The U.S. economy will start to recover in the third quarter after a period of reopening in May and June, Treasury Secretary Steven Mnuchin said Sunday.
“As we begin to reopen the economy in May and June, you’re going to see the economy really bounce back in July, August and September,” Mnuchin said in an interview on Fox News Sunday.
The trillions of dollars in government spending “will have a significant impact” to spur growth, he said. “As businesses begin to open, you’re going to see the demand side of the economy rebound.”
Mnuchin noted his forecast is based on assumptions about how the pandemic proceeds. Reopening will have to be balanced with increased testing, he said.
Many experts don’t think there will be a quick recovery, often referred to as a V-shaped rebound.
Billionaire Barry Diller, the chairman of Expedia Group,
scoffed at suggestions the economy would recover this summer.
“Anyone who thinks this economy is going to bounce…it can’t. The damage that is being done is catastrophic,” Diller said on CBC News’ “Face the Nation.”
He said early September would be a better guess of when employees start to return to work.
Bank of America CEO Brian Moynihan, who also appeared on “Face the Nation,” was more upbeat about the outlook.
Moynihan said the bank’s internal data suggest consumer spending has” leveled off” in recent days and is starting to grow in certain areas after plunging in March and earlier this month.
“That actually provides some hope that, as the economy opens up in pieces and safely, you’ll see that consumer spending continue to grow which will help fuel the U.S. economy,” Moynihan said.
This is a result of the government’s stimulus programs, he said.
The Bank of America CEO noted that Diller was in the entertainment business, where the outlook was more depressed.
Moynihan said Bank of America
economists think the economy will return to growth in the October-December period followed by double-digit growth in 2021.
The Treasury Secretary refused to get drawn into the brewing fight on Capitol Hill over the next round of coronavirus relief, which is expected to include billions of dollars of federal aid to states and local governments. Local governments have been caught in a vise in the wake of the pandemic, finding their health-care costs soaring and sales-tax revenue shrinking.
Senior Republicans in Congress, including Senate Majority Leader Mitch McConnell, are reluctant to provide aid to states while Democrats, led by Speaker of the House Nancy Pelosi, have called it their top priority.
State aid “will be something the Senate and House debate. It will be something we discuss on a bipartisan basis. The president has heard from governors. He wants to speak to governors. This is something we will consider,” Mnuchin said.
In a separate interview on CNN’s “State of the Union” program, Pelosi was asked about criticism from some, including New York Governor Andrew Cuomo, that Democrats missed an opportunity to pass state aid in the bill replenishing the Paycheck Protection Plan that Congress passed last week.
“Just calm down. We will have state and local, and we will have it in a very significant way,” Pelosi said.
She noted Republican senators were not unified on the issue, apparently referring to a report in the Washington Post that some GOP senators would back such spending while others worry about the rising federal debt.
Asked about concerns over the rapid increase in the federal budget deficit and debt-to-GDP levels, Mnuchin fell back on describing the fight against the coronavirus pandemic as a “war,” where concerns about spending and debt are secondary.
“The good news is that interest rates are extremely low,” he noted.
In the interview, Mnuchin also had pointed questions for how China handled the early days of the spread of the coronavirus.
President Donald Trump “wants to understand what China knew and when they knew it,” he said
“If they knew things that they didn’t turn over that could have stopped this, he will hold them accountable,” Mnuchin added.
Swiss Economy Slumps the Most in Decades – Yahoo Canada Finance
(Bloomberg) — Switzerland’s economy slumped the most in at least four decades as a result of the coronavirus pandemic, with private consumption and investment plummeting.
First-quarter gross domestic product plunged 2.6%, data from the State Secretariat for Economic Affairs showed. That’s worse than the 2.1% hit forecast by economists in a Bloomberg survey and the biggest three-month contraction since the start of the time series in 1980.
Like neighboring France, Italy and Germany, Switzerland responded to the pandemic by winding down much of public life. The hotel and restaurant sector experienced a 23.4% drop in output, according to the data on Wednesday.
Although the Swiss economy fared slightly worse than Germany’s in the first quarter, the contractions in France and Italy were far more severe.
Swiss government subsidies have kept a lid on unemployment and helped companies avoid a cash crunch, but the SECO still expects the economy to shrink 6.7% this year before staging a slow recovery in 2021.
Machine industry group Swissmem said that 80% of its member companies were forced to apply for short-time work, and that the full impact of the pandemic wouldn’t be felt by the sector until the second or third quarter of this year.
To prevent the rallying haven franc from hurting the economy still further, the Swiss National Bank has stepped up the pace of its currency interventions. Its deposit rate is already at a record low of -0.75%.
(Updates detail on hospitality sector in 3rd paragraph)
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Australia Economy Contracts as End to Recession-Free Run Looms – BNNBloomberg.ca
(Bloomberg) — Australia’s economy contracted in the first three months of the year, setting up an end to the nearly 29-year run without a recession as an even deeper slowdown looms for the current quarter.
