The United States is facing rising recession fears as the Federal Reserve, the country’s central bank, remains bullish in fighting high inflation and officials increasingly talk about the need to impose some economic pain to get price pressures under control, several economists told Al Jazeera.
“There’s still a good amount of strength in the labour market and that’s going to allow the Fed to remain aggressive in fighting inflation,” Edward Moya, a senior market analyst at OANDA, a New York-based foreign exchange firm, told Al Jazeera.
“Price pressures are not going away. And when we take a look at energy prices, the downward move that we’ve been appreciating appears to be over and it looks like oil and gas prices are gonna be heading higher once again,” he said.
The Organization of Petroleum Exporting Countries and its allies, a grouping known as OPEC+, last week decided to cut oil output by 2 million barrels of crude per day.
“That increases costs, not just for energy, but everything we do and everything we buy. And so the price of everything goes up, including food,” EJ Antoni, research fellow at The Heritage Foundation, a conservative think-tank in Washington DC, explained.
US gross domestic product (GDP), a measure of goods and services output, contracted 0.6 percent last quarter after shrinking 1.6 percent between January and March. The common rule of thumb for recessions is two consecutive quarterly declines in GDP.
“We’ve already had the recession in the first six months of the year. It looks like the third quarter is going to come in positive but after that, all bets are off. I think we’re gonna go negative again,” Antoni said.
Economists have not been unanimous in that belief as some indicators point to underlying strength in the economy.
The US trade deficit narrowed in August to its lowest level in more than a year. And Goldman Sachs last week boosted the US third quarter GDP estimate by a full percentage point to a 1.9 percent annualised rate.
The Biden administration continues to argue that the economy is resilient, pointing to the lowest unemployment rate in five decades and unwavering consumer confidence.
But nearly seven in 10 Americans recently said they are worried about a recession and four in 10 said they are financially unprepared to handle one if it were to hit before the end of 2023, according to a poll by Bankrate, a New York-based financial firm.
So what are the key metrics pointing to? How do economists make sense between plummeting markets and a resilient labour market? And what does a US recession mean for the global economy?
Majority of CEOs anticipate a recession in the next year
More than eight out of 10 CEOs recently said they anticipate a recession during the next 12 months, according to a new survey from accounting firm KPMG (PDF). Out of the 1,300 CEOs at the world’s largest companies KPMG surveyed, 73 percent said they believe that an economic downturn will disrupt growth.
About 39 percent of the CEOs have implemented a hiring freeze while 46 percent are considering downsizing their employee base during the next six months, KPMG found.
And it is difficult for them to ignore the data.
Wall Street has plummeted in the past year. The S&P 500 – a proxy for the health of retirement and college savings accounts – closed the third quarter at its lowest level in almost two years. The tech-heavy Nasdaq 100 has dropped nearly 33 percent so far in 2022 while the Dow Jones Industrial Average has lost more than 20 percent.
Cryptocurrencies, which surged in popularity and price during the pandemic, have also nosedived. The world’s top digital coin, Bitcoin, shed more than 60 percent of its value in the past year while the second-largest cryptocurrency Ethereum dropped 61 percent.
“We could have had a mild, short recession if the Fed, Congress and president acted much sooner but unfortunately, now, there’s a tremendous amount of economic pain that’s already baked into the cake,” Antoni told Al Jazeera.
“One of the tragedies of the Biden administration is that they had the benefit of hindsight. They could have looked back at their immediate predecessor and learned from what worked and what didn’t, but they just continued on with bad policy.”
Strong labour market or a ‘desperate’ one?
Tens of millions of Americans quit their jobs during the height of the pandemic in what is now widely known as the Great Resignation. Since then businesses from gas stations to doctors’ offices have struggled to find workers.
OANDA’s Moya explained that as long as job openings remain high, the Fed will continue to raise interest rates to make borrowing more pricey in hopes of balancing demand and supply.
“The Fed is going to be locked in a corner where they have to tighten policy much more aggressively,” he added.
New data showed last week that the number of job openings in the US plunged by 1.1 million and jobless claims increased more than expected. The unemployment rate hit a half century-low of 3.5 percent in September however signaling a tight labour market.
But not everyone sees it that way.
“I don’t see a strong labour market, I see a desperate labour market,” Heritage Foundation’s Antoni told Al Jazeera. “We have a disproportionate number of people working multiple jobs. That gooses the jobs numbers because every time a person works another job, they are counted as another job holder.”
The US trade deficit narrowed in August to its lowest level in more than a year, suggesting underlying strength in the US economy [File: Carlos Barria/Reuters]
“We’ve had a lot of small businesses fail from pandemic lockdowns and if those people go to work for a large corporation, they are now counted in those surveys. So again, even though the number of jobs hasn’t actually changed, the number of people employed, the number in the survey, goes up,” Antoni said.
Global setbacks
The COVID-19 pandemic and war in Ukraine have caused “extraordinary shocks” to the global economy, the World Bank recently said (PDF), warning that advances towards eliminating extreme poverty by 2030 have essentially come to a halt.
The number of people living on just $2.15 a day increased 11 percent in 2020 — from 648 million to 719 million, according to the World Bank.
A US recession would cause deep pain in the developing world, Richard Kozul-Wright, director of the globalisation division at the United Nations Conference on Trade and Development (UNCTAD), told Al Jazeera.
