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World Economy Risks 'Dangerously Diverging' Even as Growth Booms – Bloomberg

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General Views of Hong Kong Economy Rocked by Protests and Pandemic

The world economy is on course for its fastest growth in more than a half century this year, yet differences and deficiencies could hold it back from attaining its pre-pandemic heights any time soon.

The U.S. is leading the charge into this week’s semi-annual virtual meeting of the International Monetary Fund, pumping out trillions of dollars of budgetary stimulus and resuming its role as guardian of the global economy following President Joe Biden’s defeat of “America First” President Donald Trump. Friday brought news of the biggest month for hiring since August.

China is doing its part too, building on its success in countering the coronavirus last year even as it starts to pull back on some of its economic aid.

Yet unlike in the aftermath of the 2008 financial crisis, the recovery looks lopsided, in part because the rollout of vaccines and fiscal support differ across borders. Among the laggards are most emerging markets and the euro area, where France and Italy have extended restrictions on activity to contain the virus.

“While the outlook has improved overall, prospects are diverging dangerously,” IMF Managing Director Kristalina Georgieva said last week. “Vaccines are not yet available to everyone and everywhere. Too many people continue to face job losses and rising poverty. Too many countries are falling behind.”

Brighter Trade Outlook

The WTO expects trade will rebound 8% in 2021 and 4% in 2022

Source: World Trade Organization 

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The result: It could take years for swathes of the world to join the U.S. and China in fully recovering from the pandemic. By 2024 world output will still be 3% lower than was projected before the pandemic, with countries reliant on tourism and services suffering the most, according to the IMF.

The disparity is captured by Bloomberg Economics’ new set of nowcasts which shows global growth of around 1.3% quarter on quarter in the first three months of 2021. But while the U.S. is bouncing, France, Germany, Italy, the U.K. and Japan are contracting. In the emerging markets, Brazil, Russia and India are all being clearly outpaced by China.

For the year as whole, Bloomberg Economics forecasts growth of 6.9%, the quickest in records dating back to the 1960s. Behind the buoyant outlook: a shrinking virus threat, expanding U.S. stimulus, and trillions of dollars in pent-up savings.

Much will depend on how fast countries can inoculate their populations with the risk that the longer it takes the greater the chance the virus remains an international threat especially if new variants develop. Bloomberg’s Vaccine Tracker shows while the U.S. has administered doses equivalent to almost a quarter of its people, the European Union has yet to hit 10% and rates in Mexico, Russia and Brazil are less than 6%.

“The lesson here is there is no trade-off between growth and containment,” said Mansoor Mohi-uddin, chief economist at the Bank of Singapore Ltd.

#lazy-img-370609675:beforepadding-top:56.25%;U.S. economy added 916,000 jobs in March, the most since August

Former Federal Reserve official Nathan Sheets said he expects the U.S. to use this week’s virtual meetings of the IMF and World Bank to argue that now is not the time for countries to pull back on assisting their economies.

It’s an argument that will be mostly directed at Europe, particularly Germany, with its long history of fiscal stringency. The EU’s 750 billion-euro ($885 billion) joint recovery fund won’t start until the second half of the year.

The U.S. will have two things going for it in making its case, Sheets said: A strengthening domestic economy and an internationally respected leader of its delegation in Treasury Secretary Janet Yellen, no stranger to IMF meetings from her time as Fed Chair.

But the world’s largest economy could find itself on the defensive when it comes to vaccine distribution after accumulating massive supplies for itself. “We will hear a hue and cry emerge during these meetings for more equal access to vaccinations,” said Sheets, who is now the head of global economic research at PGIM Fixed Income.

And while America’s booming economy will undoubtedly act as a driver for the rest of the world by sucking in imports, there could also be some grumbling about the higher market borrowing costs that the rapid growth brings, especially from economies which aren’t as healthy.

“The Biden stimulus is a two edged sword,” said former IMF chief economist Maury Obstfeld, who is a now senior fellow at the Peterson Institute for International Economics in Washington. Rising U.S. long-term interest rates “tighten global financial conditions. That has implications for debt sustainability for countries that went deeper into debt to fight the pandemic.”

JPMorgan Chase & Co. chief economist Bruce Kasman said he hasn’t seen such a wide gap in 20 to 25 years in the expected out-performance of the U.S. and other developed countries when compared with the emerging markets. That’s in part due to differences in distribution of the vaccine. But it’s also down to the economic policy choices various countries are making.

Having mostly slashed interest rates and started asset-purchase programs last year, central banks are splitting with some in emerging markets beginning to hike interest rates either because of accelerating inflation or to prevent capital from flowing out. Turkey, Russia and Brazil all raised borrowing costs last month, while the Fed and European Central Bank say they won’t be doing so for a long time yet.

2021 Rate Decisions

Turkey, Russia and Brazil all raised borrowing costs last month

Source: Bloomberg

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Rob Subbaraman, head of global markets research at Nomura Holdings Inc. in Singapore, reckons Brazil, Colombia, Hungary, India, Mexico, Poland, the Philippines and South Africa all risk running overly-loose policies.

“With major developed market central banks experimenting on how hot they can run economies before inflation becomes a problem, emerging market central banks will need to be extra careful to not fall behind the curve, and will likely need to lead, rather than follow, their developed market counterparts in the next rate hiking cycle,” said Subbaraman.

In an April 1 video for clients, Kasman summed up the global economic outlook this way: “Boomy type conditions with quite wide divergences.”

— With assistance by Eric Martin

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    TSX extends gains as gold prices rise, set to rise for third week

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    (Reuters) -Canada’s main stock index extended its rise on Friday after hitting a record high a day earlier as gold prices advanced, and was set to gain for a third straight week.

