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UK economy shrinks as new lockdown shuts services firms: PMI – TheChronicleHerald.ca

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LONDON (Reuters) – British business activity has contracted in November as a new wave of coronavirus restrictions hammered the huge services industry, but news of possible vaccines have boosted hopes for 2021, a survey showed on Monday.

An early “flash” reading of the IHS Markit/CIPS UK Composite Purchasing Managers’ Index (PMI), a gauge of private sector growth, tumbled to a five-month low of 47.4 in November from 52.1 in October.

It is the first time the index has gone below the 50.0 growth threshold level since June.

A Reuters poll of economists had pointed to an even bigger decline to 42.5.

Britain’s economy is widely expected to contract in the fourth quarter – albeit by less than it did around the time of the first coronavirus lockdown – after Prime Minister Boris Johnson ordered a four-week lockdown for England.

Other parts of the United Kingdom have also imposed restrictions on businesses, including in hospitality and other face-to-face activities.

Those closures helped to push the services PMI to 45.8 from 51.4 in October.

But manufacturing, which was largely unaffected by the latest lockdown, accelerated with its PMI rising to 55.2, the joint-highest level since 2018.

The approach of a possible trade shock at the end of next month, when Britain’s post-Brexit transition deal with the European Union will expire, prompted clients of British factories to increase their orders to build up stocks.

That in turn lead to a sharp lengthening of supplier delivery times because of severe delays at British ports.

Looking ahead, the survey found managers were their most optimistic since March 2015, boosted by news of progress in developing vaccines for COVID-19.

Job losses across the private sector accelerated, although some of the reduction in employment was due to companies taking advantage of the government’s extended jobs protection scheme.

(Writing by William Schomberg; Editing by Hugh Lawson)

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European Central Bank stimulus on track as economy struggles – North Shore News

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FRANKFURT — With more than a trillion euros in stimulus still in the pipeline to the economy, the European Central Bank left its key bond-purchase program unchanged Thursday as the 19-country eurozone endures a winter economic slowdown due to the pandemic.

ECB President Christine Lagarde told a news conference that the economy likely contracted in the last three months of 2020 and the outlook going forward faces risks.

Coronavirus infections and deaths have risen during the winter, leading to new restrictions on businesses. Germany has extended its partial lockdown until Feb. 14, France has imposed a 6 p.m. curfew, and Portugal has hit multiple records in case numbers.

Lagarde said that while the start of vaccinations against the coronavirus was “an important milestone,” the outbreak continued to pose “serious risk to the eurozone and global economies.”

She said that the bank’s outlook for growth of 3.9% in 2021 was “still holding as we speak.”

“We had anticipated the continuation and the lockdown measures that are currently in place… and that leads us to conclude that our own forecast for 2021 is still broadly valid at this time,” she said, while cautioning that short-term risk was “tilted to the downside, no question about it.”

She said that “an ample monetary stimulus remains essential” and that if things turn out worse than expected “all instruments can be adjusted and nothing is off the table” in terms of stimulus.

The economy is being propped up by massive support from the ECB, national governments, and the EU. The ECB’s decision not to adjust its key programs was largely expected because it added a major dose of stimulus only last month, at its Dec. 10 meeting. The governing council added 500 billion euros to its pandemic emergency stimulus bond purchases, bringing the total to 1.85 trillion euros ($2.2 trillion), and extended the regular purchases through at least March 2022. More than half of that total is still waiting to be deployed.

The bond purchases are a way of pumping newly created money into the economy, which aims to raise inflation from levels that are currently considered too low. The purchases also keep market interest rates down so that companies can access the credit they need to get through the pandemic recession.

One result of the purchases is that governments can use the bond market to borrow cheaply as their deficits rise through spending on pandemic support, such as paying salaries for furloughed workers to avoid layoffs.

Additional stimulus is on the way from the EU’s 750 billion-euro fund established to support the recovery through shared borrowing by member countries — a step toward further solidarity and integration among the 27-member EU. The fund is to support projects that reduce emissions of carbon dioxide, the main greenhouse gas blamed for climate change, and that promote the spread of digital technology and infrastructure.

The European Union’s executive commission forecasts that the eurozone economy shrank 7.8% last year. Official numbers for last year are to be released Feb. 2.

The bank left interest benchmarks untouched. Those are zero for short term loans from the ECB to banks, and minus 0.5% on deposits left overnight at the ECB by banks. The negative rate is a penalty aimed at pushing banks to lend the money rather than leave it at the ECB.

The ECB is the chief monetary authority for the countries that use the euro, playing a role analogous to that of the Federal Reserve in the U.S. It sets key interest rate benchmarks and supervises banks. So far, 19 of the 27 EU countries have joined the euro.

David McHugh, The Associated Press

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European Central Bank stimulus on track as economy struggles – The Tri-City News

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FRANKFURT — With more than a trillion euros in stimulus still in the pipeline to the economy, the European Central Bank left its key bond-purchase program unchanged Thursday as the 19-country eurozone endures a winter economic slowdown due to the pandemic.

