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UK risks lasting economic scars from Covid and Brexit, OECD warns

UK risks lasting economic scars from Covid and Brexit, OECD warns

The UK will need to invest heavily in digital infrastructure and drive through reforms to raise productivity if it is to repair long-term economic damage left by the Covid-19 crisis and the effects of Brexit, the OECD said on Wednesday.

Britain’s economy is one of the hardest hit by the pandemic among the 37 tracked by the international organisation, which said UK gross domestic product was set to be 10.1 per cent smaller at the end of 2020 than it was a year earlier and to recover only some of the ground in 2021, with growth of 7.6 per cent.

These forecasts are contingent on the course of the virus, and the extent of restrictions needed to contain it, but the UK’s prospects are even more uncertain because of the risk of a disorderly exit from the EU single market, which the OECD said could depress GDP by 5 per cent over two years.

Further public investment would be needed in digital infrastructure, such as high-speed broadband in deprived or rural areas, and the government could do more to push the transition to green technology, for example by making support to businesses in polluting industries conditional on switching to cleaner processes.

“Actions taken to address the pandemic and decisions made on future trading relationships will have a lasting impact on the UK’s economic trajectory for years to come, so they should be in line with long-term objectives,” said Laurence Boone, the OECD’s chief economist. “Productivity growth in service sectors will have to accelerate significantly for the recovery to be long-lasting and sustainable,” she said.

The immediate challenge is to support low-income households and get people back into good jobs, it found. Alvaro Santos Pereira, the OECD’s director of country studies, said higher unemployment would have “a massive impact” if it

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A Bridge To Economic Recovery: Be Aware Of Financial Stability Risks

A Bridge To Economic Recovery: Be Aware Of Financial Stability Risks

By Tobias Adrian, Financial Counsellor and Director of the IMF’s Monetary and Capital Markets Department

Despite a global economic crisis comparable only to the Great Depression, near-term financial stability risks have been contained with the help of unprecedented monetary policy easing and massive fiscal support across the globe. But many economies had pre-existing vulnerabilities – which are now intensifying, representing potential headwinds to the recovery.

Extraordinary policy measures have stabilized markets, boosted investors’ sentiment, and maintained the flow of credit to the global economy. Critically, these measures helped prevent a slowing economy and sliding financial markets from feeding on each other in a destructive vicious cycle.

The rebound in asset prices and the easing in global financial conditions have benefited not only advanced economies, but also emerging markets. In addition, unlike in previous crises, emerging markets this time were also able to respond by cutting policy rates, injecting liquidity and, for the first time, employing asset purchase programs.

Beware of the real-financial disconnect

The significant improvement in financial conditions has helped maintain the flow of credit to the economy, but the economic outlook remains highly uncertain. A disconnect persists, for example, between financial markets – where there have been rising stock market valuations (despite the recent repricing) – and the weak economic activity and uncertain outlook. This gap can gradually narrow if the economy recovers swiftly. But if the recovery is delayed, for example because it may take longer to get the virus under control, the investor optimism may wane.

As long as investors believe that markets will continue to benefit from policy support, asset valuations may stay elevated for some time. Nonetheless, and especially if the economic recovery is delayed, there is a risk of a sharp adjustment in asset prices or periodic bouts of volatility.

Corporate sector vulnerabilities

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Inflation Risks Start to Hit Pockets of Global Bond Market

Inflation Risks Start to Hit Pockets of Global Bond Market

(Bloomberg) — Parts of bond markets around the world have started to signal that inflation risks will linger in the longer term, even as few expect prices to jump right away.

Unprecedented stimulus to cushion the global economy from the pandemic and signs that central bank independence is eroding worldwide have kept inflation concerns alive. That’s showing up as one factor in credit markets, where longer-dated bonds that are more sensitive to inflation expectations have lagged in recent months, reversing earlier outperformance.



