The economic policy response to the pandemic has been compared to wartime. Coronavirus has changed many things, not least the terms of the debate about government intervention in the economy. The raw numbers speak for themselves.
In Ireland, the initial response consisted of measures that totalled around €24.5 billion. This amounted to 14 per cent of the annual size of the economy, as measured by GNI* – which tries to strip out some of the distortions caused by the multinational sector. The cost has grown as restrictions have been extended. The eventual size of the bill will, of course, depend on how long those restrictions last.
Fourteen per cent (and growing) of your economy is a bill that would have been unimaginable a year ago, particularly as most of it has been borrowed. Most economists would have said that it is a fiscal trick impossible to pull off, at least not without a crisis in government debt markets.
We haven’t had a crisis because most of the money was lent to us by the ECB. Depending on which looking glass you use, we are either borrowing from ourselves or printing the money. Or, ultimately, a bit of both.
The UK chancellor, Rishi Sunak, last week made, by my calculations, his 16th fiscal announcement of the pandemic. He called it a budget. It was really just another update (albeit an extensive one) on spending and taxation in the wake of the crisis. Pages of estimates and pure guesses about the future of the UK economy revealed a pandemic bill, so far, reckoned to be £407 billion. That’s about 19 per cent of UK GDP. Sunak stated, correctly, that nothing like this has ever been seen, apart from during the two world wars.
So it looks like the UK has been more generous than Ireland. But we are probably not comparing like with like. It is too early to be reaching that kind of judgement. Either way, we are looking at jaw-droppingly large numbers, amounts of borrowed money that have caused barely a flutter of excitement in government debt markets. Until very recently, at least.
That wartime comparison was also drawn recently by Ken Rogoff, former chief economist at the IMF. During the great financial crisis, Rogoff became famous in certain circles for warning that governments shouldn’t allow debt to reach, let alone exceed, 100 per cent of GDP. Such thinking lead to the subsequent decade of austerity. Conventional wisdom dictated that debt had to be stabilised and preferably reduced.
Rogoff recanted this week, Well, sort of. He admitted that his 100 per cent warning was, in reality, just a rule of thumb for normal times. Recognising just how abnormal current circumstances are, he suggested that today’s priority should be spending on pandemic relief and, I think, trying to grow your way out the problem.
Rule of thumb
Debt-to-GDP is a ratio. All we have are Rogoff-style rules of thumb about what is sustainable – or not. Economics provides zero precision about the right ratio. Austerity was about managing down the numerator: that focus on borrowing. The current crisis means that we should focus on the denominator: get growth up.
It’s a point of view not shared by Sunak. He presented a gloomy outlook for the UK economy and did nothing about that outlook: the pandemic will leave permanent scars. In the short term, he extended supports and reliefs until September. For the medium term all that awaits the UK are tax hikes and spending cuts. It was, said Simon Wren-Lewis, professor at Oxford, an austerity budget resonant of the Cameron-Osborne years.
Sunak laid claim “to levelling with the British people”. He didn’t. He should have said that we have little idea about where the economy will be in the years following the pandemic’s end and that he will act appropriately when we do know.
If anyone believes he means to raise taxes and slash spending in the run-up to the next general election, I have a bridge to sell them. He should have said that all the forecasts, slavishly followed by all of the media, will all be wrong.
Sunak said nothing about Brexit costs, the green economy or the social care crisis. There was no extra money for front line workers. He did nothing for the UK’s rate of economic growth. It was all about the numerator, not the denominator.
The Economist newspaper this week called for a post-pandemic rewrite of the social contract. Sunak’s response was a big raspberry.
If Paschal Donohue is looking for pointers about what to do in a post-crisis world he should not take any cues from the UK. Sunak got it wrong and revealed a mindset unmoved by the seismic changes wrought by the pandemic. A century ago Keynes wrote prophetically about the post-war fiscal settlement and the awful consequences of wrong-headed orthodoxy. He would marvel about how little has changed.
Pandemic relief is one thing, the next is growth. The US is where all of the new thinking – and action – is going on. The bet – not without risks – is that we have to focus on the denominator.
Bond markets may or may not in future be so quiescent but much power here lies in the hands of the ECB. Growing our economies – and that social contract rethink – are the mammoth tasks that await.
OTTAWA – Canada’s unemployment rate held steady at 6.5 per cent last month as hiring remained weak across the economy.
Statistics Canada’s labour force survey on Friday said employment rose by a modest 15,000 jobs in October.
Business, building and support services saw the largest gain in employment.
Meanwhile, finance, insurance, real estate, rental and leasing experienced the largest decline.
Many economists see weakness in the job market continuing in the short term, before the Bank of Canada’s interest rate cuts spark a rebound in economic growth next year.
