A recession is coming later this year as the economy is derailed by the impact of COVID-19 and a plunge in oil prices, economists said Friday.
Royal Bank of Canada forecasts the economy will grow at an annualized pace of 0.8 per cent in the first quarter, then contract in the second and third quarters of the year.
RBC is forecasting an annualized decline of 2.5 per cent in the second quarter and 0.8 per cent in the third quarter. Two consecutive quarters of negative growth is considered a recession.
“Key to the near term outlook and the pace of the recovery will be the policy response by governments,” RBC said in its report.
“The federal government’s plan to provide support measures to mitigate the impact of the virus included upping health care transfers, and increasing unemployment insurance, though both program increases were relatively limited.”
CIBC echoed the RBC comments in its own report that Canada is also likely on the brink of a recession.
“We expect to see output dropping in both the second and third quarters in the U.S. and Canada,” CIBC said in its report.
CIBC forecasts the economy will contract at an annual rate of 3.0 per cent in the second quarter and 3.4 per cent in the third quarter, before bouncing back and returning to growth in the final three months of the year.
The bank says fiscal and monetary stimulus will cushion the downside.
“But Canadians won’t really be out shopping again, and business confidence won’t roar back, until we have the virus under control, a better treatment, or a vaccine,” CIBC said.
“So, our assumption that growth resumes in the fourth quarter is therefore just that, an assumption about progress on some of those fronts here and in export markets abroad.”
The new forecasts came as governments advise against international travel and Ontario plans to close its schools for two weeks in addition to the week-long spring break holiday because of COVID-19.
Businesses have also moved to do their part in slowing the spread of the virus by urging employees to work from home where possible and limit travel.
The Juno Awards scheduled for the weekend in Saskatoon have been cancelled, while the National Hockey League and National Basketball Association have suspended their seasons. Major League Baseball has ended spring training in Florida and pushed back the start of the season.
The RBC forecast is based on an assumption that the impact of the virus will run its course by the end of the first half of the year, but an economic recovery will be prevented by persistent low oil prices.
The price of oil tanked this week as Saudi Arabia launched a price war with Russia which rejected production cuts that the kingdom had wanted.
In response, the Saudis moved to ramp up production in a bid to make it more painful for other oil-producing countries to continue without production cuts.
The Bank of Canada cut its key interest target by half a percentage point to 1.25 per cent last week in response to COVID-19 outbreak.
The central bank’s move prompted Canada’s big banks and financial institutions to drop their prime lending rates by a half percentage point.
The Bank of Canada also moved Thursday with an expansion of its bond buy-back program and term repo operations to proactively support interbank funding.
The central bank has said it remains committed to providing liquidity as required to support the functioning of the Canadian financial system.
Governor Stephen Poloz said last week the central bank wanted to cut rates “in a decisive manner” to provide a cushion for Canada’s economy against the effects of COVID-19.
He has said the immediate effects the virus will have on business investment and consumer spending meant the downside risks to the economy today outweighed continuing concerns that cutting rates would fan financial vulnerabilities in Canada, such as high household debt.
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Covid-19 to 'Weigh Heavily' on Singapore's Economy, PM Lee Says – BNN
(Bloomberg) — Prime Minister Lee Hsien Loong said he’s determined to hand over Singapore “intact” and in “good working order” to the next generation of leaders, predicting the coronavirus crisis will “weigh heavily” on the nation’s economy for at least a year.
Speaking Monday ahead of general elections on Friday, Lee said it’s unclear how the pandemic will end, noting that Singapore’s “biggest challenges lie ahead of us.”
“We don’t know how the pandemic will end or whether a lasting solution will be found in a vaccine or more effective treatment,” Lee said in a virtual rally posted on the ruling People’s Action Party’s Facebook page. “We face a continuing danger to public health.”
Polling on Friday takes place against the backdrop of a pandemic that has infected nearly 45,000 people, mostly migrant workers living in tightly-spaced dormitories. The government’s response to the virus has played a prominent role in campaigns midway through the election cycle.
A “good government” is needed to curb the virus, support the economy and get the country out of the crisis intact, Lee said. “Our response will determine the future,” he added.
Singapore needs to attract new investments by maintaining business confidence so companies “will not lose faith in us in a crisis,” he said.
Lee has signaled his intention to hand over power to his successor — tipped to be Deputy Prime Minister and Finance Minister Heng Swee Keat — by 2022. By then, he will be 70 years old.
©2020 Bloomberg L.P.
State grip on economy means foreign sanctions won't shift Chinese resolve: Don Pittis – CBC.ca
Last week, former prime minister Brian Mulroney urged that this country begin an “urgent rethink” on its relations with China.
A front-page story in the Globe and Mail on Canada Day declared that the former Progressive Conservative PM had backed off on his previous suggestion of sending a high-level business negotiating team to Beijing to resolve Canada-China differences. Instead, he advocated a firmer stance.
“There has to be an immediate and urgent rethink of our entire relationship,” Mulroney told the Globe. That included kicking Chinese telecom company Huawei off Canada’s 5G systems and staying close to the U.S.-led Five Eyes spy network.
But those who think taking a hard economic line on China — a country that is neck and neck with the biggest economy on Earth — will change its aggressive and anti-democratic outlook must understand Chinese exceptionalism.
Change from within
Instead, as many China scholars have told me in the past, change within China must come from the Chinese people — and not necessarily as represented by the Chinese Communist Party.
That may seem far-fetched to those watching Beijing’s crackdown on Hong Kong, its vicious police tactics backed by central government financial support to help keep the Chinese region’s business community sweet.
