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What Else Could Go Wrong for World Economy Before 2020 Is Done – Yahoo Canada Finance

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What Else Could Go Wrong for World Economy Before 2020 Is Done

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The world economy’s rebound from the depths of the coronavirus crisis is fading, setting up an uncertain finish to the year.

The concerns are multiple. The coming northern winter may trigger another wave of the virus as the wait for a vaccine continues. Government support for furloughed workers and bank moratoriums on loan repayments are set to expire. Strains between the U.S. and China could get worse in the run-up to November’s presidential election, and undermine business confidence.

“We have seen peak rebound,” Joachim Fels, global economic adviser at Pacific Investment Management Co., told Bloomberg Television. “From now on, the momentum is fading a little bit.”

That sets up a delicate balancing act for governments. They’ve injected almost $20 trillion in fiscal and monetary support, in an effort to get the economy as far back to normal as is feasible in a pandemic, and can point to plenty of successes.

In the U.S., unemployment fell sharply in August and the housing market has been a bright spot. China’s steady recovery is cited by optimists as a guide to where the rest of the world is headed, while Germany is posting some decent industrial data too. And emerging markets are getting a breather from the dollar’s decline.

Long Slog

But keeping up the momentum on all these fronts won’t be easy. It would likely require policy makers to top up their stimulus efforts, at a point when some are looking to cut back instead. And for all the scientific progress with vaccines, they won’t be available anytime soon on the scale needed to bring the virus under tight control — a key condition for business-as-usual.

Meanwhile, there are headwinds. On labor markets, for example, government aid helped to drive an initial rebound — which may have been the easy part. Next up is the long slog of retooling businesses, reallocating resources, and retraining workers in industries that are no longer viable. That kind of restructuring could play out for some time.

Already this month, some of the world’s best known industrial brands have signaled job cuts are on the way.

A.P. Moller-Maersk A/S is planning a major overhaul that’s set to affect thousands at the world’s biggest container shipping company. Ford Motor Co. is cutting about 5% of its U.S. salaried workers, and United Airlines Holdings Inc. will eliminate 16,000 jobs next month as it shrinks operations.

There are other worrying signs too.

In China, which contained the virus months ago, consumers remain reluctant to spend and the nation’s biggest banks just posted their worst profit declines in more than a decade as bad debt ballooned.

U.S. lawmakers continue to haggle over more fiscal stimulus, which may be needed to sustain the recovery in the world’s largest economy.

Adding 1.4 million jobs in August was “a big step in the right direction,” said Ryan Sweet, head of monetary policy research at Moody’s Analytics. But the economy needs to maintain that kind of pace, he said, and “without fiscal stimulus that will be hard to do.”

‘Not Looking Good’

In Europe, gauges of activity are fading, and factories are trying to cut costs as weak demand and price cuts squeeze profit margins. While France and Germany have extended their furlough programs, the U.K. plans to end its version in October, potentially putting millions of jobs at risk.

Japanese Prime Minister Shinzo Abe, who announced his resignation last month on health grounds, warned in a press conference that “winter is coming” and the nation will need to gird to contain the virus.

What Bloomberg’s Economists Say

“High-frequency data paints a picture of a rapid rebound in the second quarter, and a stall – with activity still well short of pre-virus levels – in the third. There’s scope for further gains. If the U.S. did as well as Germany at containing the virus and getting back to work – for example – that would be a significant positive. To get back to pre-virus normality, a vaccine is required.”

–Tom Orlik, chief economist. Read more here

Stock markets are vulnerable to disappointment in economic numbers in the coming months amid a gradual curbing of emergency fiscal support.

“In terms of valuations, we’ve got to look beyond just what happened this week to the longer term,” said Catherine Mann, global chief economist at Citigroup Inc. “And the longer term is not looking good right now in terms of support for consumption, and therefore business investment and growth in the U.S. economy.”

Overshadowing everything is the continued spread of the virus, with flare-ups around the world.

Even when a vaccine is devised, making it available worldwide on the necessary scale is going to take time, according to Warwick McKibbin of the Brookings Institution and Australia National University. His models suggest that the virus could cost the world economy some $35 trillion through 2025.

“You have to get quite a lot of the population vaccinated before the economic costs start to come down,” he said.

