U.S. economy to coast, no big boost expected from trade deal - Canada News Media
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U.S. economy to coast, no big boost expected from trade deal



BENGALURU — The initial trade deal between Washington and Beijing is unlikely to provide a significant boost to the U.S. economy and will only reduce the downside risk or at best help activity moderately, a Reuters poll showed.

While financial markets were optimistic in the run-up to and after the trade agreement – with U.S. stocks hitting all-time highs last week – the growth and inflation outlook in the latest poll was little changed from the previous few months.

The Jan. 16-22 Reuters poll of over 100 economists – taken as business leaders gathered at the World Economic Forum in Davos to be greeted by the IMF cutting its global growth forecasts again – showed a significant pickup in the U.S. economy was not on the cards.

“The recent Phase 1 deal between the U.S. and China suggests decreasing odds of an escalation to a full-blown trade war. However, the deal so far is not comprehensive enough to significantly boost economic momentum,” said Janwillem Acket, chief economist at Julius Baer.

That was also clear from predictions for the Federal Reserve to remain on the sidelines this year and on expectations the next likely move would be a cut rather than a hike.

“It is almost a one-way bet on the Fed right now, that either they are on hold or they are easing this year. I mean there is virtually no chance of tightening,” said Jim O’Sullivan, chief U.S. macro strategist at TD Securities.

Reuters polls over the past couple of years have repeatedly pointed to the U.S.-China trade war as the prominent downside risk for the American economy and warned it would bring the next recession closer.

Now, despite a signed trade agreement, albeit a partial one, the chances of a U.S. recession were similar to predictions in recent months – around 20-25% in the next 12 months and about 30-35% in the next two years.

“Recession odds, which we peg at roughly one-in-four in 2020, will wax and wane with developments on the trade war front,” said Sal Guatieri, senior economist at BMO.

“While recent progress is encouraging, we remain skeptical that a broad accord can be reached this year as complex issues, such as state industry subsidies and forced technology transfers, still need to be resolved.”

All 53 respondents polled said the latest deal would either “reduce the downside risk to the U.S. economy” or “help U.S. economic growth moderately.” Not a single economist said it would “significantly boost growth.”

The U.S. economy will coast with annualized growth expected to have barely moved from the latest reported rate of 2.1% at the end of the forecast horizon – the second quarter of 2021.

“The growth slowdown has probably troughed, but we do not anticipate a V-shaped recovery,” noted Kevin Loane, senior economist at Fathom Consulting.

While the schism in forecasters’ views was clear, with 28 respondents saying the risks to their growth forecasts were skewed more to the upside and 22 seeing downside risks, most economists agreed any significant boost was unlikely.

That was largely attributed to several other events which could prove disrupting – including a period of uncertainty in the lead-up to the U.S. presidential election in November.

“Our views for 2020 are upbeat but cautious. A rebound from last year’s global manufacturing and trade slump is likely, but businesses will be hesitant to invest amid a host of ongoing uncertainties,” said James Sweeney, chief economist at Credit Suisse.

With little change expected in the inflation outlook compared to recent months, all 105 economists polled forecast the Fed would keep rates unchanged at 1.50-1.75% when it meets Jan. 28-29.

The Fed was forecast to extend that pause through to the end of 2021 at least, with the probability of a rate cut this year seen at 30%.

While there was a clear sense of near-term optimism among economists compared with last year, nearly 75% of respondents forecast growth to be below the latest reported rate of 2.1% by mid-2021, up from around 60% in December.

“The (trade) deal may encourage some business investment in the near-term, but the deal is only a temporary and unstable equilibrium. It is very likely to break down, and that would undermine confidence again. So any boost to economic growth will be short-lived,” said Philip Marey, senior U.S. strategist at Rabobank.

(For other stories from the Reuters global long-term economic outlook polls package,)

(Additional reporting, polling and analysis by Indradip Ghosh, Sumanto Mondal and Nagamani Lingappa Editing by Ross Finley and Andrea Ricci)

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From lower oil prices to a weaker loonie: How the new coronavirus could impact Canada’s economy – Global News



The spread of a new strain of coronavirus from China to at least 16 countries has implications for the global economy, analysts warn. That includes Canada, where one confirmed case and one presumptive case of the new coronavirus have been detected so far.

If the current outbreak follows the course of past health scares, it will only be a temporary bump for the Canadian economy, according to an analysis by BMO economist Sal Guatieri. But that stumble would come as domestic growth has already entered a soft patch.

READ MORE: 2nd ‘presumptive’ coronavirus case reported in Ontario

Typically, global health-care worries send stock markets into sell-off mode, with prices of airlines, restaurants and hotels hit especially hard, Guatieri said in a note published on Friday. At the same time, investors pile into safer assets.

Do Canadians need to worry about coronavirus?

Do Canadians need to worry about coronavirus?

