ISTANBUL (Reuters) – Turkey’s economy is expected to have severely contracted nearly 12% in the second quarter due to the coronavirus lockdown, a Reuters poll showed on Friday, logging its worst year-over-year performance in more than a decade.
The median estimate in a Reuters poll of 14 economists was for an 11.8% contraction in gross domestic product (GDP), with estimates ranging from declines of 7.1% to 13.1%.
The Turkish economy grew 4.5% year-on-year in the first quarter of 2020, propelled by a lending spree just before the pandemic brought on a sharp downturn beginning in March.
The economy was near stand-still in the second quarter as Ankara shut schools and some businesses, closed borders and adopted weekend stay-home orders. Some factories were halted until the economy was mostly re-opened in June.
The second quarter plunge combined with a severe hit to the key tourism sector means the economy is also expected to shrink for the full year.
The median estimate of 14 economists was for a contraction of 1.9% in 2020, with predictions ranging between declines of 1% and 3.8%.
Turkey’s economy last contracted on an annual basis in the midst of the global great recession in 2009, by 4.7%. It shrank by 13.1% year-over-year in the first quarter of that year.
GDP growth had since averaged more than 5% on the back of cheap foreign funding and a construction boom, until a currency crisis in 2018 prompted another recession.
The central bank – which cut rates aggressively since mid-2019 – has held policy steady the last few months as the lira dropped to record lows, threatening bigger problems for the economy.
Seen as a precursor to growth figures, industrial production contracted 16.9% year-on-year in the second quarter. Since then, trade, capacity utilisation and business confidence indexes have gained traction.
The Turkish Statistical Institute will release the GDP data for the second quarter at 0700 GMT on Aug 31.
(Reporting by Ezgi Erkoyun; Writing by Ece Toksabay; Editing by Jonathan Spicer)
Why the U.S. Risks Repeating 2009’s Mistakes as the Economic Rebound Slows – The New York Times
Trillions of dollars in federal aid to households and businesses has allowed the U.S. economy to emerge from the first six months of the coronavirus pandemic in far better shape than many observers had feared last spring.
But that spending has now largely dried up and hopes for a major new aid package ahead of the Nov. 3 election are all but dead, even as the virus persists and millions of Americans remain unemployed. Already, there are signs that the economic rebound is losing steam, as some measures of consumer spending growth decelerate and job gains slow. Applications for jobless benefits rose last week, with about 825,000 Americans filing for state unemployment benefits.
The combination of a moderating economic rebound and fading government support are an eerie echo of the weak period that followed the 2007 to 2009 recession. In the view of many analysts, a premature pullback in government support back then led to a grinding recovery that left legions of would-be employees out of work for years. In recent weeks, prominent economists have warned that both the United States and Europe, where many early responses are drawing to a close, were at risk of repeating that mistake by cutting off government aid too soon.
“The initial response was good, but we need more,” said Karen Dynan, who was chief economist at the Treasury Department in the Obama administration and now teaches at Harvard. The decision to pull back on spending a decade ago, she said, “really prolonged the period of weakness after the great recession.”
In Europe, some national governments that have spent aggressively to subsidize wages and curb layoffs are wrapping up those efforts. While large countries including Germany have indicated that they remain willing to provide more support, some economists warn that continued aid announced in France and elsewhere might fall short of what is needed in the near term.
In the United States, the situation is more immediately worrying. Leaders of both major political parties have expressed support, at least in theory, for additional aid. But the parties remain far apart, with Democrats pushing for a large package and Republicans arguing that a smaller plan will suffice.
The ability to reach a compromise in the coming weeks has been further complicated by a looming confirmation battle to replace Ruth Bader Ginsburg on the Supreme Court.
“That’s my great concern, that we’re going leave and not have a stimulus Covid package put together,” Senator Roy Blunt, Republican of Missouri, said Thursday.
Top Democrats, responding in part to growing concern among moderate lawmakers about the stalemate over providing aid, were working on a scaled-back package, according to a person familiar with the plans. It remains unclear whether the House will vote on such a measure, which would provide roughly $2.4 trillion in aid, or whether negotiations will resume in earnest.
One factor making a quick agreement even less likely: The economic revival is slowing, but not as sharply as some economists predicted would happen once expanded unemployment insurance and other programs began to ebb.
Job growth slowed in July and August but remained positive. Consumer spending, which rebounded sharply once federal money started flowing in April, has likewise seen a more gradual rebound but has not fallen. Layoffs, as measured by claims for unemployment insurance, have continued to trend down, although they remain high by historical standards.
