Biden economic plans challenged at Yellen hearing

US president-elect Joe Biden’s choice for treasury secretary has urged Congress to approve trillions more in pandemic relief and economic stimulus.

Janet Yellen

At her confirmation hearing, Janet Yellen said lawmakers should “act big” without worrying about national debt.

Republicans warned the former Federal Reserve head this was not the time for “a laundry list” of liberal reforms.

But Ms Yellen pushed back against senators at the hearing who warned her against raising taxes.

Ms Yellen’s appointment is expected to be approved, making her America’s first female treasury secretary.

She will enter the position as the US struggles to rebound economically from the hit caused by the coronavirus pandemic. 

Employers cut jobs in December, ending a string of job gains. Retail sales have dropped in recent months, while jobless claims rise.

“Without further action, we risk a longer, more painful recession now and longer term scarring of the economy later,” Ms Yellen said.

‘Focus efforts on pandemic relief’

Both Republicans and Democrats have indicated they will approve Ms Yellen’s nomination. Democrats said they hoped she could be formally confirmed as soon as Thursday.

But Republican Senator Chuck Grassley provided an early glimpse of the stiff resistance the Biden administration is likely to face as it presses for emergency pandemic relief, as well as a second, larger package of spending focused on infrastructure, climate friendly jobs and other priorities.

“With the trillions already in the pipeline and close to $1tn in relief enacted just a few years ago, it is very important to focus efforts on the pandemic relief,” Mr Grassley said.

“Now is not the time to enact a laundry list of liberal structural economic reforms.”

Republican Senator John Thune at Yellen confirmation hearing
image captionRepublicans indicated opposition to much of the Biden administration’s economic agenda

Republicans pressed Ms Yellen on proposals to raise taxes on corporations and the wealthy, more than double the national minimum wage to $15 per hour and distribute $1,400 stimulus payments to most families, which they said did not sufficiently target those in need.

Ms Yellen said many families that have seen incomes drop are not reached by jobless programmes and that plans to raise taxes must be seen in the context of financing bigger investments necessary to make the US economy competitive.

“The focus now is not on tax increases. It is on programmes to help us get through the pandemic,” she said.

She added that she hoped to see countries come together via the Organisation for Economic Cooperation and Development (OECD) to forge an agreement on how to tax multinational companies, making it easier for the US to raise corporate rates.

“We have much greater leverage to keep our American firms competitive if we avoid a global race to the bottom,” she said.

Janet Yellen
image captionJanet Yellen, who testified remotely, warned the US faces difficult months before vaccine distribution makes an impact

Ms Yellen also addressed concerns about the impact of further spending on American borrowing.

“Neither the president-elect nor I proposed this relief package without an appreciation of the country’s debt burden but right now, with interest rates at historic lows, the smartest thing we can do is act big,” she said.

“In the longer run, I believe the benefits will far outweigh the costs, especially if we care about helping people who have been struggling for a long time.”

What Ms Yellen said about global issues

  • China: Ms Yellen called China America’s “most important strategic competitor” and said the Biden administration was prepared to use a “full array of tools” to address its “abusive, illegal and unfair practices”.
  • Beijing’s policies in Xinjiang: Ms Yellen said China was “guilty of tremendous human rights abuses” in the region, which is home to the Uighur minority. However, she steered clear of using the word genocide.
  • Cryptocurrencies: She said there was a need for more regulation. “Many are used, at least in a transactions sense, mainly in illicit finance.”
  • Currency manipulation: She said the Biden administration would oppose any currency manipulation aimed at gaining a trade advantage.

Rishi Sunak warns ‘economic emergency has only just begun’

The “economic emergency” caused by Covid-19 has only just begun, according to chancellor Rishi Sunak, as he warned the pandemic would deal lasting damage to growth and jobs.

Official forecasts now predict the biggest economic decline in 300 years. 

The UK economy is expected to shrink by 11.3% this year and not return to its pre-crisis size until the end of 2022.

Government borrowing will rise to its highest outside of wartime to deal with the economic impact.

The government’s independent forecaster, the Office for Budget Responsibility (OBR) expects the number of unemployed people to surge to 2.6 million by the middle of next year.

It means the unemployment rate will hit 7.5%, its highest level since the financial crisis in 2009.

However, fewer jobs are expected to be lost than predicted this summer.

UK GDP forecasts show a big decline of 11.3% in 2020

Setting out his Spending Review detailing how much would be spent on public services, Mr Sunak said the government was dealing with an “economic emergency”.

He added: “That’s why we have taken, and continue to take, extraordinary measures to protect people’s jobs and incomes.”

Mr Sunak confirmed that public sector workers – excluding some NHS staff and those earning less than £24,000 – will have their pay frozen next year.

The chancellor said he could not justify an across-the-board increase when many in the private sector had seen their pay and hours cut in the crisis.

