The exterior of the New York Stock Exchange. The prevailing view at the Fed and the Treasury is still that inflation will get back down to 2%.
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The world is beset by new economic uncertainty. What’s next in 2022?
Global economics are reeling with instability. The world is contending with rising inflation, high energy bills, real estate crises in China, lockdowns, supply chain breakdowns and labor shortages. Altamar hosts Peter Schechter and Muni Jensen are joined by James Politi, the new Washington bureau chief of the Financial Times, to sort out the confusing world economy.
Politi was the FT’s world trade editor and spent four years as FT’s Rome bureau chief. He joined FT in 2002 to cover the international capital markets and was previously based in D.C. covering the Federal Reserve and the U.S. Treasury Department.
What Is the Biggest Threat to the Global Economy?
“I think that the biggest threat is the virus itself,” says Politi. “That’s what caused the big resetting of the global economy with the plunge of last year, which has really thrown everything into chaos, on top of the human toll. We thought we were coming out of it. And now, all of a sudden, there’s a new setback. So, the biggest threat remains the virus, potential mutations, new lockdowns, new human suffering.”
President Joe Biden has argued that his “Build Back Better” policy is needed to stimulate the U.S. economy and correct inequalities that spun out of control during the pandemic. But the playing field has changed.
“President Biden is in a very tough spot. When they came into power last January, they thought that they really needed to attack the slowdown with hefty fiscal stimulus. It was a real demand-driven response. But now the tables have turned. They are trying to push through these big structural changes to the economy, and they’re trying to rationalize them as potentially deflationary … but they’ll probably be neutral or maybe add to inflation in the first couple of years.
And that’s a very difficult position to be in because at the moment, the prevailing concern is high prices. … I think the prevailing view at the Fed and the Treasury is still that, ultimately, inflation will get back down to 2% and that there hasn’t been a big paradigm shift. But I think that everyone’s starting to get a little anxious that there’s a decent chance that maybe things have changed.”
China’s Economy Is Slowing
As the U.S. works to address its domestic issues, another world power is facing tough domestic circumstances. China’s economy is slowing. As the world’s biggest consumer and largest producer of commodities, how will the world adjust to this major shift? What does a weaker China mean?
“It would certainly be a new hit to the global recovery if China were to become weaker. That would have ramifications across the board. And if the slowdown were to be serious enough, it could even potentially plunge the global economy into a new recession or something of the like, so it’s definitely a concern. And of course, the real estate troubles there have only added to those worries.
“However, from a strategic point of view, given the level of hawkishness on China in the United States and in Washington at the moment, I don’t know that a slowdown in the Chinese economy would be necessarily frowned upon in the U.S.,” Politi added.
What Kind of a Year Will It Be for Emerging Markets?
The main concern for emerging markets is the possibility of a tightening of monetary policy in the U.S. and interest rates going up and the possibility of financial turmoil.
“Of course, if it’s paired with … improving economies, and if central banks in emerging markets take sort of similar approaches and it’s all fairly coordinated, I think there might be a way to avoid turmoil, but I don’t think that can be taken for granted. And so, hopefully we don’t get those kinds of crises unfolding as the Fed begins to wrap up its stimulus and increase interest rates, possibly at a fairly fast clip to try to tame inflation here in the United States.
The End of LIBOR
Adding to the uncertainty, the London Interbank Overnight Rate (LIBOR) — one of the world’s longest-lasting financial benchmarks — disappeared at the end of last month. What spurred the end of LIBOR?
“LIBOR was ended because of a rate-rigging scandal that tarnished its reputation and forced regulators around the world to essentially wind it down as the main benchmark for debt and for capital markets around the world,” answers Politi.
“And so now, there was this kind of massive effort to craft a new — essentially overnight — financing rate. And the global regulators have come up with one, and now it’s starting to get rolled out. And I think it’s a very interesting case of [seeing] if financial regulators can set a new standard for Wall Street and financial markets around the world that is more fair, more equitable and less prone to manipulation. And that experiment is unfolding as we speak.”
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.