ECB President Christine Lagarde told a news conference that the economy likely contracted in the last three months of 2020 and the outlook going forward faces risks.

Coronavirus infections and deaths have risen during the winter, leading to new restrictions on businesses. Germany has extended its partial lockdown until Feb. 14, France has imposed a 6 p.m. curfew, and Portugal has hit multiple records in case numbers.

Lagarde said that while the start of vaccinations against the coronavirus was “an important milestone,” the outbreak continued to pose “serious risk to the eurozone and global economies.”

She said that the bank’s outlook for growth of 3.9% in 2021 was “still holding as we speak.”

“We had anticipated the continuation and the lockdown measures that are currently in place… and that leads us to conclude that our own forecast for 2021 is still broadly valid at this time,” she said, while cautioning that short-term risk was “tilted to the downside, no question about it.”

She said that “an ample monetary stimulus remains essential” and that if things turn out worse than expected “all instruments can be adjusted and nothing is off the table” in terms of stimulus.

The economy is being propped up by massive support from the ECB, national governments, and the EU. The ECB’s decision not to adjust its key programs was largely expected because it added a major dose of stimulus only last month, at its Dec. 10 meeting. The governing council added 500 billion euros to its pandemic emergency stimulus bond purchases, bringing the total to 1.85 trillion euros ($2.2 trillion), and extended the regular purchases through at least March 2022. More than half of that total is still waiting to be deployed.

The bond purchases are a way of pumping newly created money into the economy, which aims to raise inflation from levels that are currently considered too low. The purchases also keep market interest rates down so that companies can access the credit they need to get through the pandemic recession.

One result of the purchases is that governments can use the bond market to borrow cheaply as their deficits rise through spending on pandemic support, such as paying salaries for furloughed workers to avoid layoffs.

Additional stimulus is on the way from the EU’s 750 billion-euro fund established to support the recovery through shared borrowing by member countries — a step toward further solidarity and integration among the 27-member EU. The fund is to support projects that reduce emissions of carbon dioxide, the main greenhouse gas blamed for climate change, and that promote the spread of digital technology and infrastructure.

The European Union’s executive commission forecasts that the eurozone economy shrank 7.8% last year. Official numbers for last year are to be released Feb. 2.

The bank left interest benchmarks untouched. Those are zero for short term loans from the ECB to banks, and minus 0.5% on deposits left overnight at the ECB by banks. The negative rate is a penalty aimed at pushing banks to lend the money rather than leave it at the ECB.

The ECB is the chief monetary authority for the countries that use the euro, playing a role analogous to that of the Federal Reserve in the U.S. It sets key interest rate benchmarks and supervises banks. So far, 19 of the 27 EU countries have joined the euro.

David McHugh, The Associated Press

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Macklem says Canadian economy has strong stimulus for now – BNN

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Bank of Canada Governor Tiff Macklem said the nation’s economy is flush enough with stimulus to survive the current downturn and doesn’t need additional help from monetary policy.

In an interview with Bloomberg News after a rate decision on Wednesday, Macklem said policy makers considered whether more measures were needed to spur growth — including a micro-cut of their 0.25 per centt overnight policy rate — but determined that “we have a considerable amount of stimulus in place.” The bank is expecting a quick recovery from a first-quarter contraction, a scenario that would eventually require it to pare back asset purchases.

“If the economy plays out in line or stronger with our outlook, then the economy is not going to need as much quantitative easing stimulus over time,” Macklem said. While the central bank has a number of tools it can use if needed to add stimulus, “in our base case we don’t expect that we will need to use them.”

In Wednesday’s decision, the central bank expressed optimism the economy remains on track to fully repair damage from the pandemic by 2023, even as Canada struggles with a wave of new COVID-19 cases and lockdowns right now.

Some analysts had speculated the central bank could turn bearish this week, with a fresh cut to shore up a recovery that is being hampered by a strengthening currency, on top of the worsening pandemic.

In the interview, Macklem said that the stabilization of financial markets has made a small rate cut a viable option, if needed.

“We discussed the degree of monetary stimulus we need, and if we thought we needed more, a micro cut was among the things we could do,” Macklem said by video conference. The bank’s governing council determined it wasn’t necessary, he said.

To be sure, there’s no prospect of any quick withdrawal of stimulus either.

At a separate press conference Wednesday, Macklem said any slowing of the QE program would be gradual. Nor is the the Bank of Canada poised to raise borrowing costs. It’s pledged not to hike its policy rate until economic slack has been fully absorbed, something not expected to happen until 2023.

There are other concerns. With inflation hovering below 1%, Macklem said the central bank is more worried about deflationary pressures than any temporary overshoot of its 2% target.

“We are aiming for 2% but we are going to use the band and we are going to use the risk management framework to get there as quickly as possible,” he said.

The weakening U.S. dollar is another challenge, with any further broad-based depreciation a potential headwind.

“To the extent that is weighing on our forecast and dampening growth in Canada, everything else equal, we’d need more monetary stimulus to get back to our inflation target,” the central banker said.

©2021 Bloomberg L.P.

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