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Hiring marginalized workers could jump-start economy, boost incomes by $5K: Deloitte – Kelowna Capital News

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Canada’s economy was headed for slowing growth in the next decade even if COVID-19 had never hit, according to a new report by Deloitte Canada.

The report, which looks at more than 1,000 variables to predict how Canada’s economy will look in 2030, suggests that the country will need more workers — with greater productivity — to get the economy chugging at a fast enough pace to pay for climate change initiatives and government investments without raising taxes.

“We believe Canada is the best place in the world to live and work and do industry. If we continue on our current path, that is compromised or in jeopardy,” said Deloitte Canada chief executive Anthony Viel.

The consulting and audit firm’s report comes as the government is laying out ambitious plans to spur the economy forward after the COVID-19 pandemic — and ensuing lockdown — left a record number of Canadians jobless. Last week’s speech from the throne suggested that the government will look toward clean energy investments, as well as disability and jobless supports, in its recovery plan.

Deloitte Canada did not directly address the throne speech in its report. But the firm predicts even a complete return to pre-pandemic “normal” would cause economic growth to slow to 1.7 per cent per year in the next decade. That’s below the past decade’s average of 2.2 per cent growth — which was already lower than the 3.2 per cent growth in the decade leading to the 2008 and 2009 recession.

Amid a low fertility rate — at a time when the share of Canadians over age 65 is expected to nearly double — Canada needs to be more inclusive of groups that are underemployed in the economy, the report found. Getting marginalized groups better integrated in the workforce can grow the tax base and help the government avoid raising tax rates, said Georgina Black, Deloitte Canada’s managing partner of government and public services.

Deloitte’s forecast suggests that the country could replace its retiring workforce by improving employment options for 88,500 women; 377,300 Canadians over age 65; 700,000 immigrants; 517,657 people with disabilities; and between 38,000 and 59,000 Indigenous Canadians.

The theory, Deloitte’s report said, is that boosting the number of hours worked in the economy would lift the pace of yearly economic growth by 50 per cent, adding $4,900 to Canadians’ average annual income by 2030, Deloitte estimated.

For instance, Deloitte cited a survey suggesting that more than 600,000 Canadians with disabilities said they would look for work if minor workplace barriers were removed.

“Many of these inequalities have worsened during the pandemic, with women and under-represented groups far more likely to become unemployed than men or non-racialized groups,” the report said.

Deloitte suggests companies need better disability accommodations and workplace inclusion policies, and should add childcare as a benefit package, noting that during COVID-19, women’s workforce participation dipped to 55 per cent for the first time since the mid-1980s as childcare options dwindled.

In Deloitte’s ideal recovery scenario, schools would offer better apprenticeship options and retraining programs for older workers in shrinking industries, and governments would invest in rural internet infrastructure and childcare for working parents. Regulators would step in under Deloitte’s plan and allow skilled immigrants to use their foreign credentials and degrees. Canada loses as much as $50 billion each year that could be contributed by underemployed immigrants, the firm said.

Despite requiring the government to spend money and set incentives for employers, Deloitte claims that its proposal would boost government revenues by nine per cent without raising taxes.

“More workers and more incomes means more taxes and more investment,” said Viel.

Canadian businesses also need to invest more in technology and late-stage startups, and Deloitte suggested investments should be focused on a few high-growth industries where Canada can be a leader, such as construction, medical equipment and computer system design.

“Government and business (need to) create the conditions where companies want to invest here and not in another country, ” said Black.

Anita Balakrishnan, The Canadian Press

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Hiring marginalized workers could jump-start economy, boost incomes by $5K: Deloitte – Agassiz-Harrison Observer

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Canada’s economy was headed for slowing growth in the next decade even if COVID-19 had never hit, according to a new report by Deloitte Canada.

The report, which looks at more than 1,000 variables to predict how Canada’s economy will look in 2030, suggests that the country will need more workers — with greater productivity — to get the economy chugging at a fast enough pace to pay for climate change initiatives and government investments without raising taxes.

“We believe Canada is the best place in the world to live and work and do industry. If we continue on our current path, that is compromised or in jeopardy,” said Deloitte Canada chief executive Anthony Viel.