On Monday, Canada’s benchmark S&P/TSX composite index was down about 0.6 per cent in midday trading, while the Dow Jones Industrial Average and the S&P 500 were down around one per cent, erasing a significant portion of their gains for January. Companies that rely on travel and tourism suffered steep losses. Meanwhile, the prices of safe-haven assets like gold and bonds rose.

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READ MORE: U.S. stocks tumble as coronavirus cases spike in China

The stock declines follow equity sell-offs in Europe earlier in the day. Most markets in Asia were closed for the Lunar New Year, with Chinese authorities extending the holiday to Feb. 2 in an effort to keep as many people as possible at home to contain the outbreak.

Lunar New Year celebrations continue under coronavirus scare

Lunar New Year celebrations continue under coronavirus scare

As with previous outbreaks, the new, fast-spreading coronavirus is also rattling commodities markets. Crude oil prices dipped below US$60 (C$78) for the first time in nearly three months on Monday, as reports of more businesses being forced to shut down fuelled expectations of slowing oil demand.

The dip in commodity prices typically has knock-on effects for the currencies of countries with resource-based economies, like Canada’s, Guatieri wrote.

On Monday, the Canadian dollar was trading at 75.78 cents U.S., compared with an average of 76.10 cents U.S. on Friday, which was already a four-week low.

READ MORE: Oil prices, stock markets tumble as coronavirus cases spike in China

Comments from the Bank of Canada, which recently trimmed its 2020 economic forecast, have also been putting pressure on the loonie.

In general, global epidemics tend to slow down broader economic growth, Guatieri wrote.

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“People shop less, delay travel and stay home. Companies turn cautious and delay investments.”

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While government moves to contain the crisis and increased demand for health-care services offsets the adverse economic impacts somewhat, “the economy slows nonetheless,” Guatieri said.

In 2003, the spread of SARS shaved 0.66 percentage points off annualized economic growth between March and June that year, according to an estimate from the Bank of Canada. The outbreak caused nearly 800 deaths worldwide, 44 of which were in Canada.

Is Canada doing enough to protect Canadians from the coronavirus outbreak?

Is Canada doing enough to protect Canadians from the coronavirus outbreak?

But the economic impact of SARS and other recent epidemics has been short-lived, Guatieri said.

Stock markets were quick to bounce back once the outbreak appeared to be under control and the number of cases began to fall, with economic activity also recovering rapidly, the report said.

READ MORE: ‘We’re trying to have hope’ — Pregnant B.C. woman stuck in coronavirus epicentre

In Canada, the full-year impact of the SARS outbreak was a reduction of a mere 0.1 per cent of GDP, according to the Bank of Canada.

Guatieri also noted the Chinese government is taking decisive steps to control the outbreak and health care authorities have better technology and protocols in place since the SARS crisis.

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And while the new coronavirus outbreak strikes at a time when both the U.S. and Chinese economies are losing steam, economists have also been hoping for that growth slump to ease somewhat thanks to recent progress on trade negotiations with the approval of a “Phase 1” trade deal between Washington and Beijing.

The ratification of the Canada-United States-Mexico Agreement (CUSMA) is also expected to be a boost for Canada’s economy, ending the uncertainty that weighed on cross-border business as the three countries negotiated a trade agreement to replace NAFTA.

The bottom line is “it’s too soon to revise down our growth forecast” because of the latest health scare, Guatieri said.

— With files from Reuters and the Associated Press

© 2020 Global News, a division of Corus Entertainment Inc.

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The health of the economy in nine charts – Fortune



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Coronavirus Hits Hong Kong as Economy Reels From Protests – The Wall Street Journal



Residents in Hong Kong protest over plans for an empty housing estate to become a temporary quarantine camp for frontline medical staff and patients with coronavirus.


philip fong/Agence France-Presse/Getty Images

Hong Kong banned visitors from the Chinese province at the center of a new virus epidemic as echoes of SARS send panic through the community, threatening more misery for an economy already in recession after months of protests battered tourism and retail sales.

Many people in the city donned masks as local authorities confirmed at least eight cases of infection by the deadly pathogen from the Chinese city of Wuhan, the outbreak’s epicenter. Disneyland shuttered, Lunar New Year festivities were scrapped and schools will remain closed until Feb. 17.

As fear of the coronavirus spreading rises, consumer spending is set to be a casualty as people stay away from restaurants, malls and crowded places. A similar strain known as SARS, or severe acute respiratory syndrome, engulfed Hong Kong from the mainland in 2003, killing nearly 300 people in the city and sending its economy into a three-month tailspin.

Hong Kong was among the worst hit by SARS, with sales in restaurants and retail outlets dropping by some 50% according to a University of Hong Kong report, before bouncing back quickly. As stock markets swooned and people pared travel plans recently, Hong Kong is bracing for a more severe replay of such economic turbulence.

This time, Hong Kong is already in recession. Seven months of street protests, slower Chinese economic growth—a key engine of Hong Kong’s economy—and U.S.-China trade tensions combined to shrink gross domestic product by 2.9% in the third quarter, the territory’s first year-over-year contraction since the global financial crisis in 2009.