But many economists said that allowing the economy to slow at the current moment — with millions out of work or underemployed — could lead to long-term economic scarring. Employers have still hired back less than half of the 22 million workers they laid off in March and April, and the unemployment rate is higher than the peak of many past recessions. Even optimistic forecasts imply that gross domestic product will shrink more this year than in the worst year of the last recession.
“A stalling recovery when we’re stalling at near the worst point of the great recession is a terrible outcome,” said Tara Sinclair, an economist at George Washington University.
Jerome H. Powell, the Fed chair, made clear during congressional hearings this week that the economy, while recovering, would likely need more support.
“The power of fiscal policy is unequaled, by really anything else,” Mr. Powell said during testimony before a House subcommittee on Wednesday. “We need to stay with it, all of us,” adding, “the recovery will go faster if there’s support coming both from Congress and from the Fed.”
His colleague Eric Rosengren, president of the Federal Reserve Bank of Boston, said Wednesday that additional fiscal policy “is very much needed” but noted it “seems increasingly unlikely to materialize anytime soon.”
Some economists warn that the economy could begin to shrink again if Congress doesn’t act. Many households were able to save in the spring, thanks to federal aid and shutdown orders that kept them from spending money on restaurant meals and hotel stays. Households socked away about one-third of their disposable incomes in April, and while the savings rate has come down since, it remained sharply elevated from pre-crisis levels through July. That should create some buffer.
But those funds won’t sustain jobless families indefinitely now that extra unemployment benefits have expired and a partial supplement supported by repurposed federal funds is on the brink of running out. And businesses that were kept afloat during the summer may struggle when colder weather puts an end to outdoor dining and other activities.
There is an alarming precedent for what happens when support fades in the midst of an uncertain economic moment.
In the early stages of the 2008 financial crisis, Congress and the White House — first under President George W. Bush, then under President Barack Obama — pumped billions of dollars into the economy in the form of tax cuts for individuals and companies, infrastructure spending, extended unemployment benefits and other measures.
But Mr. Obama was unable to win approval for further large-scale stimulus efforts, and by 2010 Congress had effectively ceded to the Federal Reserve the job of managing the still-tenuous economic recovery.
“The lesson from the last crisis is that we had elevated unemployment for years, and it was a slow grind to work that down,” Robert S. Kaplan, president of the Federal Reserve Bank of Dallas, said in an interview Monday, explaining that he supports extending fiscal aid. “We have a chance here, if we act quickly, to mitigate the lasting damage that we saw.”
The post-financial crisis pullback in government spending was even more dramatic in Europe, where austerity was enforced across countries with weaker economies and higher debt levels, and where the European Central Bank raised interest rates in 2011, removing monetary support years before the Fed first lifted rates in late 2015. Another slump ensued across European economies, bringing with it years of high unemployment, low inflation and weak growth.
There are important differences between the two crisis eras, especially in the United States. The economy was far stronger before the pandemic hit than in 2007, when inflated home prices, risky lending and financial engineering left the banking system vulnerable. And policymakers responded far more quickly and aggressively this time around.
The Fed cut interest rates close to zero in March, before data showing widespread economic damage had even begun to emerge. In the last crisis, the Fed didn’t take that step until the end of 2008, a year after the recession had begun. The European Central Bank rolled out massive bond-buying programs, something monetary policymakers in the currency block resisted in the immediate aftermath of the 2009 crisis.
But central banks have less room to adjust their policies to bolster growth now than they did a decade ago. Interest rates and inflation have fallen to low levels across advanced economies, stealing potency from monetary policy tools that work by making credit cheap.
That’s where fiscal policy — elected officials’ ability to tax and spend — comes in. Economic theory suggests that fiscal policy can be effective at times when monetary policy is not.
Initially, policymakers across advanced economies seemed far more willing to spend heavily and amass huge deficits than they were during the last crisis, at least in part because the same low interest rates robbing central banks of their power have made payments on government debt cheaper.
In the early days of this crisis, Congress approved legislation that sent direct payments to most American households, established a small-business assistance program and added $600 a week to unemployment checks, while expanding the system to cover millions more jobless workers. Together, the programs dwarfed the response to the last recession.
The aggressive response was successful. After shedding millions of workers in March and April, companies began bringing them back in May and June. Stimulus checks and that extra $600 per week lifted personal incomes in April and May, buoying spending. A predicted wave of foreclosures and evictions largely failed to materialize. By August, the unemployment rate had fallen to 8.4 percent, defying expectations that it would remain in double digits into next year.
