BENGALURU (Reuters) – U.S. economic growth will lose momentum this quarter and next but expand faster than previously thought after that, according to a Reuters poll of economists, a firm majority of whom now expect the economy to reach pre-COVID-19 levels within a year.
While the near-term economic outlook has dimmed again as the U.S. remains the country worst-hit by the pandemic and on uncertainty about a fresh fiscal package, Wall Street stocks have reached record highs on positive vaccine news.
The growth outlook for the current and next quarters was lowered in the Nov. 30-Dec. 8 poll. A few respondents predicted a double-dip, expecting the economy to contract again next quarter.
“We expect the rising threat of COVID-19 to dampen growth through the first months of 2021, followed by further fiscal support from the prospective new administration in reaction to the rise in hospitalizations,” noted Ellen Zentner, chief U.S. economist at Morgan Stanley.
“Downside risks are dominated by COVID-19, and particularly if broader-than-expected shutdowns over the winter and a delayed vaccine come in the absence of further fiscal stimulus. In this scenario, a more drawn-out recovery would lead to longer stints of unemployment and greater permanent job loss.”
But in response to an additional question, nearly two-thirds of economists, or 43 of 69, said U.S. GDP would reach pre-COVID-19 levels within a year. Twenty-one said within two years and five said two or more years.
That is a turnaround from the August poll findings, where none of the economists said “less than a year”, with nearly 60% predicting the economy would take two or more years to reach pre-pandemic levels.
The wider poll showed GDP for Q3 is expected to remain unrevised at a record 33.1% when the final data is issued later this month, after contracting at an annualized 31.4% pace in Q2, its sharpest decline in at least 73 years. It was expected to grow 4.0% this quarter, compared to 3.7% predicted previously.
For the first quarter the consensus was lowered to 2.5% growth from 3.0% last month, with nearly 11% of respondents predicting the economy would contract in Q1.
It was expected to expand 3.8%, 3.9% and 3.4% in the following quarters of 2021, compared to 3.5%, 3.5% and 3.2% predicted, respectively, last month.
The world’s largest economy was forecast to contract 3.6% this year then grow 3.9% next year and 3.1% in 2022.
Three-quarters of economists, or 44 of 58, who responded to a separate question said the outlook for the strength of the U.S. economic recovery had either stayed about the same or improved from last month.
“Near term (1-3 months) has worsened on the back of rising COVID-19 cases, which could lead to more containment measures being introduced at the expense of economic activity,” said James Knightley, chief international economist at ING.
“However, political risks have subsided and vaccine roll-out news offer clear positives on the medium (3-6 months) term outlook.”
Still, only 21% of 43 economists in response to a separate question expected the Federal Reserve to announce more stimulus at its December meeting.
Thirteen economists said the Fed would change its policy next in 2021, six said in 2022 and 15 said 2023.
“If economic data deteriorate and there is no fiscal policy response in sight we may see the Federal Open Market Committee use its asset purchase program to provide additional monetary stimulus,” said Philip Marey, senior U.S. strategist at Rabobank.
“The FOMC could decide to indicate a longer horizon for asset purchases through forward guidance. However, if the Committee thinks the situation is more urgent, it could step up the pace of asset purchases or shift the composition to longer maturities.”
(For other stories from the Reuters global long-term economic outlook polls package:)
(Reporting by Shrutee Sarkar; Polling by Manjul Paul and Nagamani Lingappa; Editing by Jonathan Cable and Chizu Nomiyama)
OTTAWA – Finance Minister Chrystia Freeland says the government is making some changes to mortgage rules to help more Canadians to purchase their first home.
She says the changes will come into force in December and better reflect the housing market.
The price cap for insured mortgages will be boosted for the first time since 2012, moving to $1.5 million from $1 million, to allow more people to qualify for a mortgage with less than a 20 per cent down payment.
The government will also expand its 30-year mortgage amortization to include first-time homebuyers buying any type of home, as well as anybody buying a newly built home.
