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UK economy suffers record 9.9% slump in 2020 – The Journal Pioneer

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By David Milliken and William Schomberg

LONDON (Reuters) – Britain’s coronavirus-ravaged economy suffered its biggest crash in output in more than 300 years in 2020 when it slumped by 9.9%, but it avoided heading back towards recession at the end of the year and looks on course for a recovery in 2021.

Official figures showed gross domestic product (GDP) grew 1.0% from October through December, the top of a range of economists’ forecasts in a Reuters poll.

This makes it likely that Britain will escape two straight quarters of contraction – the standard definition of recession in Europe – even though the economy is set to shrink in early 2021 due to the effects of a third COVID lockdown.

“As and when restrictions are eased, we continue to expect a vigorous rebound in the economy,” said Dean Turner, an economist at UBS Global Wealth Management.

Britain’s economy grew 1.2% in December alone, after a 2.3% fall in output in November when there was a partial lockdown, pointing to greater resilience to COVID restrictions than at the start of the pandemic.

That left output 6.3% lower than in February before the start of the pandemic, the Office for National Statistics said.

However, the Bank of England forecasts the economy will shrink by 4% in the first three months of 2021 because of the new lockdown and Brexit disruption.

It thinks it will take until early 2022 before GDP regains its pre-COVID size, assuming vaccination continues at the current rapid pace, which outstrips the rest of Europe’s. Many economists think recovery will take longer.

“Today’s figures show that the economy has experienced a serious shock as a result of the pandemic, which has been felt by countries around the world,” finance minister Rishi Sunak said.

Sunak, facing the heaviest borrowing since World War Two, said he would continue to focus on protecting jobs when he sets out a new annual budget on March 3.

Unemployment has risen much less than feared at the start of the crisis, largely due to subsidies to keep people in work, though sectors such as hospitality and high-street retail remain hard hit.

HARDER HIT THAN MOST

Last year’s fall in output was the biggest since modern official records began after World War Two. Longer-running historical data hosted by the Bank of England suggest it was the biggest drop since 1709, when Britain suffered a “Great Frost”.

Britain has reported Europe’s highest death toll from COVID-19 and is among the world’s highest in terms of deaths per head.

The GDP fall is steeper than almost any other big economy’s, though Spain – also hard-hit by the virus – suffered an 11% decline.

Some of the damage reflects how Britain’s economy relies more on face-to-face consumer services than other countries, as well as disruption to schooling and routine healthcare, which few other countries factored in to GDP.

Sunak, in an interview with Sky News, said Britain’s economic performance could be seen as being marginally above that of some of its peers last year.

GDP is almost always compared on a “real” or inflation-adjusted basis, which shows Britain was the worst performer in the Group of Seven large advanced economies. But Sunak said Britain did better on a “nominal” basis, which ignores inflation.

Taking this approach, Britain’s economy is closer to its pre-crisis size than Germany, France or Italy’s, according to figures provided by the ONS, which said it “may be useful” to look at nominal as well as real measures of GDP.

But most international differences on inflation adjustment centre on government spending, and looking at household spending alone, Britain remains a laggard. Household spending in the fourth quarter was 8.4% below pre-crisis levels, compared with a 2.6% shortfall in the United States and 6.8% in France.

“The UK’s underperformance can’t simply be attributed to the different way the ONS measures government expenditure to most other countries,” said Samuel Tombs of Pantheon Macroeconomics.

(Writing by David Milliken; editing by Willian Schomberg, Guy Faulconbridge, Raissa Kasolowsky, Larry King)

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Canadian first quarter industry capacity use rises to 81.7%

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Canadian industries ran at 81.7% of capacity in the first quarter of 2021, up from a upwardly revised 79.7% in the fourth quarter of 2020, Statistic Canada said on Friday.

The increase in the first quarter was driven by gains in construction and in mining, quarrying, and oil and gas extraction.

