MADRID (Reuters) – Spain’s economy has started to recover after the severe impact of the coronavirus pandemic, Economy Minister Nadia Calvino said on Wednesday, citing favourable employment indicators following the gradual easing of a lockdown since May.
She said 1 million furloughed workers were working again and 300,000 new workers had registered with social security.
“The recovery phase has already started,” she told parliament, adding that the trend change was backed by various indicators, mainly the latest job creation data.
While the Spanish economy is heading for the worst contraction on record in 2020, of up to 11.6%, the Bank of Spain forecast the recovery would start in the second half of this year, with GDP likely to bounce back and grow by 7.7% to 9.1% next year.
It expected the economy to bottom out in the second quarter with a slump of around 22%, but recovery in the tourist-dependent country should be a little stronger than the euro zone average.
Early indicators, such as Spanish services and factory PMIs, showed businesses partly resumed activity in May after plunging in April.
Spain is emerging from a three-month lockdown after the virus caused one of the world’s heaviest death tolls.
(Reporting by Inti Landauro, editing by Andrei Khalip and Giles Elgood)
The worst may be over for Canada's economy, but we're still a long way from business as usual – Toronto Star
We are entering the euphoria stage of the pandemic economy — surging on a sugar high after a deep, dark shutdown, but only in a temporary way before the long slog to total recovery.
The Bank of Canada has at last published a “central scenario” for what the future holds, and while it’s not quite the full forecast we’ve been waiting for, its analysis is telling and will demand some fresh strategies to handle what lies ahead.
Yes, Canada is past the worst of it, the central bank says. And now, we’re heading into a period of rapid growth as some of the pandemic restrictions come off.
But that bounce back to life will soon be exposed as a troubled recuperation that is unique by historical standards — held back by fear, uncertainty and persistent weakness in the service industries that normally carry us out of a recession.
We won’t really taste full recovery until well into 2022, and even that distant date depends on the availability of a vaccine or treatment. Along the way, many companies will go under, investments will be cancelled or reoriented, workers will need to find new jobs, and the ability of the Canadian economy to hum along as usual will be permanently damaged.
The implications for business, workers and policy-makers alike are ominous. We will have to think very differently about how we work, how we spend as consumers and as governments, how we tax and how we train for the future.
A few key numbers: The bank believes Canada’s economy contracted by almost 15 per cent this spring. April was the nadir, and we began to stabilize in May and June. Now, supported by the federal wage subsidy and the lifting of some pandemic restrictions, companies are hiring workers back and revving up their businesses. By the time we get to the fall, about 40 per cent of the plunge will have been reversed, the bank predicts.
But what about the other 60 per cent? It will take two more years — if all goes as planned and there’s no broad second wave of the virus here or abroad.
The long hangover will be due in part to a couple of intangible factors: Fear of catching COVID-19 will keep many shoppers and workers sheltered at home, and uncertainty about losing jobs will prevent consumers from spending their savings or investing in new ventures.
And as long as virus-related restrictions remain in place, some key service-oriented areas of the economy will continue to limp along. Think hotels, the travel industry, retail and food services. Traditionally, those service-oriented sections lead the way to recovery. This time, they’re being hit repeatedly by ever-changing rules that will have to intensify at a local level every time there’s an outbreak of COVID-19.
In the meantime, since the United States is having such a hard time with controlling the spread of the virus, its recovery will happen in fits and starts, and the economic consequences will wash over the border into Canada, warns the central bank’s new governor, Tiff Macklem.
How do we come to terms with this?
The Canadian Chamber of Commerce has teamed up with Statistics Canada to figure out exactly where employers and companies are at right now, and they’ve found that government supports have been working somewhat. The wage subsidy has helped about 22 per cent of businesses stay afloat and keep at least part of their workforce active. More than a million people have gone back to work, and many more have resumed normal hours.
But that rehiring activity seems to be plateauing now, even as there are still millions out of work or working less than usual, the Chamber numbers show, because many companies don’t have the revenues coming in to warrant a complete rehiring of their workforce. About eight per cent will face closure or staffing cuts within three months unless things improve, and that rises to 20 per cent over six months.