But Mr Sunak said lower-paid public sector workers would be guaranteed at least a £250 pay rise next year.

The shadow chancellor, Anneliese Dodds, criticised the pay freeze.

She said: “Earlier this year the chancellor stood on his doorstep and clapped for key workers. Today, his government institutes a pay freeze for many of them. This takes a sledgehammer to consumer confidence.”

Meanwhile, the minimum wage – which has been rebranded as the National Living Wage – will increase by 2.2% – or 19p – to £8.91 an hour, with the rate extended to those aged 23 and over.

The UK also ditched its policy of spending 0.7% of national income on overseas aid to help deal with the coronavirus crisis at home.

Mr Sunak said the new 0.5% target – which adds up to about £4bn in savings – would be “temporary”.

And millions of retirees will see the future value of their pension cut owing to a planned change in the way payments are calculated from 2030.

OBR Borrowing forecast

Mr Sunak said the government had already spent £280bn to help support the economy through the coronavirus.

It will spend a further £55bn next year as part of a package of measures to support the recovery. This includes billions of pounds to help people find jobs.

In recent years, the government has been able to borrow easily at very low interest rates, which makes its debt more affordable.

At the moment it pays just 0.32% interest to borrow for ten years.

However, Mr Sunak said long-term scarring meant the economy would be 3% smaller in 2025 than expected in the March budget.

‘Flagging economy’

The OBR said the coronavirus pandemic had “delivered the largest peacetime shock to the global economy on record”, while recent restrictions across the UK had taken “the wind out of an already flagging recovery”.

It said the UK’s later and longer lockdown this spring meant it had experienced “a deeper fall and slower recovery in economic activity” than some of its European neighbours.

The independent forecaster also warned that tax rises or spending cuts would be needed in future years to stabilise the UK’s growing debt pile.

Richard Hughes, the OBR’s chairman said: “The chancellor will need to find £20bn to £30bn in spending cuts or tax rises if he wants to balance revenues and day-to-day spending, and stop debt rising by the end of this parliament.”

Analysis box by Dharshini David, global trade correspondent

Today may be the big spending event but the chancellor has splashed the cash fourteen times over this year. That is the number of fiscal events Rishi Sunak has unveiled, with the bill for fighting the health and economic impacts of Covid now spiralling to £280bn this year and £55bn next.

Is that the end of it? The official forecasts assume that 2 December spells the end of lockdown, that we remain in the equivalent of Tier 3 restrictions until the spring – and then the vaccine becomes widely adopted in the second half of 2021. Too cautious – or optimistic? If anything, 2020 has taught us that assumptions can last as long as a disposable face covering. 

But it’ll take longer for economic life to spring back to rude health. Reviving job prospects, investment and consumption will take TLC. Even when the official crystal ball gets misty, in 2025, output is still 3% lower than it was previously expected to be.

And that’s without the risk of a no-deal; the OBR says that could mean that output is a further 1.5% by 2025. Some economists think the hit could be greater (indeed, the Governor of the Bank of England says the long term impact of a no- deal could exceed that of a virus). 

Rishi Sunak has to decide when to turn off the support to the convalescing economy – and when to start patching up the public finances by firing up tax rises. The extreme uncertainty underlines how fraught – and costly – that decision could be.

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House prices ‘to fall for two years’

The OBR expects a recent revival in house prices to end next year when a stamp duty holidaystops in March and more people lose their jobs as government support schemes are pared back.

Buyers have benefited from tax cuts of up to £15,000 because of the holiday.

However, the end of the tax break is expected to contribute to a 3.5% fall in house prices next year and a further 2.6% drop in 2022.

The OBR added: “Despite a steady recovery from 2022 onwards, the level of house prices remains around 17% lower (in 2025) compared to our March forecast.”

No-deal Brexit hit

The OBR said the “unresolved nature” of the negotiations between the UK and EU over a Brexit deal had “further clouded” the economic outlook.

It said failure to secure a deal would reduce the size of the UK economy by a further 2% in 2021, with permanent damage to growth and living standards in future years.

Under this no-deal scenario, the economy would not return to the size it was before the pandemic hit until the second half of 2023, while unemployment would peak at a higher rate of 8.3%.

By Szu Ping Chan
Business reporter, BBC

Covid in Scotland: Oil and gas sector in economic turmoil, says report

The UK oil and gas sector is in “economic turmoil” amid the coronavirus pandemic with about a fifth of firms expecting more redundancies in 2021, according to a new report.

Aberdeen and Grampian Chamber of Commerce (AGCC) said reduced activity levels and project cancellations had seen business optimism “slashed”.

Confidence is now said to be as low as during the industry downturn in 2015.

The findings came in the 32nd AGCC Oil and Gas Survey.

It covers the six months to October.

The survey was carried out in partnership with the Fraser of Allander Institute and KPMG UK.

