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Six months of protests wrecked Hong Kong's economy. A virus scare is the last thing this city needs – CNN

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Officials on Monday said Hong Kong’s economy shrank 1.2% last year as massive pro-democracy protests paralyzed the city’s streets and scared away tourists. GDP shrank 2.9% in the fourth quarter alone. The trade spat between Washington and Beijing compounded the problem, as did concerns about China’s economic growth.
Until recently, the Asian financial hub had reason to hope that 2020 would be better. The demonstrations were becoming less frequent, while an initial trade deal provided some hope that the relationship between the United States and China could improve.
“The US-China phase one trade deal and growth stabilization in China should have been positive for Hong Kong’s near-term economic outlook,” said Tommy Wu, a senior economist at Oxford Economics. “But it has been overshadowed by the coronavirus outbreak.”
Hong Kong now has to worry about how to stave off a dangerous epidemic that spurred government officials to cancel school for weeks, order civil servants to work from home and urge private companies to do the same. Retail stores, theme parks, cultural attractions and other hotspots also remain closed. Crowds are still common, but most people are wearing face masks as a form of protection.

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The coronavirus “will definitely cause a double blow to the economy,” Hong Kong Financial Secretary Paul Chan wrote in a Sunday blog post. He added that the virus “will greatly increase the risk of continued economic contraction this year.”
The Hong Kong government said Monday that the city’s economic outlook this year is “subject to high uncertainties,” including the global economy, trade and the protests. As for the coronavirus outbreak, the government said it would “monitor the situation closely.”
Hong Kong, which has some level of autonomy from mainland China and its own immigration system, has managed to avoid the worst of the outbreak. Only 15 cases have been confirmed in the city, and there have been no deaths. Just over the border in mainland China, the number of confirmed cases totals more than 17,000, while at least 360 people have died.
But the memory of 2003’s SARS crisis looms large in Hong Kong, reminding its people of the toll a serious disease can take on the city. More than 280 of the 774 people who died from SARS were reported in Hong Kong, the highest death toll outside of mainland China. The SARS scare caused the city’s economy to shrink 0.5% in the second quarter before it rebounded later in the year.

A ‘double whammy’ for businesses

Last year’s protest movement led millions of Hong Kongers to take to the streets and demand democratic and police reforms. Some clashes between protesters and police became violent, and tear gas, petrol bombs, rubber bullets and water cannons became part of the city’s new normal.
The protests hit the city’s hospitality and food and beverage industries particularly hard. Many people just stopped going out, fearful that if they strayed too far from home they would find themselves accidentally caught up in a demonstration or cut off from public transportation.
Despite the turmoil, the hospitality industry had been showing signs of recovery in December, according to Allan Zeman, the founder of the property developer Lan Kwai Fong Group.
“It’s kind of a double whammy for Hong Kong,” said Zeman, whose company developed the popular Hong Kong nightlife district Lan Kwai Fong.
“We were hoping that going into the Year of the Rat that this would continue,” he added, referring to this year’s Lunar New Year zodiac. “Suddenly, the coronavirus hit.”
Black Sheep Restaurants, a group that runs more than 20 Hong Kong businesses, echoed that show of progress, along with concerns about the virus.
“Things were on the up at the end of last year and first couple of weeks of [January],” Co-founder Syed Asim Hussain told CNN Business in an email. “However we are now again between a rock and a hard place.”
Hussain said the company’s main concern is the safety of its team. But he added that Black Sheep expects February to be slow, potentially leading to a “financial write off” for the first quarter.
Tourism is another major concern for the city. The protests already took a heavy toll on the industry: The number of people who visited Hong Kong in November plunged by nearly half compared to a year earlier, according to the latest available government figures.
The coronavirus outbreak will likely exacerbate that problem. Most of Hong Kong’s visitors come from mainland China, where many cities have placed their residents on lockdown. Hong Kong has also closed some of its border crossings into the mainland in an attempt to stop the virus from spreading.