“It’s very fragile,” says Patrick Gill, the chamber’s senior director of tax and financial policy.
He was glad to hear the Bank of Canada say it would keep its low interest rates and accommodating monetary policy in place for the long haul. But Ottawa needs to be a lot more creative than that, he adds.
If the federal government makes its wage subsidy more flexible, extends and enhances its commercial rent supports and thinks about what kind tax policies could be applied to encourage investment, businesses will find it easier to function on a day-to-day basis, he says.
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An ample supply of personal protective equipment, and clear rules on when to wear a mask will also help.
The central bank has promised to be on hand with whatever it takes until there’s full recovery, but it will need the help of the federal government, business leaders and workers themselves too.
Business as usual is not in the offing, despite the fleeting joy we may feel as we are allowed once again to open our front doors.
Fed survey says economy has picked up but outlook cloudy – CKPGToday.ca
The information in the report will provide guidance for Fed officials at their next meeting on July 28-29. Economists expect the central bank to keep its benchmark interest rate at a record low as it tries to cushion the economy from the pandemic downturn.
The Beige Book found only modest signs of improvement in most areas, noting that consumer spending had picked up as many nonessential businesses were allowed to reopen, helping to boost retail sales in all 12 Fed districts but construction remained subdued.
Manufacturing activity moved up, the report said, ’but from a very low level.”
The economy entered a recession in February, ending a nearly 11-year long economic expansion, the longest in U.S. history. Millions of people were thrown out of work and while 7.3 million jobs were created in May and June that represented only about one-third of the jobs lost in March and April.
And now, in recent weeks with virus cases surging in many states, there are concerns that the fledgling recovery could be in danger of stalling out.
The Beige Book reported that employment had increased in almost all districts in the latest survey, which was based on responses received by July 6, but layoffs had continued as well.
“Contacts in nearly every district noted difficulty in bringing back workers because of health and safety concerns, child care needs and generous unemployment insurance benefits,” the Fed said.
The report said that many businesses who had been able to retain workers because of the government’s Paycheck Protection Program said they might still be forced to lay off staff if their businesses do not see a pickup in demand.
The Fed in March cut its benchmark interest rate to a record low of 0 to 0.25% and purchased billions of dollars of Treasury and mortgage-backed bonds to stabilize financial markets.
But Fed officials have recently expressed concerns that a resurgence of the virus in many states may require more support from the central bank and from Congress.
Fed board member Lael Brainard said in a speech Tuesday that the economy was likely to “face headwinds for some time” and that continued support from the government will remain “vital.”
The Trump administration has said it plans to negotiate another support package once Congress returns from recess next week. Republicans and Democrats remain far apart on what should be in the new package with Democrats pushing for a package of around $3 trillion while GOP lawmakers have called for smaller support of around $1 trillion.
Congress will only have two weeks to reach a compromise before two of the most popular programs providing paycheque protection for workers and expanded unemployment benefits expire. The unemployment support provided an extra $600 per week but many Republicans say that amount was too high and kept some people from returning to work
Martin Crutsinger, The Associated Press
Bank of Canada pledges to keep rates low through recovery; forecasts economy shrinking 7.8% this year – The Globe and Mail
The Bank of Canada has pledged to keep its key interest rate near zero throughout the economy’s recovery from the COVID-19 pandemic, which it said will be protracted and uneven.
In its interest-rate decision on Wednesday, the central bank held its key rate steady at 0.25 per cent, reiterating that it considers this effectively to be the bottom. But it added a promise to keep it there “until economic slack is absorbed” so that inflation can be sustainably maintained at 2 per cent, the target the bank uses to guide its interest-rate policy.
“We recognize that households and businesses are facing an unusual amount of uncertainty,” Bank of Canada Governor Tiff Macklem said in a news conference. “Against that background, we are being unusually clear that interest rates are going to be low for a long time.”
