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U.S. economy shrank at 4.8% rate last quarter as virus struck – POLITICO

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The U.S. economy shrank at a 4.8 percent annual rate last quarter as the coronavirus pandemic shut down much of the country and began triggering a recession that will end the longest expansion on record.

The Commerce Department says the gross domestic product, the total output of goods and services, posted a quarterly drop for the first time in six years. And it was the sharpest fall since the economy shrank at an 8.4 percent annual rate in the fourth quarter of 2008 in the depths of the Great Recession.

Forecasters say the drop in the January-March quarter will be a precursor of a far grimmer GDP report to come on the current April-June period, with business shutdowns and layoffs striking with devastating force. The Congressional Budget Office has estimated that GDP will plunge this quarter at a 40 percent annual rate.

That would be, by a breathtaking margin, the bleakest quarter since such records were first compiled in 1947. It would be four times the size of the worst quarterly contraction on record set in 1958.

In just a few weeks, businesses across the country have shut down and laid off tens of millions of workers. Factories and stores are shuttered. Home sales are falling. Households are slashing spending. Consumer confidence is sinking.

As the economy slides into what looks like a severe recession, some economists are holding out hope that a recovery will arrive quickly and robustly once the health crisis has been solved — what some call a V-shaped recovery. Increasingly, though, analysts say they think the economy will struggle to regain its momentum even after the viral outbreak has subsided.

Many Americans, they suggest, could remain too fearful to travel, shop at stores or visit restaurants or movie theaters anywhere near as much as they used to. In addition, local and state officials might continue to limit, for health reasons, how many people may congregate in such places at any one time, thereby making it difficult for many businesses to survive. It’s why some economists say the damage from the downturn could persist far longer than some assume.

There is also fear that the coronavirus could flare up again after the economy is reopened, forcing reopened businesses to shut down again.

The Trump administration takes a rosier view. President Donald Trump told reporters this week that he expects a “big rise” in GDP in the third quarter, followed by an “incredible fourth quarter, and you’re going to have an incredible next year.”

The president is building his reelection campaign on the argument that he built a powerful economy over the past three years and can do so again after the health crisis has been resolved.

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Economy

G7 nations to boost climate finance

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G7 leaders agreed on Sunday to raise their contributions to meet an overdue spending pledge of $100 billion a year by rich countries to help poorer countries cut carbon emissions and cope with global warming, but only two nations offered firm promises of more cash.

Alongside plans billed as helping speed infrastructure funding in developing countries and a shift to renewable and sustainable technology, the world’s seven largest advanced economies again pledged to meet the climate finance target.

But climate groups said the promise made in the summit’s final communique lacked detail and the developed nations should be more ambitious in their financial commitments.

In the communique, the seven nations – the United States, Britain, Canada, France, Germany, Italy and Japan – reaffirmed their commitment to “jointly mobilise $100 billion per year from public and private sources, through to 2025”.

“Towards this end, we commit to each increase and improve our overall international public climate finance contributions for this period and call on other developed countries to join and enhance their contributions to this effort.”

After the summit concluded, Canada said it would double its climate finance pledge to C$5.3 billion ($4.4 billion) over the next five years and Germany would increase its by 2 billion to 6 billion euros ($7.26 billion) a year by 2025 at the latest.

There was a clear push by leaders at the summit in southwest England to try to counter China’s increasing influence in the world, particularly among developing nations. The leaders signalled their desire to build a rival to Beijing’s multi-trillion-dollar Belt and Road initiative but the details were few and far between.

Johnson, host of the gathering in Carbis Bay, told a news conference that developed nations had to move further, faster.

“G7 countries account for 20% of global carbon emissions, and we were clear this weekend that action has to start with us,” he said as the summit concluded.

“And while it’s fantastic that every one of the G7 countries has pledged to wipe out our contributions to climate change, we need to make sure we’re achieving that as fast as we can and helping developing countries at the same time.”

PLEDGE OVERDUE

Some green groups were unimpressed with the climate pledges.

Catherine Pettengell, director at Climate Action Network, an umbrella group for advocacy organisations, said the G7 had failed to rise to the challenge of agreeing on concrete commitments on climate finance.

“We had hoped that the leaders of the world’s richest nations would come away from this week having put their money their mouth is,” she said.

Developed countries agreed at the United Nations in 2009 to together contribute $100 billion each year by 2020 in climate finance to poorer countries, many of whom are grappling with rising seas, storms and droughts made worse by climate change.

That target was not met, derailed in part by the coronavirus pandemic that also forced Britain to postpone the U.N. Climate Change Conference (COP26) until later this year.

The G7 also said 2021 should be a “turning point for our planet” and to accelerate efforts to cut greenhouse gas emissions and keep the 1.5 Celsius global warming threshold within reach.

European Commission President Ursula von der Leyen said the G7 leaders had agreed to phase out coal.

