Japan’s economy to shrink at fastest pace in decades this fiscal year due to pandemic: Reuters poll By Reuters



© Reuters. FILE PHOTO: Containers are seen at an industrial port in the Keihin Industrial Zone in Kawasaki

By Kaori Kaneko

TOKYO (Reuters) – Japan’s economy will shrink at the fastest pace in decades in the year through March 2021, forcing the government to compile another stimulus package to cushion the blow from the coronavirus pandemic, a Reuters poll showed on Friday.

Many respondents predicted the Bank of Japan’s (BOJ’s) next policy step would be to expand stimulus, but they do not see the pandemic triggering a banking sector crisis this year.

The world’s third-largest economy is forecast to contract 5.3% this fiscal year, a July 3-9 poll of over 30 economists shows, the most it has shrunk since comparable data became available in 1994.

It will rebound 3.3% next year, according to the poll.

The economy will grow at an annualised 10.0% pace in the current quarter of the calendar year 2020 after having shrunk 23.9% in the second quarter ended June, the poll shows.

“It would take two to three years for economic activity to return to normal levels in Japan as its overseas markets are likely to continue suffering from the spread of the virus,” said Atsushi Takeda, chief economist at Itochu Research Institute.

Two-thirds of economists polled expect Japan to compile its next stimulus package this year to ease the pain on companies and households. Japan has so far rolled out two packages totalling $2.2 trillion.

Arata Oto, market economist at Societe Generale (OTC:) Securities Japan, expects the next stimulus package to be worth about 1-2% of the country’s gross domestic product.

The package “would aim at accelerating Japan’s recovery … once there are more signs the pandemic is beginning to subside, or to help further cushion the blow from COVID-19 if the likelihood of a second wave heightens”, he said.

Globally, more than 12 million have been infected by the virus and over half a million people have died. In Japan, more than 21,000 people have been infected and over 900 killed.

Policy support for hard-hit firms should help counter worries about Japan’s financial system, over 90% of economists surveyed said.

Asked about BOJ’s next move, 26 of 40 economists said they expect it to expand its stimulus, with 18 saying it would happen this year and five predicting it would be next year.

At next week’s rate review, the BOJ is expected to roughly maintain its view the economy will gradually recover this year from the virus-led downturn, sources have said, even as fears of a second wave of infections cloud the outlook.

Japan’s core consumer prices, which exclude volatile fresh food but includes energy costs, will drop 0.4% this fiscal year and rise 0.3% next fiscal year, the latest poll showed.

(For other stories from the Reuters global long-term economic outlook polls package)

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Campos Neto says Brazil’s economy recovering quickly By Reuters




BRASILIA (Reuters) – Brazilian Central Bank President Roberto Campos Neto said on Monday that the nation’s economy appears to be recovering quickly from the downturn caused by the novel coronavirus, a sentiment he has expressed repeatedly in recent days.

“We have, for example, income, traffic and energy consumption data,” he said in an interview with Record TV. “This information supports the idea that the worst is already behind us and we are going to have growth.”

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Canada should focus on boosting the economy even as debt climbs: analysts By Reuters



© Reuters. Outbreak of the coronavirus disease (COVID-19) in Ottawa

By Fergal Smith

TORONTO (Reuters) – Canada should focus on boosting economic growth after getting pummeled by the COVID-19 crisis, analysts say, even as concerns about the sustainability of its debt are growing, with Fitch downgrading the nation’s rating just over a week ago.

Canadian Finance Minister Bill Morneau will deliver a “fiscal snapshot” on Wednesday that will outline the current balance sheet and may give an idea of the money the government is setting aside for the future.

As the economy recovers, some fiscal support measures, which are expected to boost the budget deficit sharply, could be wound down and replaced by incentives meant to get people back to work and measures to boost economic growth, economists said.

“The only solution to these large deficits is growth, so we need a transition to a pro-growth agenda,” said Craig Wright, chief economist at Royal Bank of Canada.