Too early to tell

What’s still uncertain is how dramatic and long lasting the effects of the coronavirus will be on Hong Kong’s economy.
Iris Pang, an economist at ING, told CNN Business that she expects retail to be moderately affected by the outbreak, noting that last year’s protests caused those businesses to take a big hit. But she added that ING doesn’t think the virus will have a substantial impact on GDP.
Goldman Sachs on Friday cut its forecast for Hong Kong’s economic growth in the first quarter from 5.6% to 4%. The analysts attributed that in large part to how the virus will impact the city’s tourism, retail, hospitality, and food and beverage industries.
The bank warned that things could get worse, and that a prolonged outbreak could lower full-year economic growth to 5% or less.
Wu, of Oxford Economics, said the virus could have a “drastic” impact on the economy.
“Some sectors are doing better — like supermarkets, drugstores etc. But shopping malls and luxury brands will likely be hit badly,” he said.
Wu added that the problem isn’t just about the lack of tourism in the city, but about how much people who already live in Hong Kong will spend as worries about the spread of the virus grow.
Zeman, of Lan Kwai Fong, the said it’s too early to tell how bad the effects will be, since a lot of businesses are just now getting back to work after the Lunar New Year. The holiday ended last Wednesday, but many in the city typically take the whole week off.
But the government-mandated closures of schools and some public facilities, along with official encouragement that people stay indoors, will likely mean an uncertain future for many businesses.
“It’s not an easy situation, because at the moment, there’s no light at the end of the tunnel,” said Zeman. “I know many of my tenants, I don’t know if they can survive.”
— Sherisse Pham and Michelle Toh contributed to this report.

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In an Unequal Economy, the Poor Face Inflation Now and Job Loss Later – The New York Times

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For Theresa Clarke, a retiree in New Canaan, Conn., the rising cost of living means not buying Goldfish crackers for her disabled daughter because a carton costs $11.99 at her local Stop & Shop. It means showering at the YMCA to save on her hot water bill. And it means watching her bank account dwindle to $50 because, as someone on a fixed income who never made much money to start with, there aren’t many other places she can trim her spending as prices rise.

“There is nothing to cut back on,” she said.

Jordan Trevino, 28, who recently took a better paying job in advertising in Los Angeles with a $100,000 salary, is economizing in little ways — ordering a cheaper entree when out to dinner, for example. But he is still planning a wedding next year and a honeymoon in Italy.

And David Schoenfeld, who made about $250,000 in retirement income and consulting fees last year and has about $5 million in savings, hasn’t pared back his spending. He has just returned from a vacation in Greece, with his daughter and two of his grandchildren.

“People in our group are not seeing this as a period of sacrifice,” said Mr. Schoenfeld, who lives in Sharon, Mass., and is a member of a group called Responsible Wealth, a network of rich people focused on inequality that pushes for higher taxes, among other stances. “We notice it’s expensive, but it’s kind of like: I don’t really care.”

Higher-income households built up savings and wealth during the early stages of the pandemic as they stayed at home and their stocks, houses and other assets rose in value. Between those stockpiles and solid wage growth, many have been able to keep spending even as costs climb. But data and anecdotes suggest that lower-income households, despite the resilient job market, are struggling more profoundly with inflation.

That divergence poses a challenge for the Federal Reserve, which is hoping that higher interest rates will slow consumer spending and ease pressure on prices across the economy. Already, there are signs that poorer families are cutting back. If richer families don’t pull back as much — if they keep going on vacations, dining out and buying new cars and second homes — many prices could keep rising. The Fed might need to raise interest rates even more to bring inflation under control, and that could cause a sharper slowdown.

In that case, poorer families will almost certainly bear the brunt again, because low-wage workers are often the first to lose hours and jobs. The bifurcated economy, and the policy decisions that stem from it, could become a double whammy for them, inflicting higher costs today and unemployment tomorrow.

“That’s the perfect storm, if unemployment increases,” said Mark Brown, chief executive of West Houston Assistance Ministries, which provides food, rental assistance and other forms of aid to people in need. “So many folks are so very close to the edge.”

America’s poor have spent part of the savings they amassed during coronavirus lockdowns, and their wages are increasingly struggling to keep up with — or falling behind — price increases. Because such a big chunk of their budgets is devoted to food and housing, lower-income families have less room to cut back before they have to stop buying necessities. Some are taking on credit card debt, cutting back on shopping and restaurant meals, putting off replacing their cars or even buying fewer groceries.

