The global economic outlook is deteriorating due to inflation-fighting efforts by central banks, the war between Russia and Ukraine, and China’s prioritization of political control over economic growth. A global recession is likely, with at least slower economic growth virtually certain.
People who have followed my work for years often say that I’m an optimist, and usually I am. Right now, though, the weight of evidence points to a slowing world economy.
Just as the Federal Reserve has hiked interest rates in the U.S., many central banks around the world are tightening monetary policy. The Council on Foreign Relations publishes a Global Monetary Policy Tracker which, as of August 2022, shows tightening among most of the 54 central banks that they track.
Specifically, the European Central Bank has increased its policy rate and signaled more increases are likely in the coming months. So have the Bank of England and the Bank of Canada. Other tightening countries include Australia, India, and many in Latin America. The only major countries easing monetary policy are Russia and China. The global tightening is likely to slow economic growth around the world and lead to recession in some countries.
The tightening is not a mistake, but in most cases it’s coming too late, which means more economic damage than it had begun earliers.
Europe has the additional challenge of tight energy. Their dependence on Russian energy has increased in the past decade from 25% of total gas demand in 2009 to 32% in 2021.
In recent weeks the European Union announced a plan to cap the price paid for Russian natural gas, and President Putin threatened to further restrict supplies of energy to Europe. Rationing schemes are under discussion, electricity prices have soared, and energy-intensive industries are shutting down some of their European operations. The likely result, barring some quick resolution, will be a full-blown European recession this winter.
China’s economy is weakening, as I’ve detailed recently. President Xi Jinping has prioritized political and ideological control over economic growth, plus pursued a zero-Covid policy that has shut down portions of the economy. Serious western analysts are discussing the possibility of a Chinese invasion of Taiwan, a blockade, or at least much more pressure on Taiwan to accept mainland laws and a puppet leader. The odds of actual shooting are probably low, but the consequences are very high, justifying serious contingency planning.
The Russian and Chinese issues are leading companies around the world to shorten and simplify their supply chains, reshoring in their home countries when possible. This will be costly, effectively reducing global productive capacity. Change will come slowly, and it’s necessary given international tensions, but the changes will reduce economic production around the world..
Commodity prices are usually a good gauge of current sentiments about future global economic growth. As this article is written, oil prices have dropped recently despite the problems with Russian energy deliveries and a drop in OPEC production.
Copper prices have also fallen in recent weeks. Copper is another good indicator of expectations about economic growth.
In the positive side of the ledger, Canada and Mexico, both large export markets for the United States, are less sensitive to these global economic headwinds.
How bad will the global slump be? Probably not as calamitous as the 2008-09 financial crisis, but certainly worse than the minor cycles we’ve seen. And if shooting breaks out over Taiwan, then economic disaster will befall the world for a few years.
Business contingency planning for a global slump should recognize the interest sensitive portion of the risk. Monetary tightening tends to cut construction, first residential and later non-residential, as well as business capital spending and big-ticket consumer spending. Companies selling into those industries will be most vulnerable.
Companies trading with Europe should be worried. Primary concerns would be sales of goods and services to energy-intensive businesses in Europe, as they may have to suspend operations so that homes can be heated in the winter. Discretionary consumer spending will also be reduced. Businesses reliant on materials from European manufacturers should consider possible supply chain problems resulting from the energy crunch.
Businesses selling to China can expect lower growth, perhaps even a decline in some sectors such as building materials. Whereas the monetary policy impacts will be sharp but relatively brief, China’s economic slump will be gradual and long-term, at least so long as Xi Jinping’s policies are in effect.
Organizations doing business with China, Taiwan and maybe even their close neighbors must do contingency planning for conflict. No one particular scenario seems to be hugely more likely than the others, so multiple possibilities should be considered.
Finally, every major change brings opportunities for growth for a few businesses that are creative, far-sighted and bold. Being open to growth opportunities in changing times will pay dividends in the eventual upturn.
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.
OTTAWA – Statistics Canada says the country’s merchandise trade deficit narrowed to $1.3 billion in September as imports fell more than exports.
The result compared with a revised deficit of $1.5 billion for August. The initial estimate for August released last month had shown a deficit of $1.1 billion.
Statistics Canada says the results for September came as total exports edged down 0.1 per cent to $63.9 billion.
Exports of metal and non-metallic mineral products fell 5.4 per cent as exports of unwrought gold, silver, and platinum group metals, and their alloys, decreased 15.4 per cent. Exports of energy products dropped 2.6 per cent as lower prices weighed on crude oil exports.
Meanwhile, imports for September fell 0.4 per cent to $65.1 billion as imports of metal and non-metallic mineral products dropped 12.7 per cent.
In volume terms, total exports rose 1.4 per cent in September while total imports were essentially unchanged in September.
This report by The Canadian Press was first published Nov. 5, 2024.