On Aug. 1 eligibility for the 30-year amortization was changed to include first-time buyers purchasing a newly-built home.
Justice Minister Arif Virani is also releasing drafts for a bill of rights for renters as well as one for homebuyers, both of which the government promised five months ago.
Virani says the government intends to work with provinces to prevent practices like renovictions, where landowners evict tenants and make minimal renovations and then seek higher rents.
The government touts today’s announced measures as the “boldest mortgage reforms in decades,” and it comes after a year of criticism over high housing costs.
The Liberals have been slumping in the polls for months, including among younger adults who say not being able to afford a house is one of their key concerns.
This report by The Canadian Press was first published Sept. 16, 2024.
OTTAWA – Statistics Canada says manufacturing sales rose 1.4 per cent to $71 billion in July, helped by higher sales in the petroleum and coal and chemical product subsectors.
The increase followed a 1.7 per cent decrease in June.
The agency says sales in the petroleum and coal product subsector gained 6.7 per cent to total $8.6 billion in July as most refineries sold more, helped by higher prices and demand.
Chemical product sales rose 5.3 per cent to $5.6 billion in July, boosted by increased sales of pharmaceutical and medicine products.
Sales of wood products fell 4.8 per cent for the month to $2.9 billion, the lowest level since May 2023.
In constant dollar terms, overall manufacturing sales rose 0.9 per cent in July.
This report by The Canadian Press was first published Sept. 16, 2024.
TORONTO – Strength in the base metal and technology sectors helped Canada’s main stock index gain almost 100 points on Friday, while U.S. stock markets climbed to their best week of the year.
“It’s been almost a complete opposite or retracement of what we saw last week,” said Philip Petursson, chief investment strategist at IG Wealth Management.
In New York, the Dow Jones industrial average was up 297.01 points at 41,393.78. The S&P 500 index was up 30.26 points at 5,626.02, while the Nasdaq composite was up 114.30 points at 17,683.98.
The S&P/TSX composite index closed up 93.51 points at 23,568.65.
While last week saw a “healthy” pullback on weaker economic data, this week investors appeared to be buying the dip and hoping the central bank “comes to the rescue,” said Petursson.
Next week, the U.S. Federal Reserve is widely expected to cut its key interest rate for the first time in several years after it significantly hiked it to fight inflation.
But the magnitude of that first cut has been the subject of debate, and the market appears split on whether the cut will be a quarter of a percentage point or a larger half-point reduction.
Petursson thinks it’s clear the smaller cut is coming. Economic data recently hasn’t been great, but it hasn’t been that bad either, he said — and inflation may have come down significantly, but it’s not defeated just yet.
“I think they’re going to be very steady,” he said, with one small cut at each of their three decisions scheduled for the rest of 2024, and more into 2025.
“I don’t think there’s a sense of urgency on the part of the Fed that they have to do something immediately.
A larger cut could also send the wrong message to the markets, added Petursson: that the Fed made a mistake in waiting this long to cut, or that it’s seeing concerning signs in the economy.
It would also be “counter to what they’ve signaled,” he said.
More important than the cut — other than the new tone it sets — will be what Fed chair Jerome Powell has to say, according to Petursson.
“That’s going to be more important than the size of the cut itself,” he said.
In Canada, where the central bank has already cut three times, Petursson expects two more before the year is through.
“Here, the labour situation is worse than what we see in the United States,” he said.
The Canadian dollar traded for 73.61 cents US compared with 73.58 cents US on Thursday.
The October crude oil contract was down 32 cents at US$68.65 per barrel and the October natural gas contract was down five cents at US$2.31 per mmBTU.
The December gold contract was up US$30.10 at US$2,610.70 an ounce and the December copper contract was up four cents US$4.24 a pound.
— With files from The Associated Press
This report by The Canadian Press was first published Sept. 13, 2024.