It asked firms about the initial Covid impact, how they expected activity to recover, and further issues such as energy transition and Brexit.

The survey found that only 13% of contractors were working at, or above, optimum levels in the UK Continental Shelf (UKCS) compared with 47% a year ago – with 82% predicting a decrease in revenue in 2020.

A total of 23% of contractors reported cancelling projects as a result of the coronavirus outbreak, with a further 34% putting activities on hold.

More than three quarters of businesses – 78% – were less confident about activities going forward, while only 1% were more confident.

Oil installation

AGCC said that while businesses typically reported higher levels of optimism about their international activities, the latest results marked the lowest recorded levels of confidence in global markets in the history of the survey.

About half of contractors surveyed reported a decline in their workforce – 22% of which said reductions equated to more than 10% of their workforce – and about a fifth of surveyed firms said they expected to make further reductions in 2021.

‘Unpredictable disruption’

A total of 83% of contractors furloughed employees.

AGCC research and policy manager Shane Taylor said: “Over the course of this year we have seen drastic and unpredictable disruption to business globally due to Covid-19, combined with the collapse in oil and gas prices.

“Although government support has had clear value in supporting firms and jobs through this challenging period of suppressed demand, the only sustainable way to give businesses and workers clarity is a clear route to heightened levels of activity in the future.”

Martin Findlay, senior partner at KPMG in Aberdeen, added: “From the significant oil price decline, which started earlier in the year, to a global pandemic, and localised lockdown in Aberdeen, the oil and gas industry has, once again, endured profound challenge and uncertainty.

“However, there is room for some optimism. The industry, unlike so many others, is incredibly resilient and frequently deals with instability and challenge.”

The survey involved 100 firms employing more than 22,000 people across the UK and 400,000 globally.

Japan leads economic ‘Zoom boom’ out of recession

Japan’s economy has bounced back from recession with growth of 5% in the third quarter of this year.

It had seen its economy shrink during 2020 as lockdowns hit its manufacturing sector and consumer spending.

The world’s third biggest economy is now showing signs of recovery, although some analysts cautioned that further growth is likely to be modest.

Asian economies are leading the way for a global economic recovery, in what some have called a “Zoom boom”.

This refers to the increase in demand for screens and laptops as more people work from home, and use online meeting platforms like Zoom.

Asian economies are among the largest producers of laptops, communication equipment and other electronics. 

The Asian region will also get a boost after signing a mega trade deal agreed over the weekend, called the Regional Comprehensive Economic Partnership (RCEP).

Other signatories include China, South Korea, Australia and Singapore.

A rise in domestic demand as well as exports have helped drive economic growth in Japan.

Japan’s third-quarter gross domestic product (GDP) growth of 5% is compared to the previous quarter, which saw its economy shrink 8.2%.

This turnaround is the fastest pace on record for Japanese economic growth. At an annualised rate, assuming this growth continued for 12 months, it represents expansion of 21.4%.

GDP for the second quarter, covering April to June, was Japan’s worst figure since data became available in 1980 – worse than that of the 2008 global financial crisis.

The bounceback is welcome news for Japan’s government which has avoided the tough lockdown measures seen in some other countries.

The global economy as a whole is expected to contract by 4.4% this year, while the US will shrink by 4.3%, according to the International Monetary Fund.

However, Asian economies are leading the way when it comes to showing signs of recovery. China remains on track to grow by about 2% this year, the most of any major economy.

“We call it the Zoom boom,” said Rory Green, an economist at research firm TS Lombard.

Also on Monday, China released new economic data that showed its factory output grew 6.9% in October, compared to the same month last year.

Suga-coated

Earlier this year, Japan unveiled two stimulus packages worth a combined $2.2tn (£1.7tn), including cash payments to households and small business loans.

Prime Minister Yoshihide Suga, who took over in September, has also instructed his cabinet to come up with another package to boost Japan’s pandemic-hit economy.

Despite this latest quarterly growth, the Japanese economy is still expected to shrink by 5.6% for its full fiscal year, which ends in March 2021.

China is winning the global economic recovery

A worker in the workshop of a textile company presses out orders for products for the domestic and foreign markets in Haian city, Jiangsu Province, China, on October 3.