Mr. Powell said government spending should get “credit” for the pace of the rebound but warned that risks remain if key programs are allowed to permanently lapse. As unemployed workers run through their savings, they might pull back on spending and lose their homes, he said during Senate testimony on Thursday.
Without more help “we’ll see sooner or later, probably sooner, that the economy has a hard time sustaining the growth that we’ve seen — that’s the risk,” he said.
Economists said Mr. Powell appears to have learned a lesson from the aftermath of the last recession: When the Fed is forced to try to rescue the economy on its own, the result is a painfully slow recovery that takes years to reach many of the most vulnerable households.
The consequences of another slow recovery would almost certainly fall disproportionately on low-income families, many of them Black and Hispanic. Those workers were among the last to benefit from the plodding recovery after the last recession, and have been among the hardest hit by the current crisis.
“This pandemic, and our efforts here, could very well create even greater inequality in our nation than there was even before the pandemic,” said Representative Andy Kim, Democrat of New Jersey and a former Obama administration official. “Some are going to be able to get through this much, much better than others, and those that are not? This is one of those once in a lifetime situations that could very well cripple them for a generation if we don’t take some of the necessary steps in the next few weeks and months.”
Peter S. Goodman and Emily Cochrane contributed reporting.
Chancellor outlines Winter Economy Plan – GOV.UK – GOV.UK
- central to plan is a new Job Support Scheme and extension of Self Employment Income Support Scheme
- and over one million businesses will get flexibilities to help pay back loans
The Chancellor Rishi Sunak today outlined additional government support to provide certainty to businesses and workers impacted by coronavirus across the UK.
Delivering a speech in Parliament, the Chancellor announced a package of measures that will continue to protect jobs and help businesses through the uncertain months ahead as we continue to tackle the spread of the virus.
The package includes a new Jobs Support Scheme to protect millions of returning workers, extending the Self Employment Income Support Scheme and 15% VAT cut for the hospitality and tourism sectors, and help for businesses in repaying government-backed loans.
The announcement comes after the Prime Minster set out further measures to combat the spread of the virus over the winter, while preserving the ability to grow the economy.
The Chancellor of the Exchequer Rishi Sunak said:
The resurgence of the virus, and the measures we need to take in response, pose a threat to our fragile economic recovery…
Our approach to the next phase of support must be different to that which came before.
The primary goal of our economic policy remains unchanged – to support people’s jobs – but the way we achieve that must evolve.
Since the beginning of the pandemic, the government has taken swift action to save lives, limit the spread of the disease and minimise damage to the economy.
Ministers have introduced one of the most generous and comprehensive economic plans anywhere in the world with over £190 billion of support for people, businesses and public services – including paying the wages of nearly 12 million people, supporting over a million businesses through grants, loans and rates cuts and announcing the Plan for Jobs in July.
The government has been consistently clear that it would keep its support under review to protect jobs and the economy, with today’s action reflecting the evolving circumstances and uncertainty of the months ahead.
The package of measures, which applies to all regions and nations of the UK, includes:
Support for workers
A new Job Support Scheme will be introduced from 1 November to protect viable jobs in businesses who are facing lower demand over the winter months due to coronavirus.
Under the scheme, which will run for six months and help keep employees attached to the workforce, the government will contribute towards the wages of employees who are working fewer than normal hours due to decreased demand.
Employers will continue to pay the wages of staff for the hours they work – but for the hours not worked, the government and the employer will each pay one third of their equivalent salary.
This means employees who can only go back to work on shorter time will still be paid two thirds of the hours for those hours they can’t work.
In order to support only viable jobs, employees must be working at least 33% of their usual hours. The level of grant will be calculated based on employee’s usual salary, capped at £697.92 per month.
The Job Support Scheme will be open to businesses across the UK even if they have not previously used the furlough scheme, with further guidance being published in due course.
It is designed to sit alongside the Jobs Retention Bonus and could be worth over 60% of average wages of workers who have been furloughed – and are kept on until the start of February 2021. Businesses can benefit from both schemes in order to help protect jobs.
In addition, the Government is continuing its support for millions of self-employed individuals by extending the Self Employment Income Support Scheme Grant (SEISS). An initial taxable grant will be provided to those who are currently eligible for SEISS and are continuing to actively trade but face reduced demand due to coronavirus. The initial lump sum will cover three months’ worth of profits for the period from November to the end of January next year. This is worth 20% of average monthly profits, up to a total of £1,875.
