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The Real Winner of the Work-From-Home Economy – BNN

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(Bloomberg Opinion) — South Korea is in something of a sweet spot for the Covid-19 era. Neighboring China, its biggest trading partner, is driving the global rebound and the world increasingly wants the technology that Korea sells. 

Gross domestic product figures are encouraging. The economy expanded 1.9% in the third quarter from the prior three months,  the government reported Tuesday, exceeding forecasts and the first positive reading this year. Growth retreated 1.3% on an annual basis, a milder decline than projected. The numbers are the second upbeat installment from North Asia in little more than a week. Recent figures indicate China is likely to be the only commercial power to show any growth this year. South Korea may come close, as could Taiwan.  

South Korea’s bounce is built on what leaves the country. Exports account for about 40% of the economy. Memory chips and electronics have benefited from a shift to work-and study-from-home during the pandemic. Other things shipped by Korea, like chemicals and metal products, haven’t done so well. While this mix means Korea is vulnerable to an eventual rebellion against the kitchen-table conference room, that prospect doesn’t appear imminent. Even hubs for global finance with strong executive government, such as Singapore, are slow-walking the return to downtown. WFH remains the default for much of the world.

Seoul’s willingness to cast off decades of budget prudence, too. No matter how many container ships or cargo planes dot the horizon, there’s little substitute for cranking up the printing press in fallow times. President Moon Jae-in has rolled out four stimulus packages as part of a fiscal onslaught equivalent to about 14% of GDP. While the government is anxious to repair the books once the recovery is assured, it would be premature to ease up now. Moon has space to do even more. South Korea’s debt levels, relative to the economy, are among the lowest in the Organization for Economic Cooperation and Development.

Muscular fiscal policy means more borrowing. Moon has been aided by a central bank that’s prepared to buy bonds on a fairly regular basis in the name of market stability. While the Bank of Korea shies from the term “quantitative easing,” it is keeping a lid on the price the government pays for money. 

Perhaps the real achievement is that the country kept coronavirus infections in check and returned to growth without a comprehensive lockdown or equally forced rapid reopening. China is aided by an authoritarian political system that can turn the key in either direction without dissent. South Korea is a democracy. Social distancing, contact tracing and dialing up (or down) other curbs on a localized basis worked pretty well.  

Lots could still go wrong. The global economy might take a turn for the worse, given the recent jump in U.S. and European infections. And at home in Korea, the natural boost an economy gets after exiting recession will eventually wear off. The country was posting fairly sluggish growth numbers before the pandemic. Unemployment is rising. And while it’s a relief to see growth return, the second-quarter contraction was the worst in decades.

For now, though, let’s acknowledge a job that’s been relatively well done.

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

Daniel Moss is a Bloomberg Opinion columnist covering Asian economies. Previously he was executive editor of Bloomberg News for global economics, and has led teams in Asia, Europe and North America.

©2020 Bloomberg L.P.

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Economy

Euro zone economy to gain momentum in 2021 on vaccine hopes: Reuters poll – TheChronicleHerald.ca

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By Richa Rebello and Manjul Paul

BENGALURU (Reuters) – The euro zone economy will contract again this quarter as renewed lockdown measures stifle activity, according to a Reuters poll which showed the bloc’s GDP would then return to pre-crisis levels within two years.

Hopes for a coronavirus vaccine and additional support from the European Central Bank this month meant quarterly growth forecasts for next year were upgraded in the poll conducted from Nov. 26-Dec. 2.

“We now assume vaccines will be rolled out in the euro zone next year and most restrictions on economic activity are lifted during Q2. As a result, GDP increases by around 5% next year, regaining its pre-COVID level in early 2022,” said Andrew Kenningham, chief Europe economist at Capital Economics.

“There are still big risks to this forecast. There could yet be a third wave of the virus, vaccine distribution could run into political or logistical problems, and governments could be slower to ease restrictions. On the other hand, the vaccines could be more effective or easier to roll out than anticipated”.

Nearly 80% of respondents, or 36 of 45, who replied to an extra question said the economy would return to pre-crisis levels within two years.

That was a major turnaround in expectations from August when more than 70% of economists said it would take two or more years to reach that level.

The wider poll showed after contracting 2.6% this quarter, the economy would grow 1.1% in the first quarter of 2021 compared with 0.8% in the last poll. It was then predicted to expand 2.0% and 1.8% in Q2 and Q3, better than median predictions of 1.8%, 1.2% in November.

On an annual basis, the economy was expected to shrink 7.4% this year, and grow 5.0% in 2021 largely unchanged from the last poll. For 2022, the growth forecast was upgraded to 3.5% from 3.1%. (Graphic: Reuters Poll: Euro zone economy and ECB monetary policy outlook, https://fingfx.thomsonreuters.com/gfx/polling/xlbvgzaxjpq/Reuters%20Poll%20-%20ECB%20and%20EZ%20outlook%20-%20December%202020.PNG)

That pick-up in growth will not filter through to inflation which was expected to remain far below the European Central Bank’s target of just below 2%, averaging 0.3% in 2020. 0.9% in 2021 and 1.3% in 2022.