The bank also reaffirmed that it would continue its other major approach to economic stimulus – its minimum weekly purchase of $5-billion worth of government of Canada bonds – “until the recovery is well under way.”
The explicit commitment on rates – a policy strategy known in central banking as “forward guidance” – came as the bank released its first economic forecasts since the COVID-19 crisis began. It estimated that the economy shrank by 15 per cent in the first half of the year, and projected that even with the sharp postlockdown rebound, the economy will decline by 7.8 per cent for 2020 as a whole.
“Our message is that it’s going to be a long climb back, and the Bank of Canada is going to be there through the full length of the recovery, until economic slack is absorbed,” Mr. Macklem said.
People who have a mortgage or are considering a major purchase, or businesses thinking about making an investment can be confident interest rates will be low for a long time, he said. “Low interest rates make spending and investment more affordable, and spending and investment will support the recovery.”
Arlene Kish, director of Canadian economics at research firm IHS Markit, said in a commentary that Mr. Macklem’s forward guidance “points to interest rates remaining unchanged until 2023.”
The news conference followed the publication of the bank’s quarterly Monetary Policy Report (MPR) – Mr. Macklem’s first as head of the bank. He succeeded Stephen Poloz just six weeks ago. The bank usually updates its economic forecasts in each MPR, but Mr. Poloz opted against specific projections in April, citing extreme uncertainty at the height of the crisis.
In the report, the bank estimated that real gross domestic product plunged 13.1 per cent in the second quarter, on top of a 2.1-per-cent contraction in the first quarter. It expects a bounce-back of 7.1 per cent in the third quarter, reflecting the rapid return of activity as more containment restrictions are lifted. The forecast assumes that “about 40 per cent” of the drop in output in the first half of the year will be recouped in the third quarter.
However, it cautioned that it expects this initial rebound to be followed “by a more prolonged recuperation phase, which will be uneven across regions and sectors.” It forecast that the economy would grow by 5.1 per cent in 2021 and 3.7 per cent in 2022 as the impact of the crisis dissipates – but it doesn’t see economic output returning to prepandemic levels until well into 2022.
The bank called its new outlook a “central scenario,” rather than a projection, emphasizing the continued uncertainty surrounding the numbers. The central scenario assumes no widespread second wave of COVID-19 in Canada or globally, and that the pandemic will have run its course by mid-2022.
“There are a multitude of scenarios both stronger and weaker than the central one presented here,” the bank said. Yet it cautioned that, over all, the bigger risks in the alternative scenarios appear to be an even weaker recovery, largely because of the potential for a second wave of the virus.
It estimated that the inflation rate – a key measure for the bank – fell to -0.1 per cent in the second quarter. The bank forecast that even as the economy reopens, inflation would be a thin 0.4 per cent in the third quarter, and just 0.6 per cent for the year as a whole, before picking up modestly to 1.2 per cent in 2021 and 1.7 per cent in 2022.
“The dramatic decline in [energy] prices in March and April will hold inflation down until early 2021. After that, the inflation outlook depends primarily on the speed and strength at which demand and supply recover,” the bank said. “Firms report that capacity could return quickly as the economy reopens and containment measures are lifted. They expect the recovery in demand to be more muted, especially in the services and energy sectors.”
In his short time on the job, Mr. Macklem has generally struck a more cautious tone than his predecessor Mr. Poloz, who was relatively optimistic about the potential for the economy to recover. Wednesday’s rate-decision statement, Monetary Policy Report and news conference reflected that subtle shift under the new leader, although the bank broadly remained consistent with the crisis-fighting policy stand Mr. Poloz put in place in his final months in office, which included deep rate cuts and the introduction of large-scale bond purchases.
But Charles St-Arnaud, chief economist at Alberta Central, the province’s credit-union association, said Mr. Macklem’s call for Canadians to rely on a long period of low rates to finance consumption seemed at odds with the bank’s long-standing concerns about elevated consumer debt.
“I find it interesting that missing from that statement is the risk of pushing already extremely leveraged households and businesses to even more extreme levels,” he said. “It feels a bit like the BoC is somewhat contradicting itself.”
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