Following are the rates in percent:

Q1 2021 Q4 2020 (rev) Q4 2020 (prev)

Cap. utilization 81.7 79.7 79.2

Manufacturing 76.5 76.7 76.2

NOTE: Economists surveyed by Reuters had forecast a first quarter rate of 80.6% capacity utilization.

(Reporting by Steve Scherer, editing by Dale Smith (steve.scherer@tr.com))

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UK, Canada agreed to redouble efforts for trade deal

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British Prime Minister Boris Johnson and Canadian Prime Minister Justin Trudeau agreed on Friday to redouble their efforts to secure a trade agreement as soon as possible to unlock such a deal’s “huge opportunities”.

“The leaders agreed a comprehensive Free Trade Agreement between the UK and Canada would unlock huge opportunities for both of our countries. They agreed to redouble their efforts to secure an FTA (free trade agreement) as soon as possible,” Downing Street spokesperson said in a statement.

“They discussed a number of foreign policy issues including China and Iran.”

 

(Reporting by Guy Faulconbridge, writing by Elizabeth Piper)

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Greater pricing power to help Canadian exporters withstand loonie surge

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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.

Exports account for nearly one-third of Canada‘s gross domestic product, compared with about 12% for the United States, making Canada‘s economy more sensitive to a stronger currency, with the loonie trading near a six-year high versus the U.S. dollar.

But exporters could remain more competitive than usual after the COVID-19 pandemic led to a surge in the amount of money available for consumer spending, bolstered by government support measures. A global shortage of goods, due to supply chain disruptions, could also help.

“The appreciation that we are seeing in the currency now is less of an issue than in most other appreciations that we have seen,” said Peter Hall, chief economist at Export Development Canada.

“There are not enough goods and services available to satisfy the demands of the marketplace at the moment. And in that case there is probably pricing power,” Hall added.

The prices that Canadian manufacturers charge for their products increased at a record pace in May, while activity climbed for the 11th straight month, data from IHS Markit Canada showed last week.

Canada‘s major exports include autos, oil and other commodities. With commodity prices soaring, the Canadian dollar has been the top performing Group of 10 currency this year, advancing 5% against the U.S. dollar.

It hit a six-year high near 1.20 per greenback, or 83.33 cents U.S., last week. The Bank of Canada has said that further appreciation could weigh on the economy.

The loonie traded close to parity for much of the 2007 to 2013 period, contributing to a slow recovery for Canada‘s exports from the global financial crisis.

“What (business) was left behind after that period of an overvalued currency was relatively strong,” said Doug Porter, chief economist at BMO Capital Markets.

That reduces the risk of a “hollowing out” of the sector during the current episode of currency strength, Porter said.

At Magna International Inc, a major Canadian producer of auto parts, global diversification of its operations helps protect against currency strength.

“Movements in the Canadian dollar have become relatively less impactful to our overall business,” a company spokesperson said in an email to Reuters. “Increased global economic activity, and in particular global light vehicle production is a more important factor to our outlook.”

For now, the greater concern for manufacturers could be the reduced and more costly supply of inputs, such as semiconductor microchips, as well as the lengthy closure of the U.S. border.

“The challenge we have faced as an industry is the movement of personnel,” said Brian Kingston, chief executive of the Canadian Vehicle Manufacturers’ Association (CVMA). “If a piece of equipment on the line goes down, you may need to bring in someone from Michigan.”

For some industries, those logistical issues and the stronger Canadian dollar could be trivial compared to the jump in commodity prices.

“Under normal circumstances, a rising Canadian dollar would hinder the competitiveness of Canadian exports, but the way ag (agriculture) markets have risen overall, it’s a moot point,” said Lorne Boundy, merchandiser for Winnipeg-based crop handler Paterson Grain.

 

(Reporting by Fergal Smith; additional reporting by Allison Lampert in Montreal, Rod Nickel in Winnipeg and Shreyasee Raj in Bengaluru; Editing by Denny Thomas and Jonathan Oatis and Kirsten Donovan)

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