But while lower-income families spend more of each dollar they earn, the rich and middle classes have so much more money that they account for a much bigger share of spending in the overall economy: The top two-fifths of the income distribution account for about 60 percent of spending in the economy, the bottom two-fifths about 22 percent. That means the rich can continue to fuel the economy even as the poor pull back, a potential difficulty for policymakers.

The Federal Reserve has been lifting interest rates rapidly since March to try to slow consumer spending and raise the cost of borrowing for companies, which will in turn lead to fewer business expansions, less hiring and slower wage growth. The goal is to slow the economy enough to lower inflation but not so much that it causes a painful recession.

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Officials at West Houston Assistance Ministries said its food bank served 200 households on Friday.Meridith Kohut for The New York Times

But job growth accelerated unexpectedly in July, with wages climbing rapidly. Consumer spending, adjusted for inflation, has cooled, but Americans continue to open their wallets for vacations, restaurant meals and other services. If solid demand and tight labor market conditions continue, they could help to keep inflation rapid and make it more difficult for the Fed to cool the economy without continuing its string of quick rate increases. That could make widespread layoffs more likely.

“The one, singular worry is the jobs market — if demand is constrained to the point that companies have to start laying off workers, that’s what hits Main Street,” said Nela Richardson, chief economist at the job market data provider ADP. “That’s what hits low-income workers.”

Lower-income people are already hurting. Mr. Brown’s organization has seen more requests for help in recent months, he said, as local families fall behind on their bills. The size of the typical request has gone up, too, from a few hundred dollars to a few thousand. And he has noticed financial pain creeping up the income spectrum.

Mr. Brown’s observations are backed up by government data: About 12 percent of households reported they were struggling to get enough to eat in early July, up from about 10 percent at the beginning of the year, according to the Census Bureau.

Families can’t easily cut back what they spend on rent, gas or electricity as those prices climb, said Brian Greene, chief executive of the Houston Food Bank, which provides food to Mr. Brown’s organization and other charities across the region. So they cut back on food.

“Food insecurity isn’t about food,” Mr. Greene said. “Food insecurity is about income.”

Many poorer families’ incomes held up relatively well early in the pandemic because government aid — expanded unemployment benefits, stimulus checks and other programs — helped offset lost wages when businesses shut down. Then, as the economy reopened, pay soared for restaurant workers, delivery drivers and other low-wage workers.

But pandemic aid programs have ended and wage growth is slowing in many sectors — average hourly earnings in leisure and hospitality, which rose rapidly last year, actually fell in July from a month earlier for rank-and-file workers. Prices have risen so fast that even unusually quick wage growth has failed to keep up.

Travelers at Kennedy International Airport in New York. If richer people keep going on vacations, dining out and buying new cars, many prices could keep rising.
Gus Powell for The New York Times

The gaping divide between the rich and the poor in this inflationary moment is clear in corporate earnings calls. At Boot Barn, a Western wear retailer, sales of men’s Western boots were down in the first quarter, but sales of higher-priced exotic skin boots picked up. At LVMH, which owns luxury brands like Louis Vuitton and Tiffany, American revenues have been growing strongly, while at Walmart, customers are pulling back as they struggle to afford basic necessities, particularly food, which has run up sharply in price.

“This is affecting customers’ ability to spend on general merchandise categories and requiring more markdowns to move through the inventory, particularly apparel,” Walmart said in its July 25 guidance.

It’s not just apparel: Consumers across the economy are buying less milk and fewer eggs, as prices for those products rise significantly, according to an analysis of government figures by Michelle Meyer, chief U.S. economist for Mastercard. Yet they are also going out to eat at restaurants more often.

The fissures are clear in the car market. Demand for new cars, which generally sell to higher-income buyers, has remained strong and prices continue to soar amid supply shortages — putting upward pressure on inflation. But used-car demand is ebbing and prices have begun to depreciate again.

“We see bifurcation in many parts of the economy and the auto market,” Jonathan Smoke, chief economist at Cox Automotive, said in an interview. “The new vehicle buyer has shown much less price sensitivity.”

