Hello. Today we look at the threat of stagflation, this week’s European Central Bank meeting and how some Americans still aren’t receiving their benefits.
A Concerning Combination
The world economy risks turning stagflationary.
While policy makers once hoped we’d now be seeing decent growth and slowing inflation, obstacles to that outlook are emerging by the day.
The mounting concern now is of a toxic mixture of weak demand and accelerating prices.
Risk one is the delta variant, which, as Enda Curran details, is undermining efforts to rev up factories, offices and schools.
There goes the demand side, but the new form of the coronavirus is also hurting supply chains, limiting the worldwide provision of key products. That shock, which is building just as Christmas nears, threatens to force up inflation too.
Meanwhile, natural gas prices are witnessing a historic surge, catapulting the cost of the fuel to seasonal highs in most major markets just as winter approaches in the northern hemisphere.
Soarings bills could crimp households’ spending and erode their wages through inflation, a stagflationary combination especially if families and businesses react to rising utility charges by pushing up pay and prices.
See more on gas prices here and the brewing aluminum surge here
Price Pressure
Energy inflation is soaring across G-7 economies
Source: Organization for Economic Cooperation and Development
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For policy makers, this environment is a conundrum. To date, most have focused on spurring their economies with stimulus, arguing the inflation surge would prove temporary. Now that view will be tested.
Catherine Mann, recently recruited by the Bank of England from Citigroup, has some words of comfort. She used a speech to Australian businesses today to argue inflation isn’t set to follow a 1970s-style spiral, in part because firms have less pricing power and tight labor markets don’t necessarily ignite wages.
For an overall economic recovery, science will ultimately be the key.
High inoculation rates are allowing advanced-world governments to resist another round of shutdowns, opting instead for targeted measures that include vaccination requirements for public places such as restaurants.
Meanwhile, emerging markets could be worse off: Manufacturing and tourism-led economies like Vietnam and Thailand have already been forced to close factories and turn away visitors.
That’s why wealthy countries could face mounting pressure to divert vaccines to lower-income regions. A new analysis shows they’ll likely have about 1.2 billion extra doses available by the end of the year.
Note: Mapped data show rate decision schedules for distinct central banks
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The European Central Bank will decide this week if it should dare to dial down emergency stimulus while the pandemic still menaces the euro-zone economy.
The threat posed by the delta variant of the coronavirus could yet embolden policy makers on Thursday to keep up the “significantly higher” pace of bond purchases they adopted earlier this year. But advanced vaccination rates, a robust rebound and inflation that is already at the fastest in a decade are all reasons to consider a downward shift in gears.
Elsewhere, at least eight other central banks globally are due to deliver monetary decisions, including Australia and Canada. While most are likely to keep their stance unchanged, Russia and Ukraine could deliver interest-rate increases.
Click on the blue links to read any of the stories in full:
Joblessness nightmare | For millions of Americans, the Labor Day weekend brings the end of federally funded emergency unemployment benefits and a lurch into the uncertain economic recovery.
Income redistribution | China’s push for “common prosperity” is not just about taxing the rich but also directing resources into rural areas and to those on lower incomes, according to one of the country’s most prominent experts studying wage inequality.
UAE trade | The United Arab Emirates plans to deepen its trade ties in fast-growing economies in Asia and Africa, and draw $150 billion in foreign investment from mainly older partners to reposition itself as a global hub for business and finance.
U.K. choices | Chancellor Rishi Sunak is facing five crucial fiscal decisions — including whether to deliver the biggest overnight welfare-benefit cut in history and the largest state pension increase in 30 years, according to the Resolution Foundation think tank.
German ship demand | Factory orders in Europe’s biggest ecnomy unexpectedly rose in July, driven by a surge in export demand for ships.
Taper debate | Australia’s central bankers are set to revisit the question of whether to delay a planned taper of bond purchases as a worsening outbreak of the delta variant dims economic prospects.
Need-to-Know Research
Working Obstacles
Japan lags in employment rates for working-age disabled people
Sources: U.S. Department of Labor (2021), German Federal Statistical Office (2017), U.K. Office of National Statistics (2019), Japan labor ministry (2020), Japan Cabinet Office (2016), Bloomberg
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Paralympics host Japan’s track record for integrating people with disabilities into the workforce lags many of its peers. The proportion of working-age disabled people with a job there is around 19%, based on a Bloomberg calculation, compared with 30% in the U.S.
Disappointment over the U.S. August jobs report is all but certain to push Federal Reserve policy makers to delay considering a move to scale back asset purchases at their Sept. 21-22 meeting.
Bloomberg New Economy Conversations — China’s Tech Crackdown: Join New Economy Forum Editorial Director Andrew Browne on Sept. 8 as he analyzes the sweeping regulatory crackdown underway in China. The private sector helped power China’s economic rise, but President Xi Jinping seems determined to rein in what he sees as its excesses. Is this transitory or a game-changing shift? Joining Andy are Keyu Jin, Associate Professor of Economics at the London School of Economics & Political Science, and Kevin Rudd, President and Chief Executive Officer of the Asia Society. Register here.
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.