The consulting and audit firm’s report comes as the government is laying out ambitious plans to spur the economy forward after the COVID-19 pandemic — and ensuing lockdown — left a record number of Canadians jobless. Last week’s speech from the throne suggested that the government will look toward clean energy investments, as well as disability and jobless supports, in its recovery plan.

Deloitte Canada did not directly address the throne speech in its report. But the firm predicts even a complete return to pre-pandemic “normal” would cause economic growth to slow to 1.7 per cent per year in the next decade. That’s below the past decade’s average of 2.2 per cent growth — which was already lower than the 3.2 per cent growth in the decade leading to the 2008 and 2009 recession.

Amid a low fertility rate — at a time when the share of Canadians over age 65 is expected to nearly double — Canada needs to be more inclusive of groups that are underemployed in the economy, the report found. Getting marginalized groups better integrated in the workforce can grow the tax base and help the government avoid raising tax rates, said Georgina Black, Deloitte Canada’s managing partner of government and public services.

Deloitte’s forecast suggests that the country could replace its retiring workforce by improving employment options for 88,500 women; 377,300 Canadians over age 65; 700,000 immigrants; 517,657 people with disabilities; and between 38,000 and 59,000 Indigenous Canadians.

The theory, Deloitte’s report said, is that boosting the number of hours worked in the economy would lift the pace of yearly economic growth by 50 per cent, adding $4,900 to Canadians’ average annual income by 2030, Deloitte estimated.

For instance, Deloitte cited a survey suggesting that more than 600,000 Canadians with disabilities said they would look for work if minor workplace barriers were removed.

“Many of these inequalities have worsened during the pandemic, with women and under-represented groups far more likely to become unemployed than men or non-racialized groups,” the report said.

Deloitte suggests companies need better disability accommodations and workplace inclusion policies, and should add childcare as a benefit package, noting that during COVID-19, women’s workforce participation dipped to 55 per cent for the first time since the mid-1980s as childcare options dwindled.

In Deloitte’s ideal recovery scenario, schools would offer better apprenticeship options and retraining programs for older workers in shrinking industries, and governments would invest in rural internet infrastructure and childcare for working parents. Regulators would step in under Deloitte’s plan and allow skilled immigrants to use their foreign credentials and degrees. Canada loses as much as $50 billion each year that could be contributed by underemployed immigrants, the firm said.

Despite requiring the government to spend money and set incentives for employers, Deloitte claims that its proposal would boost government revenues by nine per cent without raising taxes.

“More workers and more incomes means more taxes and more investment,” said Viel.

Canadian businesses also need to invest more in technology and late-stage startups, and Deloitte suggested investments should be focused on a few high-growth industries where Canada can be a leader, such as construction, medical equipment and computer system design.

“Government and business (need to) create the conditions where companies want to invest here and not in another country, ” said Black.

Anita Balakrishnan, The Canadian Press

Coronaviruseconomy

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Germany’s pandemic recovery raises age-old questions about European economy – DW (English)

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Germany’s economy was starting to struggle before the pandemic but the country’s response means it is powering ahead of the rest again. This raises questions about a two-speed European economy.

In 1947, two years after the end of World War II, the European economy was in severe trouble. “We are threatened with total economic and financial catastrophe,” said then-French Economy Minister Andre Philip in April that year.

There were many problems but the biggest was Germany. Two years after the Nazis were defeated, Germany’s recovery had in many ways already been remarkable — but economically it remained a basket case and Europe realized it needed its engine back. In part, the Marshall Plan’s purpose was to restore the German economy to the heart of Europe.

By the start of the 1950s, the European economy was in miracle territory but Germany’s miracle burned brightest. The next two decades were among the most prosperous in history.

Here in 2020, the European economy also finds itself at a pivotal and potentially perilous historical moment. The pandemic is ongoing and the economic recovery — if we can even call it that — from the dire lockdown-hit first six months of the year is patchy.

Yet it is already clear that Germany’s economy is faring much better than its closest European equivalents France, Britain, Italy and Spain. Its GDP fall for the lockdown quarters was substantially less than those countries while its recovery for the third quarter of the year is projected to be much better.

Why is Germany’s economy faring better than its European neighbors and will that be a help or a hindrance to the European economy going forward?