Having remained in negative territory for the fourth straight month in November, inflation is likely to be a point of focus when the ECB’s Governing Council meets next week.

The ECB has launched a strategic review after years of inflation undershooting its target and nearly 80% of respondents to an extra question, or 33 of 43 economists, said the ECB would change its inflation target.

While a smaller section of poll participants commented on what the target would be, most said the ECB would allow more leeway around 2% or adopt an average inflation targeting framework, similar to the Federal Reserve’s recent policy.

“We are probably going to see something which looks a little bit similar to the Fed in the sense that this will be more of a symmetrical target. By changing to a symmetrical target, you build in a little more tolerance for higher inflation in the future,” said Elwin de Groot, head of macro strategy at Rabobank.

“This cements the idea rates will stay very low in the coming years… but the past ten years suggest these very relaxed policy settings are not sufficient to really create more growth and inflation. What you really need is a combination of monetary and fiscal policy.”

The ECB was expected to top up its pandemic-related bond purchases by 500 billion euros, at its Dec. 10 meeting, extending the programme by six months until December 2021, a Nov. 18 poll found. It was also predicted to change the terms of its targeted long-term loans to financial institutions.

(Reporting by Richa Rebello and Manjul Paul; Polling by Tushar Goenka and Hari Kishan; Editing by Jonathan Cable and Toby Chopra)

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Canadian dollar strengthens as economy grows at a record pace – The Globe and Mail

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The Canadian dollar strengthened against its U.S. counterpart on Tuesday as the greenback broadly declined and domestic data showed the economy growing at a record pace in the third quarter.

Canada’s economy grew by 40.5 per cent on an annualized basis in the third quarter, rebounding from a historic plunge in the second quarter, as businesses and stores reopened from COVID-19 lockdowns, Statistics Canada said.

Separate data, from IHS Markit, showed that Canadian manufacturing activity expanded for the fifth straight month in November as output and new orders climbed.

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The U.S. dollar fell against a basket of major currencies on growing speculation that the Federal Reserve will act to support the economy through a tough winter as coronavirus cases rise.

Canada is also seeing a surge in infections. On Monday, Ottawa projected the budget deficit would hit a historic C$381.6 billion on COVID-19 emergency aid.

The Canadian dollar was trading 0.4 per cent higher at 1.2953 to the greenback, or 77.20 U.S. cents, having traded in a range of 1.2942 to 1.3006.

On Monday, the loonie notched its strongest intraday level in over two years at 1.2919. It ended November up 2.4 per cent.

The price of oil, one of Canada’s major exports, fell on Tuesday as investors awaited direction from OPEC and its allies after the producers postponed a formal meeting to decide whether to lift output from January. U.S. crude prices were down 0.8 per cent at $44.99 a barrel.

Canadian government bond yields were higher across a steeper curve in sympathy with U.S. Treasuries as Wall Street rallied. The 10-year was up 2.9 basis points at 0.709 per cent.

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Economy

Canadian dollar strengthens as economy grows at a record pace – The Globe and Mail

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 on


The Canadian dollar strengthened against its U.S. counterpart on Tuesday as the greenback broadly declined and domestic data showed the economy growing at a record pace in the third quarter.

Canada’s economy grew by 40.5 per cent on an annualized basis in the third quarter, rebounding from a historic plunge in the second quarter, as businesses and stores reopened from COVID-19 lockdowns, Statistics Canada said.

Separate data, from IHS Markit, showed that Canadian manufacturing activity expanded for the fifth straight month in November as output and new orders climbed.

Story continues below advertisement

The U.S. dollar fell against a basket of major currencies on growing speculation that the Federal Reserve will act to support the economy through a tough winter as coronavirus cases rise.

Canada is also seeing a surge in infections. On Monday, Ottawa projected the budget deficit would hit a historic C$381.6 billion on COVID-19 emergency aid.

The Canadian dollar was trading 0.4 per cent higher at 1.2953 to the greenback, or 77.20 U.S. cents, having traded in a range of 1.2942 to 1.3006.

On Monday, the loonie notched its strongest intraday level in over two years at 1.2919. It ended November up 2.4 per cent.

The price of oil, one of Canada’s major exports, fell on Tuesday as investors awaited direction from OPEC and its allies after the producers postponed a formal meeting to decide whether to lift output from January. U.S. crude prices were down 0.8 per cent at $44.99 a barrel.

Canadian government bond yields were higher across a steeper curve in sympathy with U.S. Treasuries as Wall Street rallied. The 10-year was up 2.9 basis points at 0.709 per cent.

Be smart with your money. Get the latest investing insights delivered right to your inbox three times a week, with the Globe Investor newsletter. Sign up today.

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