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ECB to unveil yet another anti-pandemic package

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The European Central Bank unveiled fresh stimulus measures on Thursday (10 December) to prop up the recession-hit currency bloc long enough for a coronavirus vaccine to be deployed and its devastated economy to start to heal, write and

With fresh support measures already promised, only the details of the package remain up in the air. But the bottom line is clear: borrowing costs will be kept close to zero for years so that governments and firms can spend their way out of the biggest recession in living memory.

The ECB’s challenge will be to balance a growing range of short-term risks against improving long term prospects, indicating that its move will be big but lack the “shock and awe” impact of previous crisis-fighting measures.

“With the positive news in terms of vaccine development, Europe is now starting to see the light at the end of the tunnel,” Oxford Economics said in a note. “However, the short-term outlook remains extremely challenging, with euro zone GDP likely to contract in the fourth quarter.”

For now, the 19-country eurozone is facing a triple shock: a lingering second wave of the pandemic, the prospect of a hard Brexit and political stalemate over the European Union’s €750 billion ($908bn) recovery fund.

But all three are seen as temporary shocks, with the political strife likely to be resolved and the pandemic easing by the spring, leaving the ECB with the task of getting the bloc through a difficult winter.

Indeed, financial market had already started to price in a post-pandemic recovery, with global stocks hitting an all-time high earlier this week, spreads between eurozone government bond yields tightening and the euro scaling a 2-1/2 year high against the dollar at $1.2177.

The economy also recovered surprisingly quickly after the first wave of coronavirus lockdowns, suggesting more resilience than is built into economic models. Fresh projections could thus point to lower growth in 2021 but better prospects in 2022, leaving the overall growth path little changed.

In the weeks leading up to Thursday’s meeting, ECB President Christine Lagarde (pictured) has made clear that a bigger Pandemic Emergency Purchase Programme (PEPP) and more subsidised long-term loans for banks will form the backbone of policy measures, even if other moves are possible.

Economists polled by Reuters expect the 1.35 trillion euro PEPP to be expanded by at least 500 billion euros and its duration extended by six months to the end of 2022, with risks skewed towards a bigger and longer extension.

Board members Philip Lane and Isabel Schnabel have offered further hints, both arguing that the ECB’s job is to keep borrowing costs at their current levels for even longer, rather than to lower them any further.

Anaemic inflation will also justify the idea of low for longer and fresh ECB projections will show price growth well below the bank’s near 2% target even in 2023, the 11th straight year it would undershoot its objective.

“The ECB’s tools may be most effective at calming markets in crisis situations and keeping financial conditions very easy via a ‘low for very long’ stance,” JPMorgan economist Greg Fuzesi said. “But, when monetary policy is already doing a lot, it looks more constrained when trying to give the economy an extra kick to boost inflation closer to the target.”

Rate-setters have made clear, however, that it is up to governments to handle the pandemic and that the ECB’s job is merely to make funding cheap.

“Our first objective must be to ensure that these financing conditions remain very favourable for everyone for as long as necessary,” French central bank governor Francois Villeroy de Galhau said recently.

Those comments appear to rule out policy innovation and suggest the ECB will stick to tried and tested tools.

Among them is long-term liquidity for banks and the ECB is likely to schedule more tenders and possibly extend the period when its minus 1% lending rate applies.

The ECB could also look at giving banks a bigger exemption from its negative deposit rate and may even expand its more conventional Asset Purchase Programme but an interest rate cut is seen as very unlikely.

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What you need to know about the coronavirus right now

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Here’s what you need to know about the coronavirus right now, writes Linda Noakes.

Brazil deaths on track to pass worst of US wave

Brazil’s brutal surge in COVID-19 deaths will soon surpass the worst of a record January wave in the United States, scientists forecast, with fatalities climbing for the first time above 4,000 in a day on Tuesday as the outbreak overwhelms hospitals.

Brazil’s overall death toll trails only the US outbreak, with nearly 337,000 killed, according to Health Ministry data, compared with more than 555,000 dead in the United States.

But with Brazil’s health-care system at the breaking point, the country could exceed total US deaths, despite having a population two-thirds that of the United States, two experts told Reuters.

India posts record cases

India’s second wave of infections continued to swell as it reported a record 115,736 new cases on Wednesday (7 April), a 13-fold increase in just over two months.

The federal government has asked states to decide on local curbs to control the spread of the virus, but has so far refused to impose any national lockdown after the last one in 2020 devastated its economy.

The total number of cases since the first recorded infection in India just over a year ago now stands at 12.8 million, making it the third worst hit country after the United States and Brazil.

Japan’s Osaka cancels Olympic torch run

Japan’s western region of Osaka on Wednesday cancelled Olympic torch events scheduled across the prefecture, as record infections prompted its government to declare a medical emergency.

Health authorities fear a virus variant is unleashing a fourth wave of infections just 107 days before the Tokyo Olympics begin, with a vaccination drive still at an early stage.

The prefecture reported 878 new infections on Wednesday, a second-straight day of record numbers. Severe cases have filled about 70% of hospital beds in the region.

UK begins rollout of Moderna vaccine

Britain begins rolling out Moderna’s COVID-19 vaccine on Wednesday in Wales and expects to be using it in the rest of the United Kingdom in the coming days in a boost to the country’s health system after supplies of shots started to slow.

Moderna will become the third vaccine to be used in Britain after the Oxford-AstraZeneca and Pfizer jabs and comes as the supply of shots from Astra starts to slow due to manufacturing issues including at a site in India.

