Switzerland might be named a currency manipulator by the US, making life more difficult for the country’s central bank, according to UBS Group AG.
Switzerland, which for years has used foreign exchange intervention to prevent too much Franc appreciation, now meets all three criteria for manipulators set by the US, namely the trade surplus and current account balance plus large-scale intervention, economist Alessandro Bee writes in a note to clients .
Switzerland is already on the monitoring list, and can be upgraded when the US publishes the next report.
That Swiss National Bank said that along with negative interest rates, interventions are very important to prevent deflation and recession. Policy makers emphasize that they are not trying to keep their currencies low but are only trying to limit strong appreciation.
“Much depends on the diplomatic skills of the Swiss authorities and US good intentions,” Bee said, adding that the US might abstain from retaliation.
“Even if a conflict with the US can be avoided, meeting all three formal criteria is likely to cause increasing uncertainty about SNB’s future monetary policy and is likely to increase volatility” in the exchange rate.
OTTAWA – The Bank of Canada anticipates providing a large enough stimulus to the economy in the future to help the country rebuild from the damage caused by the pandemic, Governor Stephen Poloz said Monday.
He said he believed the Canadian economy was in a position to “get rid” of the worst of the virus, because it was in a healthy position before the pandemic. To contain the spread of the new corona virus, authorities here and elsewhere impose restrictions on economic activity. The ranks of the unemployed have swollen, and the data …
KARACHI: Businessmen have criticized the State Bank of Pakistan (SBP) for reducing only 1% in the benchmark interest rate on Friday despite clear messages from all segments, especially trade and industry, for considerable cuts.
In a statement, President of the Federation of Pakistan Chambers of Commerce and Industry (FPCCI) Mian Anjum Nisar expressed serious objections to a slight reduction in interest rates.
“Given the current deteriorating economic situation, all central banks are supporting their economy by significantly cutting interest rates along with stimulus packages,” he said. “The current decision is not based on forward-looking inflation.”
He underlined that the chamber agreed with the conditions of the external account detailed in the monetary policy statement in which the current account deficit (CAD) was expected to remain under control like in April.
However, in May and June, imports will be even lower than $ 3 billion per month due to fewer orders placed by importers due to falling demand under the lock of the whole world. Nisar said that because the SBP expects the external situation to be managed, there is sufficient information available on the inflation front to estimate a much lower level than the 7-9% expected next year by the central bank.
On the other hand, President of the Karachi Chamber of Commerce and Industry (KCCI), Agha Shahab Ahmed said, a cut of 100 basis points was still inadequate given the corona virus crisis. He stressed that interest rates must be cut to 4% in one go.
“A large cut in interest rates will provide a much-needed boost to economic revival,” he said. “It is very important to keep the economic wheel rolling to avoid an economic crisis that will have long-term negative implications.”
He stressed that businesses must continue their operations, which are crucial for generating income for national finance ministers and maintaining stable foreign exchange reserves through exports.
He believes that this will in turn help the government fulfill its financial obligations and enable it to keep the economy afloat. The situation is dire but damage can be minimized through business-friendly policies and incentives.
Australia seems to have succeeded in leveling the coronavirus curve, but such optimistic health outcomes will not prevent the economy from experiencing a deep decline. Our case base anticipates the greatest contraction since the Great Depression of 1930-1931.
Significant stimulus – both monetary and fiscal – protects households and helps businesses to survive and retain workers. Despite this, Australia’s small open economy has suffered considerable damage and faces challenges from weak global demand and trade. Significant monetary-fiscal coordination to provide further stimulus will be needed to restore the economy over the next few years.
We anticipate three consecutive quarters of decline in gross domestic product, with the Australian economy contracting by 9% from 4Q 2019 before a gradual recovery begins in 4Q 2020. We do not expect a recovery for pre-outbreak activity levels until 2H 2022.
For 2020, our base case estimate remains a 6% contraction, unchanged from our previous projections. Better than expected containment of the virus will encourage 2021 growth from 1.6% to 2.5%. The potential for a second wave of outbreaks remains a major downside risk.
Monetary policy has shifted to support fiscal policy and maintain financial stability. Overnight cash exchange rates are expected to remain on hold at least until 2022, with ongoing quantitative easing to hold yields amid increasing issuance when fiscal packages and automatic stabilizers start.
How far the unemployment rate rises depends on the participation trend. The labor market looseness will last for years, which will suppress wage growth and inflation.
The Biggest Financial Year Contraction in Australian GDP in 90 Years
Australia’s real success in controlling coronavirus outbreaks has paved the way for the economy to emerge earlier than economic hibernation which is expected to last for six months. But this process tends to be gradual, and will not prevent a significant economic downturn.
Compared to our previous estimates, what has changed is the level and timing of the blow to the economy from actions taken to deal with the health crisis. There has been a significant setback from retail spending in 1Q 2020. This will weigh on consumer spending in 2Q 2020, creating deeper contractions.
There is a non-trivial risk that shopping prevents the Australian economy from contracting in 1Q, although we think this is not possible given the possible decline in the non-retail household consumption sector, and wider economic activity. We are now lacking confidence in seeing the contraction in activities continue until 3Q 2020. We currently anticipate a small decrease in 3Q GDP, although this depends very much on how the virus restriction is not lifted.