Hong Kong (CNN Business) – While much of the world scrambles to prevent new coronavirus cases from stalling the fragile recovery from recession, China’s economy is hitting its stride again and will end the year more influential than ever. The world’s second largest economy was the only major world power to avoid a recession this year as Covid-19 forced lockdowns and crippled businesses. China’s GDP is expected to grow 1.6% this year, while the global economy as a whole will contract 5.2%, according to summer projections from the World Bank.China built its relatively quick recovery through several measures, including stringent lockdown and population tracking policies intended to contain the virus. The government also set aside hundreds of billions of dollars for major infrastructure projects, and offered cash incentives to stimulate spending among its populace. The payoff has been evident, as tourism and spending rebounded during last week’s busy Golden Week holiday period.By the end of the year, China’s share of global GDP is likely to rise by about 1.1 percentage points, according to a CNN Business calculation using World Bank data. That’s more than triple the share it gained in 2019. By contrast, the United States and Europe will see their shares dip slightly.All told, China’s economy is expected to be worth about $14.6 trillion by the end of 2020, roughly equivalent to 17.5% of global GDP.Even without the disruption caused by the virus, China’s share would have ticked up this year, according to Larry Hu, chief China economist for Macquarie Group. But China’s ability to buck the worldwide trend is accelerating the growth in its importance to the global economy.”The recovery in China has been much stronger than the rest of the world,” Hu added.

A worker in the workshop of a textile company presses out orders for products for the domestic and foreign markets in Haian city, Jiangsu Province, China, on October 3.

A Golden Week boom 

The economic improvement has been no more apparent than during this past week, when the country celebrated one of its annual Golden Week holidays. This season’s festivities marked the founding of the People’s Republic of China and the Moon Festival, and was one of the country’s busiest travel seasons of the year.More than 630 million people traveled around the country during Golden Week, which ended Thursday, according to the Ministry of Culture and Tourism. That’s nearly 80% of the numbers who traveled during the same period last year.

What pandemic? Crowds swarm the Great Wall of China as travel surges during holiday week

Tourist spending, meanwhile, recovered to nearly 70% of last year’s level, reaching $70 billion. And movie ticket sales surpassed $580 million during the Golden Week holiday — just 12% shy of last year’s record high.The holiday week’s numbers are “encouraging,” said Macquarie’s Hu.”As life is returning to normal in mainland China, consumption, especially the service consumption, is under recovery,” he said, added that pent-up demand has finally been unleashed.

A more balanced recovery

Even before the holiday, China’s economy had been picking up momentum.An official gauge of manufacturing activity rose to a six-month high in September. A private survey from the media group Caixin, which measures smaller businesses, also showed the sector continued to expand last month.The services sector is also doing well. An official survey released last week put activity at its highest level in nearly seven years. And on Friday, a Caixin survey revealed that services experienced one of the quickest paces of expansion in the past decade in September.”Overall, the economy remained in a post-epidemic recovery phase and improved at a faster pace,” Wang Zhe, senior economist at Caixin Insight Group, said in a report accompanying Friday’s data.Consumer spending is rebounding, too, in yet another encouraging sign. Economists were concerned earlier this year that China’s recovery was too unbalanced, having been driven by lots of state-led infrastructure projects and not enough consumer spending. 

China's factory output grows at strongest pace in nearly decade. But weak spots remain

And despite trade tensions, China’s economy has also benefited from its vital role in global supply chains, according to Louis Kuijs, chief Asia economist at Oxford Economics. The research and advisory group’s own calculations also indicate that China will increase its share of global GDP by about a percentage point this year.”In contrast to expectations of … changes in global supply chains away from China, it looks as if, at least for now, China’s success in shaking off the Covid-19 outbreak and keeping factories operating has strengthened its role in global value chains,” Kujis said. He pointed out that US foreign direct investment into China actually rose 6% in the first half of this year, according to China’s Ministry of Commerce.”Even as US-China tensions have worsened dramatically recently, many US multinationals remain keen to engage with China,” Kujis said, adding that American firms were likely encouraged by Beijing’s decision to remove some barriers to investing in the country’s financial sector.

Challenges ahead

While China’s recovery has been strong, there are challenges ahead. Like in other countries, the pandemic has taken a heavy toll on China’s poor and rural populations, according to the Fitch Ratings analysts.The average monthly income collected by rural migrant workers fell nearly 7% in the second quarter compared to a year earlier, according to World Bank estimates that used Chinese government data. The hundreds of millions of people who fit that description typically work in construction, manufacturing and other low paying but vital activities.

80 million Chinese may already be out of work. 9 million more will soon be competing for jobs, too

And low-income households in China — those who make less than $7,350 a year — experienced the most severe declines in family wealth out of any other income group, according to a survey jointly conducted by China’s Southwestern University of Finance and Economics and Ant Group’s research institute. “This suggests the recent recovery in consumption is likely to have been somewhat skewed towards higher-income groups,” the Fitch Ratings analysts said.And Kuijs of Oxford Economics said that US-China tensions remain a concern, even as foreign direct investment grows. If the United States were to decouple “significantly from China,” the country’s growth would trend less than half a percentage point lower per year through 2040, he said, as long as other developed countries maintained most ties. But if other developed countries join the United States, he suspected that impact could be much larger, causing China’s GDP growth to fall twice as fast through the same period.That kind of “substantial” decoupling “would sharply reduce the country’s productivity and GDP growth,” Kuijs said.