As the New York Times reported last week, “The business world has largely fallen in line behind China’s campaign to tighten its grip on Hong Kong.”
While officials have offered moral and cash support for the former British colony, the most significant reason for the latest burst of business activity comes from a different source.
U.S. regulatory restrictions on Chinese firms and fear that the U.S. administration and Congress may impose financial penalties have made Hong Kong’s sophisticated marketplace a more-than-tolerable second choice to New York for raising cash.
As Walid Hejazi, an associate professor of international business at the University of Toronto’s Rotman School of Management, suggested in the context of threatened U.S. trade restrictions, squeezing China out can have perverse effects.
“Given there is a trade war, it can push China into doing things that could really help it over the longer term in terms of diversifying itself into Asia, into other markets, but also developing its domestic economy,” Hejazi told me at the time.
Like the U.S. in an earlier stage in its own development, China may be on the verge of building a domestic economy so large, exports become of decreasing importance.
Even if Canada and the U.S. could do without China’s increasingly high-level technology, of which Huawei is only a single example, even if they could withstand a reduction in the Chinese market for their exports of food and resources, the Asian country’s increasing self-sufficiency means some sort of new economic cold war is unlikely to have the desired impact.
Even if, as some credible sources have suggested, Chinese economic data is fudged, there is no question that the country’s economy is huge and growing. Beijing is spending a fortune on the education of its billion-plus population. It seems serious about trying to bring its poorest into the wage economy.
‘Poverty alleviation goals are more than a policy target. They are a major source of legitimacy both within China and globally’ <a href=”https://t.co/YdpHOIVVUw”>https://t.co/YdpHOIVVUw</a>
Condemned by human rights groups for forced birth control for minorities and other abuses, nonetheless the power of a command economy gives it strategic advantages at this point in its evolution. Unlike the U.S. and Canada, it does not have to negotiate with wealthy taxpayers to create university places or make what it considers to be essential investments.
But while Beijing rejects attempts at outside coercion, developments in Hong Kong may reveal a path to domestic transformation.
While Beijing’s strong-arm tactics can work on powerless Uighurs, Hong Kong may be a Chinese microcosm of what can happen when an authoritarian government runs out of legitimacy with informed and educated citizens who do not want to be imposed upon.
People who think of South Korea and Taiwan as healthy pluralistic democracies may not realize that in my lifetime, both were run by nasty militarist — anti-communist in those cases — dictatorships. The running street battles between police and students before the removal of South Korea’s Park Chung-hee are legendary.
WATCH | Nathan Law flees Hong Kong:
Even as Hong Kong becomes more like China, the former colony may have inoculated the entire country with a taste for self-government and some ideas on how to get it. By alienating so many Hong Kongers, China has wasted an opportunity.
Now, the self-exile of Hong Kong democracy leader Nathan Law harks back to earlier times, when Russian anti-government leader Vladimir Lenin retreated to England and Vietnamese revolutionary Ho Chi Minh hid out in France.
Without even trying, places where you are allowed to think and say just about what you like create a refuge for dissent. Canada’s suspension of extradition rules is a sign that Hong Kong has strayed too far from that ideal.
Canada need not give up on China as a place where pluralism and democracy will one day help its people rule themselves.
In years gone by, North American economic sanctions may have had the clout to pressure even large countries into adjusting their policies. It is implausible to think that China, with an economy that the IMF says is still growing — while Canada, the U.S. and Europe will shrink about eight per cent this year — will be pressured.
That will be the job of its own people.
Follow Don on Twitter @don_pittis
Virus crisis expected to 'level down' UK economy – BBC News
The coronavirus crisis could “level down” the UK economy with London and the South East expected to bounce back more quickly than Hull and Bradford.
Industries such as finance and construction will be worst hit by the pandemic, a report from the Social Market Foundation (SMF) has warned.
Initially, that means London and the South East will be worst affected.
However, other areas face a more painful recovery from the impact of the virus, the centrist think tank said.
The BBC has approached the government for comment.
The worst-affected areas in the short-term:
- Camden and City of London
- Kingston, Chelsea, Hammersmith and Fulham
- East Lancashire
- Hounslow and Richmond upon Thames
- Tower Hamlets
- West Essex
“After the financial crisis, London recovered quickly because of a concentration of jobs in banking and insurance,” the report said.
“Whilst these jobs will face the biggest initial blow from coronavirus, evidence suggests the capital is more economically resilient and the labour market will recover quicker than the rest of the country.”
But that is not the case in areas where unemployment rates were above the UK’s average of 3.8% last year, according to the SMF.
It said those areas, which include Manchester and Peterborough, face the slowest recovery.
The areas that will find it hardest to bounce back:
- Redbridge and Waltham Forest
“Policy makers need to recognise that national or even regional data can conceal the local realities of this recession and should not rely on it when making important decisions for the recovery from coronavirus,” said Amy Norman from the SMF.
“The economic severity of coronavirus will be felt across many places, but we must remember that this recession does not occur in isolation,” she said.
“Many people and places outside of the capital will be particularly vulnerable due to the lasting hardships of the past decade.”
The report also found that young people were more vulnerable to the economic impacts of the virus crisis.
It said people between the ages of 20 and 24 were least likely to work in sectors like education, health or public administration, which have seen fewer people furloughed or made redundant.
“Young people’s jobs are most at risk, but a quarter of older workers also face job instability,” Ms Norman said.
“Politicians have announced the guaranteed youth opportunity but are light on support for those in older categories who will find themselves out of work.”
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