Housing is another realm where fates have diverged. Home costs have run up sharply since the pandemic and mortgages are now more expensive, making buying unaffordable for many families. Because would-be buyers can’t afford homes, they are renting, keeping apartments for lease in short supply and pushing rents ever higher. Those soaring rents hit lower-income households especially hard: Roughly six in 10 people in the bottom quarter of earners rent their homes.

By contrast, homeowners have both seen their houses rise in value and often enjoy a built-in inflation hedge, since many refinanced their mortgages and locked in low monthly payments when rates were low in 2020 and 2021.

“The haves are really comfortable right now,” said Nicole Bachaud, an economist from Zillow, also noting that “we’re going to see this gap getting wider between people who are homeowners and people who are probably never going to be homeowners.”

Jamie Kelter Davis for The New York Times

Ms. Clarke, the New Canaan retiree, recently got off the wait list for an affordable apartment for herself and her 24-year-old daughter, who has autism and cannot work. Their new unit has just one bedroom, but it is clean and has new appliances, and at about $1,350 a month, she can squeeze it into her budget.

The lease lasts only a year, however, and Ms. Clarke is worried about finding somewhere to live if it isn’t renewed. Even now, she is barely making ends meet: She lost her car keys recently and had to spend nearly $500 replacing them, wiping out nearly all her small rainy-day fund and leaving her one crisis away from financial disaster.

“When you don’t have money, you’re on a fixed income, you’re constantly thinking, ‘Well, maybe I shouldn’t have bought that,’” she said. “There’s no cushion. There really never was.”

More financially secure families also face headwinds, of course, which could eventually prompt them to slow down spending. The cash savings they built up during the pandemic won’t last forever, and rising prices could prompt many households to pull back their spending.

And swooning stock markets could prompt richer families, who tend to have more money invested, to spend less than they otherwise would. Some economists think that the people in this demographic have mostly kept spending recently — despite their falling economic confidence — because they are eager to take vacations that they had put off earlier in the pandemic.

“Where I’m budgeting, it’s to make room for travel,” said Mr. Trevino of Los Angeles. “I feel like I’ve missed out on that a little bit.”

Economists have speculated that richer consumers’ resilience could fade as autumn approaches and they take stock of their finances amid a slowing economy. But for now, the reality that America’s wealthier consumers have yet to sharply pull back in the face of rising prices may be setting up a tough road ahead for the nation’s poorer ones.

“We really, in a way, haven’t noticed the inflation very much,” Mr. Schoenfeld said. “This economy is very unfair.”

Jason Karaian contributed reporting.

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Posthaste: Sorry, but the economy isn't over COVID — and won't be for some time – Financial Post

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CIBC economists see long stretch of higher rates and low growth ahead

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A lot of weird things have been happening in our economy lately. Roaring inflation that took everybody by surprise, a drum-tight labour market and now the prospect of sputtering growth, if not outright contraction.

The explanation for these unexpected and in some cases unprecedented conditions, argue CIBC economists, is that COVID continues to disrupt the functioning of the economy.

Canada, the U.S. and Europe have tried to move on from the pandemic, lifting vaccine mandates and restrictions on activity, thus resulting in an increase in consumer demand.

“But COVID isn’t fading away as a supply constraint, or as a health issue,” CIBC economists Avery Shenfeld and Andrew Grantham wrote in a recent note.

Variants that spread more rapidly have meant that more people have died of COVID in 2022 than the previous year, even though fewer cases were fatal, they said.

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And while demand has recovered, supply chains have not, partly because of the war in Ukraine, but also because of COVID.

The lockdowns this year in China are the most obvious example. Omicron restrictions here caused exports to fall even more than during the first 2020 lockdown.

In Canada it is showing up in employee illness. “Flights are cancelled when crew members call in sick, hospitals cut back services because staff members are ill and live entertainment shows are postponed for the same reason,” wrote the economists. Omicron has been associated in Canada with a significant increase in working hours lost to illness.

Long COVID has caused some to actually withdraw from the workforce. The numbers are small in Canada, they said, but the U.K. serves as an example of what could happen if we fail to control future waves of the virus.

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In Britain, where public health restrictions have been lighter, 0.6% of the population have been “severely affected” by Long COVID, according to a recent study.

COVID is also impacting capital spending, said the economists. An uncertain outlook due to potential waves of the virus in future may be contributing to businesses’ reluctance to spend, but COVID supply-chain issues have also made getting capital equipment more difficult as well.