An additional second grant, which may be adjusted to respond to changing circumstances, will be available for self-employed individuals to cover the period from February 2021 to the end of April – ensuring our support continues right through to next year.
This is in addition to the more than £13 billion of support already provided for over 2.6 million self-employed individuals through the first two stages of the Self Employment Income Support Scheme – one of the most generous in the world.
Tax cuts and deferrals
As part of the package, the government also announced it will extend the temporary 15% VAT cut for the tourism and hospitality sectors to the end of March next year. This will give businesses in the sector – which has been severely impacted by the pandemic – the confidence to maintain staff as they adapt to a new trading environment.
In addition, up to half a million business who deferred their VAT bills will be given more breathing space through the New Payment Scheme, which gives them the option to pay back in smaller instalments. Rather than paying a lump sum in full at the end March next year, they will be able to make 11 smaller interest-free payments during the 2021-22 financial year.
On top of this, around11 million self-assessment taxpayers will be able to benefit from a separate additional 12-month extension from HMRC on the “Time to Pay” self-service facility, meaning payments deferred from July 2020, and those due in January 2021, will now not need to be paid until January 2022.
Giving businesses flexibility to pay back loans
The burden will be lifted on more than a million businesses who took out a Bounce Back Loan through a new Pay as You Grow flexible repayment system. This will provide flexibility for firms repaying a Bounce Back Loan.
This includes extending the length of the loan from six years to ten, which will cut monthly repayments by nearly half. Interest-only periods of up to six months and payment holidays will also be available to businesses. These measures will further protect jobs by helping businesses recover from the pandemic.
We also intend to give Coronavirus Business Interruption Loan Scheme lenders the ability to extend the length of loans from a maximum of six years to ten years if it will help businesses to repay the loan.
In addition, the Chancellor also announced he would be extending applications for the government’s coronavirus loan schemes that are helping over a million businesses until the end of November. As a result, more businesses will now be able to benefit from the Coronavirus Business Interruption Loan Scheme, the Coronavirus Large Business Interruption Loan Scheme, the Bounce Back Loan Scheme and the Future Fund. This change aligns all the end dates of these schemes, ensuring that there is further support in place for those firms who need it.
Investment in public services
At the start of the pandemic, the Chancellor pledged to give the NHS and public services the support needed to respond to coronavirus – and as of today, £68.7 billion of additional funding has been approved by the Treasury, including £24.3 billion since the Summer Economic Update in July.
This funding has helped ensure the procurement of PPE for frontline staff, provided free school meals for children while at home and protected the country’s most vulnerable. In addition, the £12 billion funding to roll-out the Test and Trace programme has played a key role helping to unlock the economy, enabling businesses like restaurants and bars to serve customers again.
As announced earlier this year, the Treasury has also guaranteed the devolved administrations will receive at least £12.7 billion in additional funding. This gives Scotland, Wales and Northern Ireland the budget certainty to for coronavirus response in the months ahead.
Responses from business groups
Dame Carolyn Fairbairn, CBI Director-General, said:
These bold steps from the Treasury will save hundreds of thousands of viable jobs this winter. It is right to target help on jobs with a future, but can only be part-time while demand remains flat. This is how skills and jobs can be preserved to enable a fast recovery.
Wage support, tax deferrals and help for the self-employed will reduce the scarring effect of unnecessary job losses as the UK tackles the virus. Employers will apply the same spirit of creativity, seizing every opportunity to retrain and upskill their workers.
The Chancellor has listened to evidence from business and acted decisively. It is this spirit of agility and collaboration that will help make 2021 a year of growth and renewal.
Mike Cherry OBE, Federation of Small Businesses National Chair, said:
The UK’s small businesses are facing an incredibly difficult winter. Today’s support package is the flipside of the coin to Tuesday’s COVID-19 business restrictions.
It is a swift and significant intervention, extending emergency SME loans, creating new wage support for small employers and the self-employed, and providing cashflow help on VAT deferrals and new Time To Pay for any tax bills to HMRC.
We welcome that the Chancellor is ensuring that decisions to protect public health are informed by the need to protect the economy, people’s jobs and prospects for young people in our schools and workplaces.
BCC Director General Adam Marshall said:
The measures announced by the Chancellor will give business and the economy an important shot in the arm. Chambers of Commerce have consistently called for a new generation of support to help preserve livelihoods and ease the cash pressures faced by firms as they head into a challenging and uncertain winter.