The IMF expects Canada’s economy to contract by 8.4% this year. Ottawa is already rolling out more than C$150 billion in direct economic aid, including payments to workers impacted by COVID-19.

Further stimulus measures could include a green growth strategy, as well as spending on infrastructure, including smart infrastructure, economists said. Smart infrastructure makes use of digital technology.

“We have to make sure that government spending is calibrated to the economy of the future rather than the economy of the past,” Wright said.

Canada lost one of its coveted triple-A ratings in June when Fitch downgraded it for the first time, citing the billions of dollars in emergency aid Ottawa has spent to help bridge the downturn caused by COVID-19 shutdowns.

Standard & Poor’s, Moody’s (NYSE:) and DBRS still give Canadian debt the highest rating. At DBRS, Michael Heydt, the lead sovereign analyst on Canada, says his concern is about potential structural damage to the economy if the slowdown lingers too long.

Fiscal policymakers “need to be confident that there is a recovery under way before they start talking about (debt) consolidation,” Heydt said.

Fitch expects Canada’s total government debt will rise to 115.1% of GDP in 2020 from 88.3% in 2019.

Royce Mendes, a senior economist at CIBC Capital Markets, said the economy still needs more support.

“Turning too quickly toward austerity would be a clear mistake,” he said.

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Australia retail sales see record surge in May as economy reopens By Reuters



© Reuters. FILE PHOTO: People walk to and from a shopping mall entrance in the city centre in Sydney

SYDNEY (Reuters) – Australian retail sales saw a record surge in May, official data showed on Friday, as a wide scale easing in coronavirus lockdowns allowed entire sectors to reopen, enabling a recovery from an historic plunge in April.

The strong bounce suggests consumer spending will not be nearly as weak as first feared in the June quarter, offering hope the economy can recover quickly from its first recession in three decades.

Retail sales jumped a seasonally adjusted 16.9% in May, from April when it tumbled 17.7%. Sales were also up over 5% on May last year at A$28.97 billion ($20.06 billion), according to the Australian Bureau of Statistics (ABS).

Australia eased lockdown restrictions in May as it successfully contained the spread of the virus and reopened its economy before many other advanced nations. The country has just over 8,000 coronavirus cases with 104 deaths.

Also in May, there was a massive month-on-month increase of 129.2% in clothing, footwear and personal accessory retailing. Cafes, restaurants and takeaway food services saw a surge of 30.3%, with both sectors coming off very low levels of trade in April.

Levels in clothing and footwear industries however remain well below the same time last year, the ABS reported.

The optimism since late April has also been reflected in credit card spending by major banks.

According to the Commonwealth Bank (CBA), card spending in the week to June 26 was up 4.5% on a year ago after a 7.1% lift for the week ended June 19.

Separate data from the Federal Chamber of Automotive Industries showed the slowest decline in new vehicle sales since the beginning of the COVID-19 crisis. New vehicle sales fell 6.4% compared with June 2019, following double digit year-on-year declines in March, April and May.

Economists are keeping a close eye on the Reserve Bank of Australia’s (RBA) monthly policy meeting on Tuesday for any upgrades in forecasts ahead of its quarterly outlook due in August.

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Brazil posts $7.5 billion trade surplus in June: Economy Ministry By Reuters



© Reuters. Cranes are seen in the distance during a workers’ strike at Latin America’s biggest container port in Santos

BRASILIA (Reuters) – Brazil posted a trade surplus of $7.5 billion in June, official data showed on Wednesday, more than the median consensus forecast in a Reuters poll of economists of a $6.95 billion surplus and up sharply from a $5.4 billion surplus a year ago.

Exports totaled $17.9 billion and imports were $10.4 billion, the Economy Ministry said, adding the accumulated January-June surplus of $23 billion was 10% smaller than the same period last year.

