BIZweek n°316 13 nov 2020
BIZweek n°316 13 nov 2020
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  • Parution : n°316 de 13 nov 2020

  • Périodicité : hebdomadaire

  • Editeur : Capital Publications Ltd

  • Format : (260 x 370) mm

  • Nombre de pages : 7

  • Taille du fichier PDF : 2,7 Mo

  • Dans ce numéro : l'impact du covid-19 sur les mesures de l'inflation.

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VENDREDI 13 NOVEMBRE 2020 BIZWEEK ÉDITION 316 LA TOUR Data Disruption  : The Impact of COVID-19 on Inflation Measurement Lockdowns, working from home, and social distancing caused people to spend larger shares of their household budgets on food and housing, while fewer people bought nonessentials, like airline tickets and clothing. And with incomes down as millions have lost their jobs, spending on nonessential items will likely remain depressed. The consumer price index (CPI) does not reflect these abrupt changes in spending patterns because the CPI weights are not continuouslyupdated. For example, the CPI could be pulled down by a decline in the prices of nonessentials that are no longer purchased A new International Monetary Fund’s (IMF) staff paper uses spending estimates derived from credit and debit card data to adjust the CPI weights to match spending patterns during the pandemic. The study finds that inflation during the first three months of the pandemic was actually higher than we thought. The chart of the week looks at the difference over the February–May timeframe between a COVID-19 price index that adjusts the CPI weights based on the impacts of COVID-19 on spending in Canada and an index with unchanged CPI weights. The diamonds in the chart show the difference between the two indexes by region. In seven of theeight regions shown, the CPI is below the COVID-19 index. Looking at the average for all regions combined, the gap is 0.23 percentage points. The main positive contributors to the gap between the COVID-19 index and the CPI are food and transport, each contributing 0.16 percentage points to the world gap. Rising food prices contribute to the faster growth of the COVID-19 index in alleight regions. Falling transport prices, which have a larger weight in the CPI than in the COVID-19 index, also contribute to the faster growth of the COVID-19 index in all regions except sub-Saharan Africa. The main negative contributors to the world gap are housing, which contributes –0.03 percentage points, and clothing, which contributes –0.08 percentage points. Housing has a higher weight in the COVID-19 index than in the CPI, but its price index is so close to the overall CPI that increasing its weight does little to move the COVID-19 index away from the CPI. The downward effect of clothing is due to seasonal price increases having a smaller weight in the COVID-19 basket. Despite the finding that CPI weights underestimated inflation in the early months of the pandemic, a quickupdate of the CPI weights to reflect the spending patterns during the pandemic would be impractical. Furthermore, introducing weights that are based on a short timeframe can reduce an index’s accuracy over the longer run. A better approach would be for statistical agencies to develop a supplementary index whose weights reflect spending patterns during the pandemic. This would give policymakers a better picture of the effect of inflation on the prices that consumers are actually paying. MARSHALL REINSDORF, Senior economist in the IMF’s Statistics Department 10 November 2020 Undetected inflation During the height of the pandemic, true inflation was higher than what was recorded by the consumer price index in nearly ail ragions. (inflation estini atm percentage points. February — May, 2020) 0. € 1 9.6 OA 0.2 0.4 0.8 Food Ci:lel-ling Housing Transpon Reureation, restaurants, hales IIire ms ill1lll Southern NW Europe Sub-Saharan AU. MENAP Easter,. Western Asir-Pacifia Caucam. Europe and Africa RELIONS Eurcip. Harnisphare Source  : Authers calculatIons hased on Indexes and weights In Ihe IMF CPI databaSeNoie ; COVID-1 9 weights reflect spending changes in Canada. MENAP = Middle East NoNh Africa, and Pakistan. INTERNATIONAL MONETARY FUND Emerging economies at crossroads as state role set to grow in wake of Covid-19 In new report The State Strikes Back, EBRD says strong institutions and good governance key to successful future. As the coronavirus pandemic sparks calls for more state intervention, emerging economies face tough choices to determine whether an increased role for government will have positive or negative long-termconsequences. The latest Transition Report from the European Bank for Reconstruction and Development (EBRD) says 45 per cent of people in the EBRD’s post-communist economies now favour higher levels of state ownership. Citizens also increasingly expect the state to be able to reduce the health and economic risks they face. Past epidemics have been shown to leave a large dent in people’s trust in the economic and political institutions that underpin democracy and the market economy. The new report shows that individuals reaching adulthood during major recessions tend to have more positive views of public ownership and income redistribution. In her foreword to the publication, entitled The State Strikes Back, the EBRD’s Chief Economist Beata Javorcik says the ability of emerging economies to deliver successful policies against a backdrop of increasing state influence depends crucially on the quality of institutions and public governance. « The economies of the EBRD regions stand at a crossroads, with decisions on policies and institutions that are taken now potentially determining their paths for decades to come. The current period of crisis andupheaval triggered by the global pandemic represents a valuable opportunity to lay the foundations for a wealthier, fairer and greener future, » says Javorcik. Weak institutions would allow the « grabbing » hand of the state to siphon off resources meant for people in need, give jobs to friends and family and let state banks be used for political gain. Firms that could not operate profitably in a low-carbon economy may be kept alive as « zombie companies », and firms that are nationalised during the pandemic may never be privatised. On the other hand, good governance would allow the « caring » hand of the state to guide economies through the transition to a green economy, transparently providing essential support and adopting forward-looking policies. 4