The United Kingdom has vaccinated 31.6 million people with a first dose of a COVID-19 vaccine - and administered 5.5 million second doses. It will soon have vaccinated half of its total population.

A third of survivors suffer neurological or mental disorders

One in three COVID-19 survivors in a study of more than 230,000 mostly American patients were diagnosed with a brain or psychiatric disorder within six months, suggesting the pandemic could lead to a wave of mental and neurological problems, scientists said on Tuesday (6 April).

Researchers who conducted the analysis said it was not clear how the virus was linked to psychiatric conditions such as anxiety and depression, but that these were the most common diagnoses among the 14 disorders they looked at.

Post-COVID cases of stroke, dementia and other neurological disorders were rarer, the researchers said, but were still significant.

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IMF says more vaccine spending is fastest way to shore up public finances

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The COVID-19 pandemic will continue to swell global public debt in 2021, but spending more money to accelerate vaccinations is the fastest way to start to normalize government finances, the International Monetary Fund said on Wednesday (7 April), writes David Lawder.

The IMF said in its 2021 Fiscal Monitor report that if faster global vaccinations bring the virus under control sooner, more than $1 trillion in additional global tax revenue could be collected through 2025 in advanced economies.

If that same upside scenario in the Fund’s economic forecasts materializes, global GDP output could increase by $9 trillion during the same period as businesses reopen and hire more quickly, the IMF said.

“Vaccination will, thus, more than pay for itself, providing excellent value for public money invested in ramping up global vaccine production and distribution,” the IMF said in the report.

The IMF and the World Bank during their virtual Spring Meetings this week are urging member countries to keep up fiscal support for their economies and vulnerable citizens and businesses until the pandemic is firmly under control.

The Fund estimated governments have deployed some $16 trillion in pandemic-related fiscal support since the pandemic started through March 17 this year. That includes $10 trillion from additional spending and foregone revenue, and $6 trillion worth of government loans, guarantees and capital injections for businesses.

In 2021, the Fund projects fiscal deficits will shrink slightly in most countries as pandemic-related support expires or winds down, unemployment claims drop and revenues start to recover as businesses reopen.

Average overall budget deficits reached 11.7% of GDP for advanced economies in 2020 -- quadruple their 2.9% share in 2019 -- but they should narrow to 10.4% in 2021, the IMF said.

Deficits in emerging economies will also shrink slightly in 2021 to 7.7% of GDP for emerging market economies and to 4.9% for low-income economies.

Average worldwide public debt is projected to hit a record 99% of GDP in 2021 and to stabilize at that level after rising slightly from 97% in 2020. For advanced economies, debt will peak at 122.5% in 2021, up from 120.1% in 2020.

The IMF called for more targeted support for vulnerable households, including minorities, women and workers in low-paying jobs in the informal sectors of many economies. More focused support for small businesses was also needed, it said.

But it said some advanced countries with high debt levels may need to start rebuilding fiscal buffers to prepare for future shocks. It said those countries should develop multi-year frameworks for increasing revenues and rationalizing spending, giving priority to investments to fight climate change and reduce economic inequality.

In a Fiscal Monitor chapter released last week, the IMF said advanced economies could use more progressive income taxes, inheritance and property taxes, and taxes on “excess” corporate profits to help reduce inequalities exposed by the COVID-19 pandemic.

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A third of COVID survivors suffer neurological or mental disorders: study

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One in three COVID-19 survivors in a study of more than 230,000 mostly American patients were diagnosed with a brain or psychiatric disorder within six months, suggesting the pandemic could lead to a wave of mental and neurological problems, scientists said this week, writes Kate Kelland.

Researchers who conducted the analysis said it was not clear how the virus was linked to psychiatric conditions such as anxiety and depression, but that these were the most common diagnoses among the 14 disorders they looked at.

Post-COVID cases of stroke, dementia and other neurological disorders were rarer, the researchers said, but were still significant, especially in those who had severe COVID-19.

“Although the individual risks for most disorders are small, the effect across the whole population may be substantial,” said Paul Harrison, a professor of psychiatry at Oxford University who co-led the work.

Max Taquet, also an Oxford psychiatrist who worked with Harrison, noted that the study was not able to examine the biological or psychological mechanisms involved, but said urgent research is needed to identify these “with a view to preventing or treating them”.

Health experts are increasingly concerned by evidence of higher risks of brain and mental health disorders among COVID-19 survivors. A previous study by the same researchers found last year that 20% of COVID-19 survivors were diagnosed with a psychiatric disorder within three months.

The new findings, published in the Lancet Psychiatry journal, analysed health records of 236,379 COVID-19 patients, mostly from the United States, and found 34% had been diagnosed with neurological or psychiatric illnesses within six months.

The disorders were significantly more common in COVID-19 patients than in comparison groups of people who recovered from flu or other respiratory infections over the same time period, the scientists said, suggesting COVID-19 had a specific impact.

Anxiety, at 17%, and mood disorders, at 14%, were the most common, and did not appear to be related to how mild or severe the patient’s COVID-19 infection had been.

Among those who had been admitted to intensive care with severe COVID-19 however, 7% had a stroke within six months, and almost 2% were diagnosed with dementia.

Independent experts said the findings were worrying.

“This is a very important paper. It confirms beyond any reasonable doubt that COVID-19 affects both brain and mind in equal measure,” said Simon Wessely, chair of psychiatry at King’s College London.

“The impact COVID-19 is having on individuals’ mental health can be severe,” said Lea Milligan, chief executive of the MQ Mental Health research charity. “This is contributing to the already rising levels of mental illness and requires further, urgent research.”

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