No lockdown, Bazooka used instantly

According to Lars Feld, chairman of the German Council of Economic Experts, Germany’s reasonably positive economic situation is driven by the fact that its lockdown was never as strict as elsewhere in Europe.

“Despite lockdown measures, an interruption of value chains or lower private consumption due to considerable uncertainty, the German economy continued a considerable part of its activity. For example, the construction industry had very low restrictions,” he told DW.

Another major help is the massive financial support the German government has provided to businesses and citizens, something it was able to do after years of frugality in terms of its budget.

The “bazooka,” as German Finance Minister Olaf Scholz called it back in March, amounted to close to €1 trillion ($1.16 trillion) in aid when everything from state-backed loans to the country’s much-admired Kurzarbeit scheme is included.

“The German economy has had more reserves than other European economies, be it with respect to fiscal space due to successful consolidation of public finances in the past or with respect to private firms which have a sound equity base in general,” says Feld.

German Economy Minister Peter Altmaier wearing a face mask presents the government’s updated 2020 economic outlook

V for Victory

That helps explain why the German Economy Minister Peter Altmaier was so bullish back on September 1 when, wielding graphs showing Germany’s “v-shaped recovery” (a sharp drop followed by an equally sharp rise), he said: “The recession in the first half of the year was not as bad as we feared, and the recovery since the high point of the shutdown is happening faster and more dynamically than we had dared hope.”

But it’s not all plain sailing. Before the pandemic hit, Germany’s economy was slowing down anyway. Longstanding vulnerabilities in terms of exports and the car sector were being exposed by a slowdown in global trade and by the technological changes sweeping the auto industry.

One key sector which feels such headwinds keenly is that of the country’s machine builders, a vital cog in Germany’s export machine. For them, the pandemic has had a severe impact. Even though factories weren’t really forced to close in March and April, without foreign demand, orders fall.

That’s why Germany’s Mechanical Engineering Industry Association (VDMA) forecasts a drop in production of 17% for its thousands of members in 2020, with a tiny rise of 2% foreseen for next year.

“There are not so many orders in the books now,” the VDMA’s director of foreign trade Ulrich Ackermann, told DW.

A close-up picture showing Ulrich Ackermann

Ulrich Ackermann from the German Mechanical Engineering Association

Yet the factors mentioned earlier, namely the fact that production was never shut down and that workers have been retained through government intervention, means that Germany’s machine builders are in a stronger position than those in other countries.

“In general we are maybe in better shape than other countries, they had real lockdowns and that meant they could not produce any longer,” says Ackermann. “Our companies could always produce when they wanted.”

Healthy man of Europe

If and when demand picks up in Germany’s overseas markets, it appears likely that German companies will be readier than most to step in and meet that demand.

That brings us back to the central question of Europe’s two-speed economic recovery. If the forecasts bear out and Germany’s economic contraction this year is less than its French and southern counterparts, what will that mean?

Arguments between German and southern interests have dominated EU discussions on fiscal policy for the last decade. The recently agreed €750 billion Post Pandemic Recovery Fund was historic in that Germany agreed, for the first time, for a form of shared European debt.

A picture of German Chancellor Angela Merkel and the head of the European Commission, Ursula von der Leyen, during a joint news conference via video conference to mark Germany's taking over the EU's rotating presidency from July 1.

The EU’s pandemic recovery fund saw Germany agree to a historic policy shift in terms of European debt

With its economy growing faster than Spain and Italy’s, there remains the possibility that tensions over funding and reforms associated with struggling countries receiving such funding, could bring familiar debates about debt and austerity back to Brussels again.

But there is another, equally familiar view about the benefits of Germany’s engine purring a little better than the rest.

“A strong German economy could serve as an economic engine for other EU member countries, in particular regarding the strongly developed value chains in Europe,” says Feld.

“The quick takeoff of the German economy triggers demand in other EU countries. It should also be kept in mind, that the high credit-worthiness of Germany is a strong backup for the EU budget and the ECB balance sheet, both allowing other countries in Europe to restart their economies without further turbulences, e.g., on financial markets.”

Much like it was after World War II, it appears that it is much better for Europe to have a German economy that is too strong, than one that is too weak.

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