Revocation of restrictions will allow the business to restart. However, triggering demand may not be as easy as giving a hit on household and business confidence, and damage to the balance sheet. The resumption of economic activity will also be accompanied by some temporary fiscal measures which are not attractive, which can reduce income and demand.
Recovery in Economic Activities Will Need Continuous Policy Support
As a small open economy, a weak global economic background can also hamper Australia’s economic recovery. In addition, the risk of a second wave of outbreaks – most likely imported – means that international travel restrictions cannot be reduced immediately. While Australia’s international borders will remain closed for 3-4 months, the potential for easing restrictions on movement in “virus-free” zones, such as with New Zealand, does present an upward risk to prospects.
Preliminary estimates from the labor market confirm that containing the virus has come at a great cost. Despite the substantial fiscal response, the sad reality is that not all businesses and jobs will be saved. Fiscal policy needs to turn from economic survival to stimulus and recovery when the virus starts to be controlled.
Overhangs in the labor market tend to be more prominent than traditional headline indicators suggest. Our forecast combines a sharp rise in the unemployment rate. But even so, the true picture of a decline in labor demand, or the level of excess labor supply, is likely to be obscured by a decrease in participation and a reduction in hours worked per employee.
As aid payments decrease and social distance decreases, labor force participation, and subsequently the unemployment rate, is likely to increase. Significant dislocations in the labor market may last for a long time even if economic growth can recover. The economy must “heat up” – or above potential – for a long period of time not only to reengage unemployed workers, but also to absorb fundamental growth in the supply of labor.
This will burden the wage growth which has been depressed for a long period of time. In turn, the prospect of inflationary pressures driven by dim wages. It is not possible for a company to face a conducive demand environment to lift prices for some time. This will be partly exacerbated by households wishing to rebuild wealth through increased savings, which risks delaying or silencing demand recovery. In balance, these strengths mean that monetary policy will remain accommodative for a long period of time, coordinating with fiscal policy. The stronger and more sustainable the fiscal response, the faster the economy will be able to recover.
Australia Virus Recovery Scenarios
There is a risk of the ups and downs of our prospects. Effective policy support in Australia, China and throughout the world can help the economy increase stronger steps. But the downside risk is quite large:
The recurrence of other Covid-19 cases in the country could cause Australia to institutionalize another lockout. Even assuming more moderate control measures, the results will be a double-dip for Australia’s growth rate. We estimate that the second outbreak will trigger a contraction of around 3% in 4Q 2020, and cause a 2.1% contraction in 2021.
The extent of scarring: Even after the resumption of better than expected activities and significant government efforts, the damage still left to the economy may prove to be greater than we thought. Damaged household and business balance can disrupt activities, resulting in recovery that is longer than expected.
On the plus side, Australia can experience detention and recovery that is better than expected. This could be further driven by the potential twinning of the Australian economy with New Zealand, which has experienced similar success in controlling the plague. The formation of a “trans-Tasman bubble” that may experience a more relaxed movement of people and activities can result in a stronger and earlier recovery for both countries.
BE Australia’s Short-Term Forecast With Scenarios
James McIntyre is a Bloomberg Economics economist covering the economies of Australia and New Zealand. He has previously covered the economies of Australia and New Zealand at Macquarie Bank and Commonwealth Bank. He also has an economic, public policy and political background through his role in the Australian Treasury, the Australian Banking Association, and as an economic advisor in the Prime Minister’s Office. He is based in Sydney.
OTTAWA – The Canadian bank left its main interest rate unchanged Wednesday and said it will start buying provincial and corporate bonds, warning that the short-term decline in output in the Canadian economy could be the biggest on record.
Bank of Canada Governor Stephen Poloz said at a press conference the Canadian economy experienced “significant and rapid contraction” as a result of the new coronavirus pandemic, which has led to widespread business closures, and a decline in global oil prices. “In the near future, policy …
TORONTO – Five things to watch out for in the Canadian business world in the coming week:
Federal assistance measures starting on Monday mark the start of the first full week that a Canadian Emergency Business Account will be available for small businesses and nonprofit organizations. The federal government program, which offers applicants up to $ 40,000 in interest-free loans in an effort to counter the COVID-19 related economic downturn, is currently available through 5 large banks.
Interest rate cuts again? The Bank of Canada will release its latest interest rate decision and monetary policy report on Wednesday. The Canadian central bank made two unscheduled interest rate cuts in March in response to the economic downturn caused by the COVID-19 pandemic, bringing its main interest rate target down to 0.25 percent after starting the month at 1.75 percent.
March Home Sales Canadian Real Estate Association will release March home sales results on Wednesday. The latest figures from Vancouver and Toronto show strong sales activity in the first half of the month followed by a sharp decline in activity because the effect of COVID-19 made the market cool.
Manufacturing Statistics Canada figures will release a monthly manufacturing survey for February on Thursday. The previous StatCan survey for January showed that manufacturing sales fell 0.2 percent to $ 56.1 billion, the fifth consecutive monthly decline.
The possibility of renewal of CERB unemployed Canadian Workers is currently not eligible for the Canadian Emergency Response Benefit will oversee renewal for the $ 24 billion program. A recent analysis by the Canadian Center for Alternative Policies estimates that one third of unemployed Canadians, including contract workers or economic workers, will not get help from job insurance or CERB in its current form.
This report by The Canadian Press was first published April 12, 2020.