Gross domestic product fell 0.3% from the final three months of 2019, the first quarterly drop since 2011, compared with a forecast 0.4% decline, statistics bureau data showed in Sydney Wednesday. From a year earlier, it expanded 1.4%, matching estimate
The result sets up an end to Australia’s record run of avoiding two consecutive quarters of negative GDP, having dodged recessions during the 1997 Asian Financial Crisis, the Dot Com Bubble and the 2008 global financial crisis. The current quarter will see a deep contraction, with almost 600,000 jobs lost in April alone and much of the economy in lockdown to contain the coronavirus.
Fiscal and monetary policy are working in tandem to rebuild the economy. The Reserve Bank of Australia has taken the cash rate near zero and lowering the cost of borrowing with its 0.25% bond yield target. The government has injected tens of billions of dollars into the economy to help tide businesses and households through the lockdown.
With the containment of the health crisis allowing activity to resume, how quickly businesses can get back on their feet, workers regain employment and households resume spending is the critical question.
“The rate of new infections has declined significantly and some restrictions have been eased earlier than was previously thought likely,” RBA Governor Philip Lowe said Tuesday after keeping borrowing costs unchanged.
“However, the outlook, including the nature and speed of the expected recovery, remains highly uncertain and the pandemic is likely to have long-lasting effects on the economy,” he said. “In the period immediately ahead, much will depend on the confidence that people and businesses have about the health situation and their own finances.”
©2020 Bloomberg L.P.
Australia’s Economy Contracts, Ending Three-Decade Expansion – Yahoo Canada Finance
(Bloomberg) — Australia’s economy contracted in the first three months of the year, setting up an end to a nearly 29-year run without a recession as an even deeper slowdown looms for the current quarter.
Gross domestic product fell 0.3% from the final three months of 2019, the first quarterly drop since 2011, brought down by a collapse in household spending, statistics bureau data showed in Sydney Wednesday. Economists had forecast a 0.4% drop. From a year earlier, the economy expanded 1.4%, matching estimates.
The Australian dollar edged a little lower after the release, and traded at 69.32 U.S. cents at 1:06 p.m. in Sydney.
The result sets up an end to Australia’s record run of avoiding two consecutive quarters of shrinking GDP, having dodged recessions during the 1997 Asian Financial Crisis, the Dot Com Bubble and the 2008 global financial crisis. The current quarter will see a deep contraction, with almost 600,000 jobs lost in April alone and much of the economy in lockdown to contain the coronavirus.
Treasurer Josh Frydenberg, speaking after the release, accepted this fate when asked directly whether the economy is now in recession.
“The answer to that is yes,” he told reporters. “That is on the basis of the advice that I have from the Treasury Department about where the June quarter is expected to be.”
Fiscal and monetary policy are working in tandem to rebuild the economy. The Reserve Bank of Australia has taken the cash rate near zero and lowered the cost of borrowing with its 0.25% bond yield target. The government has injected tens of billions of dollars into the economy to help tide businesses and households through the lockdown.
With the containment of the health crisis allowing activity to resume, the critical question is how quickly businesses can get back on their feet, workers regain employment and households resume spending.
“Growth should resume in the September quarter, but the impact of COVID-19 will surely cast a long and lingering shadow over the global economy and Australia’s recovery,” said Callam Pickering, an economist at global jobs website Indeed Inc. who previously worked at the central bank. “Continued support from fiscal and monetary policy will be necessary throughout 2020 and beyond.”
Today’s report showed:
Household spending tumbled 1.1%, shaving 0.6 percentage point off GDP, driven by a 2.4% drop in services expenditure. Restrictions particularity impacted spending on travel, hotels, cafes and restaurantsGovernment spending jumped 1.8%, adding 0.3 percentage point. Payments to provide support during the pandemic are expected to rise in the current quarterThe savings ratio advanced to 5.5% from a downwardly revised 3.5% in the fourth quarterDwelling construction fell 1.7%, reflecting continued weakness in approvalsNon-mining business investment fell 1.7%, while mining investment rose 3.6% as miners invest in new technologies and automation
Rising commodity prices are boosting miners’ profitability, with the terms of trade 2.9% higher in the first three months of 2020, pushing the current account surplus to a record A$8.4 billion ($5.8 billion). Yet, miners will be keeping a watchful eye on the nation’s currency, which has surged almost 20% in the past two-and-a-half months.
What Bloomberg’s Economists Say
“Typically backward looking national accounts releases contain an array of hidden trends that are often overlooked. Mining investment has climbed to a 7-year high, Australia’s terms of trade have risen and exploration intentions are elevated. This bodes well for the recovery.”
James McIntyre, economist
The economic outlook is improving as the restrictions are lifted, but will continue to be constrained by closed borders that are hitting tourism and education exports. The government is discussing a fresh round of fiscal stimulus to try to put residential construction back on its feet.
(Updates with Treasurer and economist comments)
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