The Chancellor has responded to our concerns with substantial steps that will help companies preserve jobs and navigate through the coming months. The new wage support scheme will help many companies hold on to valued employees after furlough ends, and the extension of business lending schemes and tax forbearance will lessen the immediate pressure on cash flow for many affected firms.
As we look past the immediate challenge, more will need to be done to rebuild and renew our economy. Chambers of Commerce across the UK will continue to work with government to ensure the benefits of these schemes are delivered to firms on the ground.
Global shares slide, dollar up as hopes of economic recovery fade – TheChronicleHerald.ca
By Simon Jessop
LONDON (Reuters) – Global shares fell and the dollar hit a two-month high on Thursday on investor concern about another economic hit from the coronavirus pandemic, ahead of key U.S. jobless data and comments from the head of the Federal Reserve.
After a summer lull in much of Europe, the infection rate has begun to rise sharply, with a number of countries including Britain introducing tougher rules to help limit the spread of the virus.
Fears that a market rebound in recent months had gone too far held stocks back, although positive German and French business sentiment data helped pare European losses slightly as did U.S. stock futures pointing to a flat open.
The MSCI World .MIWD00000PUS> index was down 0.5% at 1018 GMT, its fifth day in the red out of the last six and hovering near a two-month low. A broad gauge of Europe’s top shares, the STOXX Europe 600 .STOXX>, was down 0.4%.
S&P 500 futures were flat nearing midday, holding steady after falls in the prior session after economic warnings from U.S. Federal Reserve officials.
That had, in turn, helped tee up weakness overnight in Asia with Asia Pacific shares outside Japan .MIAPJ0000PUS> down 1.99% to chalk up their worst day in two months.
“Optimism on the recovery, optimism on the virus, and bets on stimulus were keeping markets well bid, and on all three of these issues, there has been a degree of disappointment this month,” said John Velis, an FX and macro strategist at BNY Mellon.
High-grade euro zone government bond yields fell across the board on an expectation that stimulus measures would be maintained, with the German 10-year down 2.2 basis points. The U.S. 10-year was dowm 0.5 basis points.
Despite markets betting on more U.S. fiscal stimulus, political stalemate in Washington continues to frustrate efforts to prop up the world’s biggest economy, beset by one of the worst COVID-19 death rates globally.
“A U.S. fiscal deal was baked into markets and now what you are seeing is that the probability of a deal going through has simply reversed,” said Justin Onuekwusi, a London-based portfolio manager at Legal and General Investment Management.
“We have heard this week how important a fiscal deal is to the Federal Reserve but from a political standpoint, focus has moved more towards the election and Supreme Court deliberations rather than the economy,” he added.
Flows into the dollar =USD> helped it rise for a fourth straight day. Although gains had been pared slightly from the open, it remains on track to record its longest streak of daily gains since June.
The slight perk-up in sentiment helped Brent crude futures recover early losses to trade flat at $41.80 a barrel although gold remained lower, down 0.6% and on course for a fourth day of losses that total nearly 7%.
The euro was flat at $1.1658.
With central bankers in focus globally, U.S. Federal Reserve Chair Jerome Powell will be closely watched later in the day when he testifies before the Senate Banking Committee, while other Fed officials are scheduled to speak at other events during the day.
Investors are also waiting for weekly data due later on Thursday, which is expected to show U.S. jobless claims fell slightly but remained elevated, indicating the world’s largest economy is far from recovering.
A similar picture was visible in Europe, where the European Central Bank’s latest Economic Bulletin said unemployment would continue to rise in the euro zone, with little growth in demand seen for consumer goods.
Elsewhere among regional ratesetters, the Swiss National Bank maintained its easy monetary policy, but turned less gloomy on the impact of the pandemic. In Britain, meanwhile, the finance minister launched a new jobs support scheme.
In emerging markets, Turkey surprised markets with a hike in its policy rate by 200 basis points to 10.25%, sending the lira and bonds higher. Mexico is also set to decide on monetary policy later on Thursday.
MSCI’s Emerging Markets Index .MSCIEF> was down 1.8%.
(Graphic: COVID-19 new daily cases – https://fingfx.thomsonreuters.com/gfx/mkt/gjnvwjjbbpw/Pasted%20image%201600941249476.png)
(Additional reporting by Imani Moise in New York, Marc Jones, Saikat Chatterjee and Sujata Rao in London; Editing by John Stonestreet, Andrew Heavens and Chizu Nomiyama)
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