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World Bank sees Thai economy shrinking by at least 5% this year By Reuters



© Reuters. A view of the port of Bangkok in Thailand

BANGKOK (Reuters) – Thailand’s economy is expected to be severely impacted by the COVID-19 pandemic, shrinking by at least 5% this year and taking more than two years to return to pre-pandemic GDP output levels, the World Bank said on Tuesday.

In the baseline scenario, the economy is projected to grow by 4.1% in 2021 and by 3.6% in 2022, the agency said in a statement.

An estimated 8.3 million workers will lose employment or income because of the COVID-19 crisis, which has put many jobs at risk, particularly those related to tourism and services, the World Bank said.

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Mexican economy shrinks record 17.3% in April as industry swoons By Reuters



© Reuters. Workers are seen in a building undergoing construction at Mexico City

MEXICO CITY (Reuters) – Mexico’s economy posted a record contraction in April, official data showed on Friday, as the effects of the coronavirus lockdown devastated economic activity, particularly in manufacturing.

Adjusted for seasonal swings, Latin America’s second-biggest economy contracted 17.3% from March, the biggest fall since modern data began being published in early 1993, according to figures put out by national statistics agency INEGI.

The decline, however, was not as sharp as the 19.4% drop forecast by a Reuters poll of economists.

In unadjusted terms, the economy shrank 19.9% in April compared with a year earlier, the figures showed.

A breakdown of the data showed that primary activities such as farming, fishing and mining shrank 6.4% from March. Secondary activities, which include manufacturing, plummeted 25.1% and tertiary activities, which cover the service sector, fell 14.4%.

Auto production almost ground to a halt in April, falling by 98.8% on the year, and the country’s main industry group has forecast output in the sector could drop by nearly a third in 2020.

The government hopes the economy fared slightly better in May, when authorities gradually began to permit sectors such as carmaking, mining and construction to start up again.

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U.S. labor market, economy struggle despite reopening of businesses By Reuters


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© Reuters. FILE PHOTO: People line up outside a Kentucky Career Center hoping to find assistance with their unemployment claim in Frankfort

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By Lucia Mutikani

WASHINGTON (Reuters) – The number of Americans filing claims for unemployment benefits fell moderately last week as a second wave of layoffs partially offset hiring by businesses reopening, suggesting the labor market could take years to recover from the COVID-19 pandemic.

Other data on Thursday reinforced expectations the economy would contract in the second quarter at its deepest pace since the Great Depression. Though orders for key capital goods rebounded in May, the increase recouped only a fraction of the prior declines. The goods trade deficit widened sharply last month as the respiratory illness disrupted trade further.

“All is not well in this economy,” said Chris Rupkey, chief economist at MUFG in New York. “While it counts as good news that businesses are ordering more equipment in May as the states reopened, the second wave of the pandemic may keep companies cautious in the months ahead when it comes to making new investments in the country’s future.”

Initial claims for state unemployment benefits fell 60,000 to a seasonally adjusted 1.48 million for the week ended June 20, the Labor Department said. There was a jump in claims in California, which together with Texas and Florida, has seen a surge in novel coronavirus cases. Economists polled by Reuters had forecast 1.3 million applications in the latest week.

Claims have dropped from a record 6.867 million in late March, but they remain more than double their peak during the 2007-2009 Great Recession. The report, the most timely data on the economy’s health, also showed 30.6 million people were receiving unemployment checks in the first week of June, about a fifth of the labor force.

Businesses in many states reopened more than a month ago after shuttering in mid-March to try to slow the spread of COVID-19. Companies are hiring, but others are cutting jobs at nearly the same pace.

The economy slipped into recession in February. From manufacturing to the transportation, retail and leisure and hospitality industries, companies are restructuring to adapt to a vastly changed landscape, leading to layoffs and bankruptcies.

State and local governments, whose budgets have been squeezed by the COVID-19 fight, are also cutting jobs.

