the previous session.
U.S. West Texas Intermediate crude was at $52.25 a barrel, down 11 cents, or 0.2%. There was no settlement on Monday as U.S. markets were closed for a public holiday. Front-month February WTI futures expire on Wednesday.
Investors are upbeat about demand in China, the world’s top crude oil importer, after data released on Monday showed its refinery output rose 3% to a new record in 2020. China was also the only major economy in the world to avoid a contraction last year as many nations struggled to contain the COVID-19 pandemic.
“Yesterday’s data out of China was a positive for oil prices,” Michael McCarthy, chief market strategist at CMC Markets in Sydney said.
Investors are watching out for U.S. President-elect Biden’s inauguration speech on Wednesday for details on the country’s $1.9 trillion aid package.
Oil prices have also been supported by Saudi Arabia’s additional supply cuts in the next two months which are expected to draw down global inventories by 1.1 million barrels per day in the first quarter, ANZ analysts said.
Concerns about rising COVID-19 cases globally and renewed lockdowns weighing down fuel demand kept a lid on oil prices.
ANZ analysts flagged concerns about falling fuel sales in India in January from December and rising COVID-19 cases in China and Japan that could dampen oil demand.
“In Europe and the U.S., the slow rollout of vaccines is also raising concerns that a rebound in demand will remain elusive,” the bank said.
(Reporting by Florence Tan; editing by Richard Pullin)
China economy grows in 2020 as rebound from virus gains – CTV News
China eked out 2.3% economic growth in 2020, likely becoming the only major economy to expand as shops and factories reopened relatively early from a shutdown to fight the coronavirus while the United States, Japan and Europe struggled with rising infections.
Growth in the three months ending in December rose to 6.5% over a year earlier as consumers returned to shopping malls, restaurants and cinemas, official data showed Monday. That was up from the previous quarter’s 4.9% and stronger than many forecasters expected.
In early 2020, activity contracted by 6.8% in the first quarter as the ruling Communist Party took the then-unprecedented step of shutting down most of its economy to fight the virus. The following quarter, China became the first major country to grow again with a 3.2% expansion after the party declared victory over the virus in March and allowed factories, shops and offices to reopen.
Restaurants are filling up while cinemas and retailers struggle to lure customers back. Crowds are thin at shopping malls, where guards check visitors for signs of the disease’s tell-tale fever.
Domestic tourism is reviving, though authorities have urged the public to stay home during the Lunar New Year holiday in February, normally the busiest travel season, in response to a spate of new infections in some Chinese cities.
Exports have been boosted by demand for Chinese-made masks and other medical goods.
The growing momentum “reflected improving private consumption expenditure as well as buoyant net exports,” said Rajiv Biswas of IHS Markit in a report. He said China is likely to be the only major economy to grow in 2020 while developed countries and most major emerging markets were in recession.
The economy “recovered steadily” and “living standards were ensured forcefully,” the National Bureau of Statistics said in a statement. It said the ruling party’s development goals were “accomplished better than expectation” but gave no details.
2020 was China’s weakest growth in decades and below 1990’s 3.9% following the crackdown on the Tiananmen Square pro-democracy movement, which led to China’s international isolation.
Despite growth for the year, “it is too early to conclude that this is a full recovery,” said Iris Pang of ING in a report. “External demand has not yet fully recovered. This is a big hurdle.”
Exporters and high-tech manufacturers face uncertainty about how President-elect Joseph Biden will handle conflicts with Beijing over trade, technology and security. His predecessor, Donald Trump, hurt exporters by hiking tariffs on Chinese goods and manufacturers including telecom equipment giant Huawei by imposing curbs on access to U.S. components and technology.
“We expect the newly elected U.S. government will continue most of the current policies on China, at least for the first quarter,” Pang said.
The International Monetary Fund and private sector forecasters expect economic growth to rise further this year to above 8%.
China’s quick recovery brought it closer to matching the United States in economic output.
Total activity in 2020 was 102 trillion yuan ($15.6 trillion), according to the government. That is about 75% the size of the $20.8 trillion forecast by the IMF for the U.S. economy, which is expected to shrink by 4.3% from 2019. The IMF estimates China will be about 90% of the size of the U.S. economy by 2025, though with more than four times as many people average income will be lower.
Exports rose 3.6% last year despite the tariff war with Washington. Exporters took market share from foreign competitors that still faced anti-virus restrictions.
Retail spending contracted by 3.9% over 2019 but gained 4.6% in December over a year earlier as demand revived. Consumer spending recovered to above the previous year’s levels in the quarter ending in September.