Despite ongoing softness in the labour market, however, strong wage growth has raged on in Canada. Average hourly wages in October grew 4.9 per cent from a year ago, reaching $35.76.
Friday’s report also shed some light on the financial health of households.
According to the agency, 28.8 per cent of Canadians aged 15 or older were living in a household that had difficulty meeting financial needs – like food and housing – in the previous four weeks.
That was down from 33.1 per cent in October 2023 and 35.5 per cent in October 2022, but still above the 20.4 per cent figure recorded in October 2020.
People living in a rented home were more likely to report difficulty meeting financial needs, with nearly four in 10 reporting that was the case.
That compares with just under a quarter of those living in an owned home by a household member.
Immigrants were also more likely to report facing financial strain last month, with about four out of 10 immigrants who landed in the last year doing so.
That compares with about three in 10 more established immigrants and one in four of people born in Canada.
This report by The Canadian Press was first published Nov. 8, 2024.
The Canadian Institute for Health Information says health-care spending in Canada is projected to reach a new high in 2024.
The annual report released Thursday says total health spending is expected to hit $372 billion, or $9,054 per Canadian.
CIHI’s national analysis predicts expenditures will rise by 5.7 per cent in 2024, compared to 4.5 per cent in 2023 and 1.7 per cent in 2022.
This year’s health spending is estimated to represent 12.4 per cent of Canada’s gross domestic product. Excluding two years of the pandemic, it would be the highest ratio in the country’s history.
While it’s not unusual for health expenditures to outpace economic growth, the report says this could be the case for the next several years due to Canada’s growing population and its aging demographic.
Canada’s per capita spending on health care in 2022 was among the highest in the world, but still less than countries such as the United States and Sweden.
The report notes that the Canadian dental and pharmacare plans could push health-care spending even further as more people who previously couldn’t afford these services start using them.
This report by The Canadian Press was first published Nov. 7, 2024.
Canadian Press health coverage receives support through a partnership with the Canadian Medical Association. CP is solely responsible for this content.
As Canadians wake up to news that Donald Trump will return to the White House, the president-elect’s protectionist stance is casting a spotlight on what effect his second term will have on Canada-U.S. economic ties.
Some Canadian business leaders have expressed worry over Trump’s promise to introduce a universal 10 per cent tariff on all American imports.
A Canadian Chamber of Commerce report released last month suggested those tariffs would shrink the Canadian economy, resulting in around $30 billion per year in economic costs.
More than 77 per cent of Canadian exports go to the U.S.
Canada’s manufacturing sector faces the biggest risk should Trump push forward on imposing broad tariffs, said Canadian Manufacturers and Exporters president and CEO Dennis Darby. He said the sector is the “most trade-exposed” within Canada.
“It’s in the U.S.’s best interest, it’s in our best interest, but most importantly for consumers across North America, that we’re able to trade goods, materials, ingredients, as we have under the trade agreements,” Darby said in an interview.
“It’s a more complex or complicated outcome than it would have been with the Democrats, but we’ve had to deal with this before and we’re going to do our best to deal with it again.”
American economists have also warned Trump’s plan could cause inflation and possibly a recession, which could have ripple effects in Canada.
It’s consumers who will ultimately feel the burden of any inflationary effect caused by broad tariffs, said Darby.
“A tariff tends to raise costs, and it ultimately raises prices, so that’s something that we have to be prepared for,” he said.
“It could tilt production mandates. A tariff makes goods more expensive, but on the same token, it also will make inputs for the U.S. more expensive.”
A report last month by TD economist Marc Ercolao said research shows a full-scale implementation of Trump’s tariff plan could lead to a near-five per cent reduction in Canadian export volumes to the U.S. by early-2027, relative to current baseline forecasts.
Retaliation by Canada would also increase costs for domestic producers, and push import volumes lower in the process.
“Slowing import activity mitigates some of the negative net trade impact on total GDP enough to avoid a technical recession, but still produces a period of extended stagnation through 2025 and 2026,” Ercolao said.
Since the Canada-United States-Mexico Agreement came into effect in 2020, trade between Canada and the U.S. has surged by 46 per cent, according to the Toronto Region Board of Trade.
With that deal is up for review in 2026, Canadian Chamber of Commerce president and CEO Candace Laing said the Canadian government “must collaborate effectively with the Trump administration to preserve and strengthen our bilateral economic partnership.”
“With an impressive $3.6 billion in daily trade, Canada and the United States are each other’s closest international partners. The secure and efficient flow of goods and people across our border … remains essential for the economies of both countries,” she said in a statement.
“By resisting tariffs and trade barriers that will only raise prices and hurt consumers in both countries, Canada and the United States can strengthen resilient cross-border supply chains that enhance our shared economic security.”
This report by The Canadian Press was first published Nov. 6, 2024.
