PARIS — After limping its way back from the COVID pandemic last year, the global economic recovery has been rattled by the Omicron variant’s rapid rise.
The travel industry has been thrown into disarray again, workers have been forced to isolate at home and governments are facing a stark choice between imposing restrictions or letting the economy be.
Could the highly contagious Omicron variant have a severe impact on the recovery? Or will its mild symptoms keep the economy from sinking again?
How bad a hit on growth?
The head of the International Monetary Fund, Kristalina Georgieva, warned last month that global economic growth forecasts may have to be slashed following the emergence of Omicron.
The IMF has previously banked on growth of 5.9 percent for 2021 and 4.9 percent this year, but it could now revise its estimates later this month.
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To soften the blow on the economy, US health authorities have cut the isolation period for asymptomatic cases by half to five days.
Mark Zandi, chief economist at Moody’s, told AFP he expects US growth of 2.2 percent in the first quarter, more than half lower than a previous estimate of 5.2 percent.
“Omicron is already doing economic damage, as is clear from weaker credit card spending, a decline in restaurant bookings, air flight cancelations, and many schools going back to online learning,” Zandi said.
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Passengers queue up to check in at the counter for Delta Airlines Monday, Jan. 3, 2022, in the main terminal of Denver International Airport in Denver. (AP Photo/David Zalubowski)
“However, I do expect Omicron to pass through quickly and for growth to rebound in the second quarter, and growth for the year to be unaffected,” he added.
“Broadly, I think each wave of the virus is doing less damage to the healthcare system and economy than the previous wave.”
In the eurozone, tighter restrictions, consumer caution and absenteeism will reduce economic activity in the next few weeks, but the economy will rebound in February, according to Andrew Kenningham, chief Europe economist at Capital Economics.
Countries with lower vaccination rates, which are mainly developing economies, face greater uncertainty, and a zero-COVID policy in China could put a brake on growth in the world’s second-biggest economy as it locks down entire cities.
Will tourism suffer?
The travel industry was looking forward to a rebound in 2022 after it was devastated by border closures and lockdowns.
But the emergence of Omicron during the key winter holiday season caused thousands of flight cancellations, cruises to be forced to dock and fewer hotel bookings.
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Investors, however, have been optimistic, as shares of airline and cruise companies have risen in recent weeks.
A man wearing a protective mask looks at an electronic stock board showing Japan’s Nikkei 225 and Shanghai indexes at a securities firm with a traditional New Year decoration at it entrance Wednesday, Dec. 29, 2021, in Tokyo. (AP Photo/Eugene Hoshiko)
“The markets seemed to be looking at the post-Omicron period,” said Alexandre Baradez, an analyst at IG France.
Will inflation worsen?
The economic recovery has had an adverse side effect: Inflation that has soared to decades-high levels in the United States and Europe as energy prices soared and rising demand faced supply shortages.
Central banks have insisted that high inflation is only temporary and prices will eventually fall, but it has hurt consumers and businesses.
Could it get worse?
“Little is certain about Omicron’s impact on consumer demand, but people who stay at home because of the variant are more likely to spend their money on retail goods rather than services like dining out or in-person entertainment,” said Jack Kleinhenz, chief economist at the US National Retail Federation.
“That would put further pressure on inflation since supply chains are already overloaded across the globe,” he said.
Supply chain bottlenecks caused shortages of a slew of materials last year, driving up the prices of many products. Higher demand for products on goods on supply could further fuel price increases.
The Federal Reserve rattled markets this week as minutes from its December meeting showed that the US central bank was ready to tighten monetary policy more aggressively to tame inflation.
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Elsewhere, inflation is eroding purchasing power after running into double digits in Brazil and Nigeria.
In Britain, the British Chambers of Commerce said 58 percent of firms expect their prices to increase in the next three months.
End of stimulus?
Governments deployed massive stimulus programs in 2020 to save their economies, piling up $226 trillion of debt, according to the IMF.
Furlough schemes to keep people employed “made sense” when there was so much uncertainty and entire industries shut down, said Niclas Poitiers, research fellow at Bruegel, a Brussels-based think tank.
“I don’t see yet the necessity for massive funds to the economy,” Poitiers said.
The United States and Europe are instead investing in structural programs, such as President Joe Biden’s $1.75 trillion “Build Back Better” social and climate spending plan.
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.