High unemployment is undercutting demand, with ripple effects on business investment, which contracted in the first quarter at its sharpest pace since mid-2009.

A separate report from the Commerce Department showed orders for non-defense capital goods excluding aircraft, a proxy for business spending plans, increased 2.3% in May after dropping 6.5% in April. These so-called core capital goods orders are 5.6% below pre-pandemic levels.

The surge in coronavirus infections threatens the nascent improvement in business investment. Energy companies slammed the brakes on returning staff to their Houston offices as COVID-19 cases soared and top hospitals warned they could soon run out of beds for the most severely ill patients.

The pandemic is upending the flow of goods. In another report, the Commerce Department said the goods trade deficit jumped 5.1% to $74.3 billion in May. Exports tumbled 5.8% while imports decreased 1.2%. With imports declining again, retailers and wholesalers drew down inventories.

Economists expect GDP could shrink at as much as a 46% annualized rate in the second quarter. The economy contracted at a 5% pace in the January-March quarter, the deepest downturn since the Great Recession.

Major U.S. stock indexes were trading slightly higher, led by gains in shares of financial and energy companies. The dollar () was higher versus a basket of currencies. U.S. Treasury prices rose.

STALLED PROGRESS

The number of people receiving benefits after an initial week of aid fell 767,000 to 19.522 million in the week ending June 13. These so-called continued claims, reported with a one-week lag, are down from a record 24.912 million in early May.

Economists credit the drop to the government’s Paycheck Protection Program, which gives businesses loans that can be forgiven if used for wages.

The continuing claims data covered the week that the government surveyed households for June’s unemployment rate.

The jobless rate has been biased down since March by people incorrectly misclassifying themselves as being “employed but absent from work.”

Without this problem, which the Labor Department is working to correct, the unemployment rate would have been 16.3% in May instead of 13.3% and would have peaked at about 19.7% in April.

The government has expanded eligibility for unemployment benefits to include the self-employed and independent contractors who have been affected by the pandemic, including through lost employment, reduced hours and wages.

These claims are not included in the regular state unemployment insurance, understating the magnitude of labor market distress. About 33 million people are currently claiming benefits under all programs.

“These claims foreshadow a June jobs report that may fail to meet the high expectations set by the May report,” said Andrew Stettner, senior fellow at The Century Foundation in New York.



Fed’s Evans Says Intermittent Virus Outbreaks Will Slow Economy By Bloomberg



© Bloomberg. Charles Evans

(Bloomberg) — Recurring coronavirus outbreaks will probably hold back U.S. economic growth and leave unemployment at elevated levels in the coming years, Federal Reserve Bank of Chicago President Charles Evans said.

“My forecast assumes growth is held back by the response to intermittent localized outbreaks — which might be made worse by the faster-than-expected reopenings,” Evans said Wednesday in remarks prepared for a virtual event.

“In this environment, many resources will be devoted to health and safety. I assume health solutions become widely available as we move through 2022, and I allow for a return to more normal operations by late in the year,” Evans said.

The Chicago Fed chief pointed to the median of projections published by Fed policy makers on June 10, which showed the U.S. unemployment rate may still be 5.5% by the end of 2022. It surged from 3.5% in February to 14.7% in April, before dipping back down to 13.3% in May as many localities lifted stay-at-home orders.

Now, small businesses in emerging hot spots like Texas and Arizona are beginning to see a decline in foot traffic again as cases there surge, and some bars and restaurants are closing their doors for a second time.

“Until the virus is treatable or controlled through other measures, the return of economic activity hinges on the ability of businesses to provide safe workplaces and consumer environments,” Evans said. “How much these efforts will allow activity to recover is an open question.”

©2020 Bloomberg L.P.