Tough Days


© Bloomberg
Tough Days

In the U.S., investment-grade corporate notes due in more than 10 years underperformed short bonds last month after posting the most losses among all maturities in August, according to Bloomberg Barclays indexes. And in the options market, the cost to hedge against inflation rising over 2% in the next five years has more than doubled since February. In Asia, dollar-denominated company securities with over 10 years to maturity were the worst-performing group for the two months through September.

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Read about study that found signs of eroding central bank independence

That’s even though the sustained economic recovery that was going to usher in a new age of rising prices no longer looks like a sure thing as the pandemic drags on. Some popular trades betting on inflation that had done well over the summer have started to come undone, with growth stocks dropping and gold’s rally faltering. But for credit investors looking further along the horizon, a growing group sees eventual economic recovery gradually rekindling price increases.

“We think the worst of prices declines are over — some of the coronavirus shock-related disruption now has eased as economies start to reopen,” said Sylvia Sheng, global multi-asset strategist at JPMorgan Asset Management, who expects a risk of high inflation in the next three to

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Hidden home risks that send insurance through the roof

Hidden home risks that send insurance through the roof

When house hunting, the price of homeowners insurance probably isn’t top of mind. But homes with hidden risks can make getting coverage difficult, expensive or both. Learning how to identify them could save you a bundle.

This could be a particularly important concern for first-time homebuyers and those moving from cities to suburban or rural areas who may not be aware of common hazards, says Jennifer Naughton, risk consulting officer for North America for Chubb, an insurance company.

Three out of 10 city dwellers told a Chubb survey in early August that they were considering moving out of the city because of the novel coronavirus outbreak. Meanwhile, the number of first-time homebuyers in the first half of 2020 rose 4 percent compared to a year earlier as lower interest rates made mortgages more affordable, according to Genworth Mortgage Insurance.

Where’s the nearest fire hydrant?

A homeowners insurance premium can depend in part on distance to the nearest fire hydrant and fire station, Naughton says. Homes that are on narrow roads or otherwise difficult for fire trucks to access also could be more expensive to insure.

“If they have to cross over a bridge, it’s not only a consideration of can a car go over that bridge, but also can a fire engine,” she says.

Some homes are at such high risk of wildfires and severe weather — hurricanes, tornadoes, windstorms and hail — that private companies won’t insure them. Without insurance, you can’t get a mortgage, so you’d need to turn to state-run risk pools such as Beach and Windstorm Plans or Fair Access to Insurance Requirements Plans, better known as FAIR. These policies typically cost more and cover less than regular homeowners insurance.

Also, many homeowners policies in storm-prone areas have hurricane deductibles that are higher than the normal

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Ripple’s Larsen Says US Risks Losing Stewardship of Global Financial System to China, Disses SEC

Ripple’s Larsen Says US Risks Losing Stewardship of Global Financial System to China, Disses SEC

Ripple Executive Chairman Chris Larsen

Chris Larsen, Ripple co-founder and chairman of the payments technology company’s board of directors, said China’s “itching” to be the one that designs the next financial system and that the U.S. is “woefully behind.”

  • Speaking at the LA Blockchain Summit last week, Larsen said the U.S. needs to face up to that it’s in a tech cold war with China with the fate of control of the world’s financial system at stake. Right now, China’s winning, he said.
  • “China is just itching to be the one that designs this next system,” Larsen said. “They’ve committed $1.4 trillion to a variety of technologies and blockchain is right at the top of their list.” 
  • It’s not just that China’s pumping money into technology, the regulatory environment in the U.S. is actively discouraging financial innovation, he said.
  • “I just have to say it, in the U.S., all things blockchain, digital currency, they start and end with the SEC, Larsen said. “Instead of pivoting to encouraging U.S. innovation to keep up, they’ve done the opposite.”
  • “We’re going to have to change up here or we’re going to lose our leadership, stewardship of the global financial system,” he said. “That would be a tragedy.”
  • As CoinDesk reported at the time, Larsen also said his company could leave the U.S. if the regulatory environment doesn’t improve.

See also: SEC Will Be Forced to Give Crypto Guidance Despite Bureaucracy, Risk-Avoidance: Peirce

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