“The result is less production capacity in sectors where equipment is on back order, or where COVID uncertainties have forestalled investment,” they said.

The unprecedented COVID recession and recovery is also why there is a mismatch between job availability and hiring in the economy today, argue the economists.

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During the pandemic some work was almost completely shut down and stayed dormant for a long period. Now that the economy has reopened, those employers are scrambling to rehire in great numbers, a situation we have not seen before, they said.

“A typical recession doesn’t see air travel drop by 90% and doesn’t see live theatres close outright. A typical recovery doesn’t see the sudden opening we’re experiencing in these same sectors,” they wrote.

Workers who held these jobs, like restaurant staff and baggage handlers, in 2020 had two years to move on, unlike a typical recession that lasts just two or three quarters.

CIBC believes this mismatch will eventually even out, but the impact of COVID on supply chains and missed work could remain.

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So what does the future hold?

While traders are already talking about rate cuts after the hiking cycle winds up either at the end of this year or early 2023, CIBC sees the Bank of Canada keeping rates at 3.25% through the whole of 2023.

It also sees GDP growth slowing to 0.9% in the fourth quarter of this year and gaining only 1.5% in 2023.

“Even if a recession is avoided, we’re in for a protracted period of sub-par growth,” said the economists.

The policy of dropping COVID mandates meant to improve the economy may actually be working to extend the economics costs of the virus, they said.

“While helping on the demand side, diminished public health restraints, particularly during surges in case counts, are cutting into the economy’s supply capabilities. Their absence is likely elevating the peak levels for COVID cases, and thereby increasing the costs of worker absenteeism, and perhaps, as we’ve seen in the UK, risking longer term labour market damage due to Long COVID,” they said.

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The economists said lockdowns should be behind us, but a push for the use of masks, global vaccination and improvements of indoor air quality would help reduce the economic impact of COVID.

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Check out the latest from Sea Doo maker BRP Inc. This electric surfboard called the Sea-Doo Rise in one of three products that Bombardier Recreational Products announced recently in its first foray into electric vehicles. The EV push also means a return to the award-winning two-wheeled motorcycles that BRP produced in the ’70s and ’80s. The Can-Am Origin and Can-Am Pulse motorcycles, along with the Sea-Doo Rise, will all be electric and will be available to purchase in mid-2024, said BRP. Photo by BRP

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  • Blockchain Futurist Conference begins in Toronto
  • Toronto Ontario Lieutenant Governor Elizabeth Dowdeswell delivers Speech from the Throne
  • Unifor’s 4th Constitutional Convention
  • Jonathan Wilkinson, minister of natural resources, will make an announcement to support electric vehicle charging infrastructure in Manitoba
  • Earnings: Hydro One, Bausch Health Companies, Nuvei, Kinaxis, Coinbase Global___________________________________________________

 

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Cryptocurrencies have been having a rough go of it lately, with Bitcoin shedding 47% of its value so far this year. The crypto bear market has become entrenched after a spate of company bankruptcies and the failure of major decentralized finance project Terra in May — and despite small rallies fails to meaningfully recover ground. Fans, however, might take heart from the map below that shows how common cryptocurrencies have become. According to Hellosafe, a comparison site for financial products, 99 out of 195 countries in the world now allow the use of cryptocurrencies, or 50.8% of them. Cryptos are legal in all the European Union countries and in 18 countries or 51.4% of the Americas continent. Only two countries in the world, however, have legalized Bitcoin as legal tender: El Salvador on Sept. 7, 2021 and the Central African Republic on April 27, 2022.

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Today’s Posthaste was written by Pamela Heaven (@pamheaven), with additional reporting from The Canadian Press, Thomson Reuters and Bloomberg.

Have a story idea, pitch, embargoed report, or a suggestion for this newsletter? Email us at posthaste@postmedia.com, or hit reply to send us a note.

Listen to Down to Business for in-depth discussions and insights into the latest in Canadian business, available wherever you get your podcasts. Check out the latest episode below:

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Ontario's Plan to Build Supporting Stronger Province and Economy – Government of Ontario News

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Ontario’s Plan to Build Supporting Stronger Province and Economy  Government of Ontario News



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