Online sales of consumer goods rose 14.8% as millions of families who were ordered to stay home shifted to buying groceries and clothing on the internet.
Factory output rose 2.8% over 2019. Activity accelerated toward the end of the year. Production rose 7.3% in December.
Despite travel controls imposed for some areas after new cases flared this month most of the country is unaffected.
Still, the government’s appeal to the public to avoid traditional Lunar New Year gatherings and travel might dent spending on tourism, gifts and restaurants.
Other activity might increase, however, if farms, factories and traders keep operating over the holiday, said Chaoping Zhu of JP Morgan Asset Management in a report.
“Unusually high growth rates in this quarter are likely to be seen,” said Zhu.
ECB's latest stimulus expected to have little impact on euro zone economy – Reuters poll – Cape Breton Post
By Richa Rebello
BENGALURU (Reuters) – The European Central Bank’s new policy package will have little effect on the euro zone’s coronavirus-ravaged economy, according to the forecasts of a Reuters poll of economists, who nearly halved their outlook for first-quarter growth.
Despite the ECB’s decision to top up its pandemic emergency purchases by half a trillion euros to 1.85 trillion euros and extend the programme for nine months, the bloc’s economic outlook remains bleak.
The Reuters poll consensus of over 80 economists forecast the euro zone economy shrank 2.5% last quarter after expanding 12.5% in the third quater and was expected to grow 0.6% this quarter, nearly half the 1.1% predicted a month ago.
It was then expected to expand 2.3%, 1.9% and 1.0% in the second, third and fourth quarters, largely unchanged from last month’s forecasts collected just before the ECB introduced more stimulus.
Over 70% of economists, or 28 of 39 who replied to an additional question, said the ECB’s latest policy moves would have little impact on the euro zone economy. The others said it would provide a significant boost.
“Interest rates are already so low and policy is ultra-loose, so for now, monetary policy cannot impact investment or consumer demand. Thus we do not think the ECB can influence the economy strongly at this time,” said Christoph Weil, senior economist at Commerzbank.
“We expect a bitter couple of months. Lockdowns will dampen the economy and we expect falling GDP in the last quarter of 2020 and in the first quarter of this year. So technically a recession”.
Graphic: Reuters Poll – Euro zone economic growth and inflation outlook: https://fingfx.thomsonreuters.com/gfx/polling/rlgvdgleepo/Euro%20zone%20economic%20outlook.PNG
Of the participants in the Jan. 11-15 survey, over 25% expected the euro zone – where growth plumbed to an historic low in the first half of 2020 – to have again entered a technical recession, defined as two consecutive quarters of contraction.
On an annualised basis, the economy was expected to have shrunk 7.3% in 2020, roughly in line with the last poll, but for this year, the median was downgraded to 4.5% from 5.0% last month. For 2022, the growth forecast was upgraded to 3.9% from 3.5%.
“The start of the year continues to bring bad news for Europe as the health situation deteriorates. With lockdowns already being extenin several countries, short-term risks to the economic outlook are clearly skewed to the downside, especially as the vaccination roll-out is still slow,” said Angel Talavera, head of Europe economics at Oxford Economics.
“The new and more transmissible variants of the virus mean a further deterioration could happen very quickly.”
Over 70% of respondents, or 30 of 42, who replied to a separate extra question said the economy would return to pre-crisis levels within two years, including six who said within a year. The others said it would be more than two years.
Graphic: Reuters Poll – Euro zone economy and the European Central Bank’s policy outlook: https://fingfx.thomsonreuters.com/gfx/polling/xegpbemwgvq/Reuters%20Poll%20-%20Euro%20zone%20and%20ECB%20policy%20outlook%20-%20January%202021.PNG
The two largest euro zone economies were expected to grow much slower in 2021 compared with expectations in October. Germany was forecast to grow 3.7%, down from 4.6%, and the outlook for France was downgraded to 5.9% from 6.9%.
Euro zone inflation, which remained in negative territory for five straight months last year, was expected to remain below the ECB’s target of just under 2%, averaging 0.9% in 2021 and 1.3% in 2022.
A slim majority, over 52% of economists, or 21 of 40 who answered a separate question, said a significant pick-up in inflation was likely. Seventeen said it would remain around the same as 2020 and two said deflation was more likely.
“If history is any guide, any too-high expectations of inflation can be shattered. But we have very supportive fiscal policy and a number of structural factors that could support higher inflation a little further down the road,” said Florian Hense, senior Europe economist at Berenberg.
(For other stories from the Reuters global economic poll:)
(Reporting by Richa Rebello; Polling by Sujith Pai and Swathi Nair; editing by Jonathan Cable and Larry King)
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