The losses from tourist spending, as virus-hit China locked down many cities ahead of the Lunar New Year, are just the top of a fresh set of economic worries for Hong Kong. Professional unions have threatened strikes to protest the government’s handling of the crisis, amid fear among the public of a looming crush of mainland visitors seeking medical resources.

Police on Sunday used tear gas to break up protesters who had blocked roads and built barricades outside a housing estate that the government wanted to turn into a quarantine camp for infected people. Officials later halted the plan.

Hong Kong Disneyland Resort, where attendance in recent months has already been battered by protests, said it would shut from Sunday until it could work out with health authorities when to reopen. The city’s official Lunar New Year celebrations have been scrapped.

Cathay Pacific Airways Ltd.,

Hong Kong’s flagship carrier, has suspended flights to and from Wuhan through the end of February and offered refunds on all mainland China routes as virus cases crop up around the country. “We are monitoring the situation closely and will continue to coordinate with the health authorities,” it said in a statement.

Tour operators including industry major Hong Thai Travel Services Ltd. canceled all group tours to mainland China for at least the rest of January. Hong Kong’s Travel Industry Council said Friday that about 2,600 group tours to the mainland through mid-February had been canceled. Hong Kong’s high-speed rail operator has indefinitely suspended trains to and from Wuhan.

Compounding these pressures, a federation of medical staff unions along with other professional trade unions have threatened strikes if the government doesn’t escalate efforts to contain the disease, including turning back all visitors from mainland China. The government since Monday barred entry to visitors from Hubei, China’s most virus-affected province.

Neighboring Macau also began a similar ban Monday, posting its sixth confirmed infection as its casino-focused economy too faces pressure from a drought of mainland holidaymakers.

Also Monday, the dean of the University of Hong Kong’s medical school, Gabriel Leung, estimated some 44,000 people in Wuhan alone could be infected—far higher than the official mainland tally—and urged “draconian measures” to check the outbreak. He said cases, if unhindered, would likely double every six days. China health officials didn’t immediately respond.

The Hong Kong government has also expanded visitor health declaration requirements, and are looking for more remote sites for quarantine camps. Of nearly 400 suspected cases of infection in Hong Kong, nearly half have been hospitalized.

Chinese authorities are urging the public to remain calm as they try to contain a mysterious, fast-spreading coronavirus that has killed dozens of people and infected thousands. However, millions have already left Wuhan, the city at the center of the outbreak. Photo: Associated Press

Chinese health authorities have confirmed dozens of infections in Shenzhen, the megacity north of Hong Kong, and hundreds more suspected in nearby cities. The as-yet-unnamed coronavirus has killed at least 80 people on the mainland and infected almost 3,000 by official tallies. The outbreak has also reached the U.S. and Europe, and spread across Asia.

Hong Kong’s economy is heavily dependent on individual and household spending, and has become more so since the SARS era. Private consumption last year accounted for 65% of the territory’s economic output, up from 58% in 2002, official data show.

The high level of dependence on private consumption amplifies any hit to the tourism, hotel, and related industries. Tourism contributes about 5% of gross domestic product—mostly from inbound visitors—and employs more than 250,000 people. Officials deem the sector one of “four pillars” of Hong Kong’s economy, alongside financial services, logistics, and professional services.

SARS arrived in Hong Kong in early 2003 as the city grappled with a housing market slump and the aftermath of the Asian financial crisis. The outbreak lasted some three months and Hong Kong rode a broad-based recovery in the second half of 2003, posting 3.1% growth that year.

The new coronavirus is flourishing amid grimmer economic conditions. Even before the outbreak, tourist arrivals in November had fallen 56% year-over-year, nearing the 60% declines in April and May 2003 during SARS. Arrivals last year fell 14% from 2018, driven by a decline that sharply accelerated after June, official data show.

Commuters wear face masks in Hong Kong’s subway Sunday.


jerome favre/Shutterstock/european pressphoto agency

Private spending fell 4.8% in the third quarter, the latest available data—a sharp reversal from 3.3% growth in the April-to-June period, the government said.

Visitors from mainland China account for most of Hong Kong’s tourists, reaching 84% of total arrivals at its peak in February 2015. The measure fell to 72% in November, its lowest since March 2017.

Hotel occupancy rates in November were 66%, compared with 95% a year earlier, official data show. Restaurants are struggling to attract diners, with some putting staff on leave.

“As the SARS outbreak infected more than 8,000 people and killed over 700 people across Asia in 2002 and 2003, there is now greater awareness of how contagious diseases can have a crippling effect on businesses,” said

Patrick Zeng,

Hong Kong and Greater China chief executive for the global insurer Allianz Global Corporate & Specialty.

Write to Chuin-Wei Yap at chuin-wei.yap@wsj.com and Joyu Wang at joyu.wang@wsj.com

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