    * At 9:40 a.m. ET (13:38 GMT), the Toronto Stock Exchange‘s S&P/TSX composite index was up 24.24 points, or 0.1%, at 19,326.16.

    * The Canadian economy is likely to grow at a slower pace in this quarter and the next than previously expected, but tighter lockdown restrictions from another wave of coronavirus were unlikely to derail the economic recovery, a Reuters poll showed.

    * The energy sector climbed 0.6% even as U.S. crude prices slipped 0.1% a barrel. Brent crude added 0.1%. [O/R]

    * The materials sector, which includes precious and base metals miners and fertilizer companies, added 0.3% as gold futures rose 0.7% to $1,777.9 an ounce. [GOL/] [MET/L]

    * The financials sector gained 0.2%. The industrials sector rose 0.1%.

    * On the TSX, 117 issues advanced, while 102 issues declined in a 1.15-to-1 ratio favoring gainers, with 14.26 million shares traded.

    * The largest percentage gainers on the TSX were Cascades Inc, which jumped 4.2%, and Ballard Power Systems, which rose 2.9%.

    * Lghtspeed POS fell 5.6%, the most on the TSX, while the second biggest decliner was goeasy, down 4.9%.

    * The most heavily traded shares by volume were Zenabis Global Inc, Bombardier and Royal Bank of Canada.

    * The TSX posted 23 new 52-week highs and no new low.

    * Across Canadian issues, there were 160 new 52-week highs and 12 new lows, with total volume of 29.68 million shares.

    (Reporting by Shashank Nayar in Bengaluru;Editing by Vinay Dwivedi)

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    Canadian economy likely to slow, but COVID-19 threat to growth low

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    By Indradip Ghosh and Mumal Rathore

    BENGALURU (Reuters) – The Canadian economy is likely to grow at a slower pace this quarter and next than previously expected, but tighter lockdown restrictions from another wave of coronavirus were unlikely to derail the economic recovery, a Reuters poll showed.

    Restrictions have been renewed in some provinces as they struggle with a rapid spread of the virus, which has already infected over 1 million people in the country.

    After an expected 5.6% growth in the first quarter, the economy was forecast to expand 3.6% this quarter, a sharp downgrade from 6.7% predicted in January.

    It was then forecast to grow 6.0% in the third quarter and 5.5% in the fourth, compared with 6.8% and 5.0% forecast previously.

    But over three-quarters of economists, or 16 of 21, in response to an additional question said tighter curbs from another COVID-19 wave were unlikely to derail the economic recovery, including one respondent who said “very unlikely”.

    Canada is undergoing a third wave of the virus and while case loads are accelerating, the resiliency the economy has shown in the face of the second wave suggests it can ride out the third wave as well, without considerable economic consequences,” said Sri Thanabalasingam, senior economist at TD Economics.

    The April 12-16 poll of 40 economists forecast the commodity-driven economy would grow on average 5.8% this year, the fastest pace of annual expansion in 13 years and the highest prediction since polling began in April 2019.

    For next year, the consensus was upgraded to 4.0% from 3.6% growth predicted in January.

    What is likely to help is the promise of a fiscal package by Prime Minister Justin Trudeau late last year, which the Canadian government was expected to outline, at least partly, in its first federal budget in two years, on April 19.

    When asked what impact that would have, over half, or 11 of 20 economists, said it would boost the economy significantly. Eight respondents said it would have little impact and one said it would have an adverse impact.

    “The economic impact of the federal government’s promised C$100 billion fiscal stimulus will depend most importantly on its make up,” said Tony Stillo, director of Canada economics at Oxford Economics.

    “A stimulus package that enhances the economy’s potential could provide a material boost to growth without stoking price pressures.”

    All but two of 17 economists expected the Bank of Canada to announce a taper to the amount of its weekly bond purchases at its April 21 meeting. The consensus showed interest rates left unchanged at 0.25% until 2023 at least.

    “The BoC is set to cut the pace of its asset purchases next week,” noted Stephen Brown, senior Canada economist at Capital Economics.

    “While it will also upgrade its GDP forecasts, we expect it to make an offsetting change to its estimate of the economy’s potential, implying the Bank will not materially alter its assessment of when interest rates need to rise.”

     

     

    (Reporting and polling by Indradip Ghosh and Mumal Rathore; editing by Rahul Karunakar, Larry King)

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    CANADA STOCKS – TSX rises 0.78% to 19,321.92

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    * The Toronto Stock Exchange‘s TSX rises 0.78 percent to 19,321.92

    * Leading the index were Martinrea International Inc <MRE.TO​>, up 7.4%, Fortuna Silver Mines Inc​, up 7.1%, and Hudbay Minerals Inc​, higher by 6.7%.

    * Lagging shares were AcuityAds Holdings Inc​​, down 6.7%, Ballard Power Systems Inc​, down 6.5%, and Northland Power Inc​, lower by 6.0%.

    * On the TSX 165 issues rose and 60 fell as a 2.8-to-1 ratio favored advancers. There were 18 new highs and no new lows, with total volume of 203.0 million shares.

    * The most heavily traded shares by volume were Royal Bank Of Canada, Suncor Energy Inc and Air Canada.

    * The TSX’s energy group fell 0.59 points, or 0.5%, while the financials sector climbed 0.86 points, or 0.3%.

    * West Texas Intermediate crude futures rose 0.27%, or $0.17, to $63.32 a barrel. Brent crude  rose 0.36%, or $0.24, to $66.82 [O/R]

    * The TSX is up 10.8% for the year.

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