European Union energy ministers held emergency talks Monday about their purchases of Russian natural gas. The previous week, Moscow cut off supplies to two member states, Poland and Bulgaria, because they refused to pay for the gas in rubles. Fears are growing that Germany, Europe’s economic powerhouse, could be terminated next.
But while Europe frets about this latest economic repercussion caused by Russia’s war on Ukraine, what of Russia itself?
Oil and gas fund up to 50% of the Russian budget. Is President Vladimir Putin killing his golden goose and battering the Russian economy?
Putin has shrugged off the prospect of parting company with Europe, his best natural gas customer. But Ole Hvalbye, an energy analyst with the SEB bank in Oslo, Norway, said this would be, for Russia, a very painful divorce.
“You can think about this as a sort of 25- to 30-year-old marriage, you know. These are really long-term contracts. It takes time to build the infrastructure for gas supply. It’s a massive investment,” he said.
“Russia has, sort of, ruined their reputation,” said Ole Hvalbye, an energy analyst in Oslo. (Courtesy Hvalbye)
Doubling the existing Russian gas pipeline network to China would take eight years, cost billions and still cover less than half the lost sales to Europe, Hvalbye estimated. Then, there’s the damaging psychological effect of Russia cutting off supplies to Poland and Bulgaria.
“Russia has, sort of, ruined their reputation. And there will not be many countries going into these new long-term contracts with them,” he said.
The reputation for unreliability might also affect long-term contracts to supply crude oil and oil products, which are Russia’s biggest export. They’re worth almost $200 billion a year.
So, has Putin’s war been an economic disaster for Russia? The immediate financial cost has certainly been enormous, according to Tim Ash, senior strategist at BlueBay Asset Management in London.
Tim Ash of BlueBay Asset Management. (Courtesy Ash)
“It comes to something like $1.4 trillion of impact on Russia,” Ash said. “That’s a huge amount of money. It’s about $8,000 per head of the Russian population.”
That figure takes into account the halving of the Russian stock market’s value, the freezing of assets controlled by the central bank and Russian oligarchs, and Western sanctions’ overall effect on economic activity. The sanctions are likely to continue as long as Putin remains in power.
“This adds up to less investment, less growth, lower living standards, probably a brain drain, higher inflation and an overall undermining of Russia’s productive capacity,” Ash said.
This isn’t just a Western perspective. Russia’s central bank surveyed more than 13,000 businesses across the country, and, as pointed out by Elina Ribakova, deputy chief economist at the Institute of International Finance, the results were dire.
“Almost every industry you take, they’re having shortages, they’re having difficulties to export their products to the markets they used to export to — Europe is the most important trading partner for Russia — and they’re also having difficulty getting the parts for their production,” Ribakova said.
The institute is forecasting a 15% plunge in Russia’s gross domestic product this year. Unemployment is expected to skyrocket, especially since more than 700 multinational companies are pulling out of Russia and will be shedding employees as they go.
“It will take a few months for them to withdraw, and that will also weigh on the economic outlook,” Ribakova added.
The departure of so many international companies will also deliver a devastating blow to Russian industry. Nicholas Redman, director of analysis at Oxford Analytica, a political and economic consulting firm, pointed to the automotive sector as a possible casualty.
Nick Redman, director of analysis at Oxford Analytica. (Courtesy Redman)
“Russia over the past 30 years has really built up quite a large domestic car industry. A lot of production has been located in Russia. All the world’s biggest car manufacturers are there, but they’re all headed for the exit. So that’s a significant problem over the longer term: How does Russia replace that Western investment and international expertise in logistics and design?” Redman said.
With this economic calamity unfolding across Russia, one might expect support for Putin and his war to waver. But although domestic opinion surveys have to be treated with skepticism, Redman said all the other indications suggested that support for the Russian leader and what Putin calls the “special military operation” in Ukraine remains solid.
“Right now, it doesn’t look like Putin’s grip on power is in any way challenged,” Redman said.
And it may not be for some time. Whipped up by the Kremlin’s propaganda machine against NATO and the West, the Russian people seem prepared to endure quite a lot of economic pain.
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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.