The communique seemed less clear, saying: “We have committed to rapidly scale-up technologies and policies that further accelerate the transition away from unabated coal capacity, consistent with our 2030 NDCs and net zero commitment.”

The also pledged to work together to tackle so-called carbon leakage – the risk that tough climate policies could cause companies to relocate to regions where they can continue to pollute cheaply.

But there were few details on how they would manage to cut emissions, with an absence of specific measures on everything from the phasing out of coal to moving to electric vehicles.

Pettengell said it was encouraging that leaders were recognising the importance of climate change but their words had to be backed up by specific action on cutting subsidies for fossil fuel development and ending investment in projects such as new oil and gas fields, as well as on climate finance.

British environmentalist David Attenborough appealed to politicians to take action.

“We know in detail what is happening to our planet, and we know many of the things we need to do during this decade,” he said in a recorded video address to the meeting.

“Tackling climate change is now as much a political and communications challenge as it is a scientific or technological one. We have the skills to address it in time, all we need is the global will to do so.”

($1 = 1.2153 Canadian dollars)

(Reporting by Elizabeth PiperAdditional reporting by William James and Kate Abnett in Brussels and Andreas Rinke in BerlinEditing by William Maclean, Raissa Kasolowsky and Frances Kerry)

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Economy

Canadian dollar goes up from Friday’s 4-week low

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Canadian dollar

The Canadian dollar edged higher against its U.S. counterpart on Monday as oil prices climbed and investors looked past domestic data showing factory sales falling in April, with the loonie clawing back some of Friday’s decline.

Canadian factory sales decreased by 2.1% in April from March, Statistics Canada said. Still, sales were up 1.1% after excluding vehicles and parts.

“Zooming out from the disruptions seen in the auto industry, the outlook for manufacturing sales is not all that bad,” Omar Abdelrahman, an economist at TD Economics, said in a note.

“The reopening of provincial economies and strength in Canada‘s largest export market (the U.S.) should provide a lift to demand,” Abdelrahman added.

The price of oil, one of Canada‘s major exports, was supported by economic recovery.

U.S. crude prices rose 0.9% to $71.56 a barrel, while the Canadian dollar was trading 0.2% higher at 1.2143 to the greenback, or 82.35 U.S. cents. On Friday, it fell to its weakest since May 14 at 1.2177.

Speculators have cut their bullish bets on the Canadian dollar, the strongest G10 currency this year, data from the U.S. Commodity Futures Trading Commission showed on Friday. As of June 8, net long positions had fallen to 45,281 contracts from 48,772 in the prior week.

A stronger Canadian dollar is usually seen hurting exporters, but the nature of the global economic recovery could help firms pass on their higher costs from the currency to customers, leaving exporters in less pain than in previous cycles.

Investors were awaiting a Federal Reserve policy announcement on Wednesday. Expectations that the Fed would stick to its dovish course have helped cap U.S. and Canadian bond yields.

Canada‘s 10-year yield touched its lowest level since March 3 at 1.365% before recovering to 1.381%, up 1.3 basis points on the day.

 

(Reporting by Fergal Smith; Editing by Bernadette Baum)

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Economy

Toronto stock exchange dips as losses in miners

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Toronto Stock Exchange

Toronto stock exchange index edged lower on Monday, as losses in mining stocks and dismal domestic manufacturing data overshadowed gains in energy stocks.

* The materials sector, which includes precious and base metals miners and fertilizer companies, lost 0.7% as gold futures fell 1.6% to $1,848.2 an ounce. [GOL/]

* Canadian factory sales slipped by 2.1% in April from March on lower sales of transportation equipment, as well as subdued petroleum and coal products sector, Statistics Canada said.

* At 9:43 a.m. ET (13:43 GMT), the Toronto Stock Exchange’s S&P/TSX composite index was down 14.52 points, or 0.07%, at 20,123.83.

* The energy sector climbed 1.4% as U.S. crude prices were up 1% a barrel, while Brent crude rose 0.9%. [O/R]

* Financials slipped 0.3%, while industrials fell 0.1%.

* On the TSX, 120 issues were higher, while 107 issues declined for a 1.12-to-1 ratio favouring gainers, with a trading volume of 22.35 million shares.

* TSX’s top gainers were paper and packaging company Cascades Inc <CAS.TO> and IT firm Kinaxis Inc <KXS.TO>, jumping 4.1% and 4.0%, respectively.

* Biggest decliners were uranium producers Nexgen Energy Ltd <NXE.TO>, down 5.9%, followed by Cameco Corp falling 5.5%.

* The most heavily traded shares by volume were Canadian Natural Resources Limited <CNQ.TO>, BCE Inc <BCE.TO>, and Hut 8 Mining Corp <HUT.TO>

* Twenty-two stocks hit fresh 52-week highs on the TSX, while there were no new lows.

* Across all Canadian issues, there were 95 new 52-week highs and four new lows, with total volume of 43.57 million shares.

 

(Reporting by Amal S in Bengaluru; Editing by Rashmi Aich)

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