VENDREDI 13 NOVEMBRE 2020 BIZWEEK ÉDITION 316 LOUIS KUIJS Head of Asia Economics Oxford Economics 09 November 2020 US opinions 011 China% of regerecris,.th an of a,ontie opinion at CNna Be —Rcpulion. —Dem:1cm 12. 60 54 20 10 6 2006 2006 7916 7012 2W 4 zoimi X115 2029 ! Iwo'>tord E mr4r4+451616 Rustre Clet ? Biden unlikely to change US stance on China much In the US elections of November 3, Joe Biden won the Presidency. While the make-up of the Senate won’t be certain until Georgia holds its two runoff elections in January, the Republicans are likely to retain control of the Senate, while the Democrats maintain majority in the House of Representatives. The potential impact of the election results on China run via the influence on the US economy and US-China relations. The Republican control of the Senate will substantially constrain the ability of the Biden administration to push through domestic policy changes, in particular the fiscal package that the Democrats had hoped to enact. As a result, our US colleagues now don’t assume significant fiscal policy easing in 2021 anymore and maintain their « status quo » policy scenario. They still expect a fiscal expansion to be unveiled early next year, but think it is likely to be similar in size to the $1.5trn package that is already in our baseline forecast. Institutionally, Biden has leeway to make foreign policy changes Opinions on China in the US are less negative aroong Derriacrats Bran arnong Republicans. But a bioadbased shift la more unfavorabie opinions is one reason why we don'l expect the US stance on China on ecorionlic issues tu change muai Linder a Biden government POST SCRIPTUM RESEARCH BRIEFING BY OXFORD ECONOMICS While a Biden government should mean a less aggressive and more predictable US policy towards China, we don’t think the overall US stance on economic issues vis-à-vis China would soften much, given the tough rhetoric in the election campaign and broad support for a tough stance on China across the US political spectrum. A Biden government would also make a « common front » of developed counties that push China on policy changes more likely Compared to the reliance on Congressional approval in the case of most domestic policy areas, the US administration holds significant sway over foreign and trade policy. Donald Trump used this authority to pursue his trade war with China and other countries, and withdraw from the Paris agreement and WHO. In principle, Biden could roll back many of the trade tariffs and other changes introduced by his predecessor. We expect the Biden administration to be less aggressive and more predictable in its foreign policy, including vis-à-vis China, which will be a positive. We would expect a democratic administration to be more interested in engagement on ‘Global Commons’issues such as climate change and the Covid-19 pandemic. Indeed, the Biden team has indicated his government will quickly re-join the Paris agreement and the WHO. As regards US-China relations, the Trump government’s unpredictable and volatile policymaking created unhelpful uncertainty that weighed on trade and investment decisions. While Biden is not a free trader at heart, we think a government with him at the helm is less likely to use tariffs as a negotiation tactic or to use national security legislation as a basis for raising tariffs or obstructing Chinese companies. But we expect little change in the US government’s stance towards China any time soon However, as we have argued before, we don’t think Biden will ease the US’policy stance visà-vis China on economic issues and technology in a major way. A tough stance on China has broad support across the US political spectrum (Figure 1, front page). Moreover, Biden’s own pronouncements and policy program suggest he will continue to try to maintain the US’technological lead and to attract manufacturing activity. Some Chinese policy advisors think that China may try to re-negotiate the phase 1 trade deal, exchanging a reduction in very challenging import targets for stronger commitments on structural reforms such as better protection for intellectual property protection and further openingup the financial sector. While such a renegotiation would fit with the more strategic, longer-termorientation that a Biden administration is likely to have, we expect Biden to be under strong pressure to maintain a tough stance against China, making significant changes in current policies towards the country unlikely any time soon. Following the hard rhetoric on China during the election campaign, Biden cannot be seen to be « soft » on China. In addition, it is very hard to objectively monitor progress on reform. We expect the new US administration to conduct a strategic review of the Trump administration’s trade and investment policies. Those considered unhelpful for the US could be the basis for negotiations. But this takes time and, given the large domestic policy agenda, trade issues will not be a high priority. Biden has also indicated that he wants to « make investments in US workers » before agreeing on new trade agreements. There are two additional factors shaping the impact of Biden government on China. We would expect a more forceful and comprehensive stance on issues such as Hong Kong, Taiwan, Xinjiang and the South China Sea than under the Trump administration. Moreover, we expect US foreign policy under Biden to be more multilateral, which could make it more likely that a « common front » towards China emerges among developed countries. On the economic front, this could lead to a more consistent push for changes in the role of SOEs in the economy and industrial policy, a level playing field for foreign firms and better protection of intellectual property. These issues are of serious concern to other developed countries too. The absence of a common position among developed countries in recent years is largely because of the current US government’s inclination to « go it alone. » A more multilaterally minded US government would thus make such a common position on China much more likely. 5

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