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U.S. economy improving; rising COVID-19 cases a threat By Reuters



© Reuters. Real estate signs advertise new homes for sale in multiple new developments in York County, South Carolina

By Lucia Mutikani

WASHINGTON (Reuters) – Sales of new U.S. single-family homes increased more than expected in May and business activity contracted moderately this month, suggesting the economy was on the cusp of recovering from the recession caused by the COVID-19 crisis.

But a resurgence in confirmed coronavirus cases across the country threatens the nascent signs of improvement evident in Tuesday’s economic data. Many states have reported record daily increases in COVID-19 infections, which health experts have blamed on local governments reopening their economies too soon. The economy has stabilized as businesses reopened after closing in mid-March to control the spread of the respiratory illness.

“The renewed upsurge in COVID-19 cases across the South and the West poses a clear downside risk over the coming months but, with a second wave of state-wide lockdowns appearing unlikely for now, we are assuming this will act as a modest drag on the economic recovery, rather than resulting in a renewed downturn,” said Andrew Hunter, senior U.S. economist at Capital Economics.

New home sales jumped 16.6% to a seasonally adjusted annual rate of 676,000 units last month, the Commerce Department said. New home sales are counted at the signing of a contract, making them a leading housing market indicator. Last month’s increase left sales just shy of their pre-COVID-19 level.

Sales dropped 5.2% in April to a pace of 580,000 units. Economists polled by Reuters had forecast new home sales, which account for about 14.7% of housing market sales, rising 2.9% to a pace of 640,000 in May.

New home sales are drawn from building permits. Sales surged 12.7% from a year ago in May. The report followed on the heels of data last week showing home purchase applications at an 11-year high in mid-June and permits rebounding strongly in May.

The broader economy slipped into recession in February, leaving nearly 20 million people unemployed as of May.

In a separate report on Tuesday, data firm IHS Markit said its flash U.S. Composite Output Index, which tracks the manufacturing and services sectors, rose to a reading of 46.8 in June from 37 in May. A reading below 50 indicates contraction in private sector output.

The improvement was led by an ebb in the manufacturing sector downturn, with the flash Purchasing Managers Index climbing to 49.6 from 39.8 in May. The survey’s services sector flash PMI rose to 46.7 from 37.5 in May.

Activity is also picking up around the globe. The IHS Markit’s euro zone Flash Composite Purchasing Managers’ Index recovered to 47.5 from May’s 31.9.

Stocks on Wall Street extended gains on the data and hopes of more fiscal stimulus. The dollar fell against a basket of currencies. U.S. Treasury prices were lower.

UNEMPLOYMENT HURDLE

The market for new homes is being supported by historic low interest rates and a preference among buyers for single-family homes away from city centers as companies allow employees more flexibility to work from home amid the coronavirus crisis.

But with record unemployment and companies freezing hiring to deal with weak demand and keep costs under control, a sharp rebound in the housing market is unlikely.

“If the overall economy seems to be slowing, the public may not be quite as confident about putting a down payment on an expensive new home,” said Chris Rupkey, chief economist at MUFG in New York. “Many businesses are insolvent and there will be less spending from unemployed Americans as well that could keep this economic recovery in the slow lane for some time.”

Last month’s increase in new home sales did little to offset a plunge in sales of existing homes in April and May, leaving intact economists’ expectations for a record tumble in residential investment in the second quarter. Homebuilding also rebounded moderately in May after slumping in April.

Last month, new home sales shot up 45.5% in the Northeast and advanced 29% in the West. They rose 15.2% in the South, which accounts for the bulk of transactions, but fell 6.4% in the Midwest.

The median new house price rose 1.7% to $317,900 in May from a year ago. New home sales last month were concentrated in the $200,000 to $400,000 price range.

New homes priced below $200,000, the most sought after, accounted for about 15% of sales.

There were 318,000 new homes on the market in May, down from 325,000 in April. At May’s sales pace it would take 5.6 months to clear the supply of houses on the market, down from 6.7 months in April. Nearly two-thirds of the homes sold last month were either under construction or yet to be built.