Stephen Poloz offered a hopeful assessment of the Canadian economy’s ability to rebound from the pandemic just weeks after the outgoing governor took the central bank into uncharted territory to prevent a depression. Poloz, speaking at his last press conference before stepping down next month, said the central bank needs to be prepared for a wide range of outcomes. But he’s more optimistic than many pundits on the outlook for recovery, believing the fiscal stimulus that has been unleashed will allow Canadians to quickly pick up where they left off before the crisis. Canada’s economy is now in the midst of its sharpest contraction since the Great Depression with the unemployment rate at 13 per cent. The governor has been forced to take unprecedented action just to keep credit markets from seizing up — cutting the benchmark rate to near zero, injecting more than $300 billion of cash into financial markets and undertaking the central bank’s first-ever foray into large-scale purchases of government debt.
Tensions between the world’s two largest economies have flared on multiple fronts in recent days. Already engaged in a blame game over the coronavirus pandemic, discord between Washington and Beijing has spilled over into financial markets this week after the This link will open in a new tab. U.S. Senate passed legislation on Wednesday that could restrict Chinese companies from listing on American exchanges unless they abide by U.S. regulatory and audit standards. A Chinese government official said Thursday that Beijing will not flinch in the face of any escalation of tensions with the U.S., but stressed that economic recovery and cooperation should be the priority, according to Reuters.
The pan-European This link will open in a new tab. Stoxx 600 dropped 1.6% in early trade, with banks plunging 3.1% to lead losses as all sectors and major bourses slid into the red. In corporate news, British lender This link will open in a new tab. Lloyds faced a shareholder rebellion over its planned bonuses for top executives on Thursday, while This link will open in a new tab. Lufthansa announced that it is closing in on a $10 billion rescue deal with the German government. On the data front, U.K. borrowing soared to a record high of £62.1 billion ($75.8 billion) in April, according to figures published Friday, while retail sales fell by a record 18% as the coronavirus pandemic decimated the economy.
The Chinese government abandoned its decades-long practice of setting an annual target for economic growth amid the storm of uncertainty unleashed by the coronavirus pandemic, and said it would continue to increase stimulus. Speaking Friday morning at the National People’s Congress in Beijing, Premier Li Keqiang delivered an annual policy address that laid out a renewed focus on maintaining employment and investment. Against a backdrop of escalating tensions with the U.S., Li said Beijing remains committed to implementing the terms of the ‘phase one’ trade deal. With more than US$500 billion in infrastructure bonds to be issued this year and more monetary easing on the horizon, China is trying to cement a fragile domestic recovery without indulging in the kind of debt blowouts seen in the U.S. and Europe.