The UN agency issued a dire warning last week that a global slowdown could potentially inflict worse damage than the 2008 financial crisis and the 2020 COVID-19 shock.
“If a financial shock in the US is triggered, there is no limit to the downside,” Kozul-Wright said.
“The US ultimately had the policy space to shore up both its economy and its financial system if it finds the political appetite for more bailouts. But most countries in the world, especially in the South have no real safety net,” he added.
As for emerging markets, OANDA’s Moya said many of them have been aggressive in their fight against inflation.
“What’s been killing them is this relentlessly strong dollar,” he explained. “A recession in the US would mean that the dollar’s days are over. And some relief would be good news for emerging markets.”
But again, it is a very fine line. If the US dips into a long period of sluggish growth, emerging markets are going to struggle. Major exporters to the US such as China, Mexico and Canada would feel pain if US demand weakened for a prolonged period of time.
As for how severe a US recession could be, Moya echoed the sentiments of many economists Al Jazeera spoke with: “It’s still too soon to have strong conviction with that call just because we don’t know exactly how sticky inflation is going to be and how resilient the economy is.”
VICTORIA – British Columbia is forecasting a record budget deficit and a rising debt of almost $129 billion less than two weeks before the start of a provincial election campaign where economic stability and future progress are expected to be major issues.
Finance Minister Katrine Conroy, who has announced her retirement and will not seek re-election in the Oct. 19 vote, said Tuesday her final budget update as minister predicts a deficit of $8.9 billion, up $1.1 billion from a forecast she made earlier this year.
Conroy said she acknowledges “challenges” facing B.C., including three consecutive deficit budgets, but expected improved economic growth where the province will start to “turn a corner.”
The $8.9 billion deficit forecast for 2024-2025 is followed by annual deficit projections of $6.7 billion and $6.1 billion in 2026-2027, Conroy said at a news conference outlining the government’s first quarterly financial update.
Conroy said lower corporate income tax and natural resource revenues and the increased cost of fighting wildfires have had some of the largest impacts on the budget.
“I want to acknowledge the economic uncertainties,” she said. “While global inflation is showing signs of easing and we’ve seen cuts to the Bank of Canada interest rates, we know that the challenges are not over.”
Conroy said wildfire response costs are expected to total $886 million this year, more than $650 million higher than originally forecast.
Corporate income tax revenue is forecast to be $638 million lower as a result of federal government updates and natural resource revenues are down $299 million due to lower prices for natural gas, lumber and electricity, she said.
Debt-servicing costs are also forecast to be $344 million higher due to the larger debt balance, the current interest rate and accelerated borrowing to ensure services and capital projects are maintained through the province’s election period, said Conroy.
B.C.’s economic growth is expected to strengthen over the next three years, but the timing of a return to a balanced budget will fall to another minister, said Conroy, who was addressing what likely would be her last news conference as Minister of Finance.
The election is expected to be called on Sept. 21, with the vote set for Oct. 19.
“While we are a strong province, people are facing challenges,” she said. “We have never shied away from taking those challenges head on, because we want to keep British Columbians secure and help them build good lives now and for the long term. With the investments we’re making and the actions we’re taking to support people and build a stronger economy, we’ve started to turn a corner.”
Premier David Eby said before the fiscal forecast was released Tuesday that the New Democrat government remains committed to providing services and supports for people in British Columbia and cuts are not on his agenda.
Eby said people have been hurt by high interest costs and the province is facing budget pressures connected to low resource prices, high wildfire costs and struggling global economies.
The premier said that now is not the time to reduce supports and services for people.
Last month’s year-end report for the 2023-2024 budget saw the province post a budget deficit of $5.035 billion, down from the previous forecast of $5.9 billion.
Eby said he expects government financial priorities to become a major issue during the upcoming election, with the NDP pledging to continue to fund services and the B.C. Conservatives looking to make cuts.
This report by The Canadian Press was first published Sept. 10, 2024.
Note to readers: This is a corrected story. A previous version said the debt would be going up to more than $129 billion. In fact, it will be almost $129 billion.
NANAIMO, B.C. – Former Bank of Canada governor Mark Carney says he’ll be advising the Liberal party to flip some the challenges posed by an increasingly divided and dangerous world into an economic opportunity for Canada.
But he won’t say what his specific advice will be on economic issues that are politically divisive in Canada, like the carbon tax.
He presented his vision for the Liberals’ economic policy at the party’s caucus retreat in Nanaimo, B.C. today, after he agreed to help the party prepare for the next election as chair of a Liberal task force on economic growth.
Carney has been touted as a possible leadership contender to replace Justin Trudeau, who has said he has tried to coax Carney into politics for years.
Carney says if the prime minister asks him to do something he will do it to the best of his ability, but won’t elaborate on whether the new adviser role could lead to him adding his name to a ballot in the next election.
Finance Minister Chrystia Freeland says she has been taking advice from Carney for years, and that his new position won’t infringe on her role.
This report by The Canadian Press was first published Sept. 10, 2024.
HALIFAX – The Nova Scotia government has introduced a bill that would kick-start the province’s offshore wind industry without federal approval.
Natural Resources Minister Tory Rushton says amendments within a new omnibus bill introduced today will help ensure Nova Scotia meets its goal of launching a first call for offshore wind bids next year.
The province wants to offer project licences by 2030 to develop a total of five gigawatts of power from offshore wind.
Rushton says normally the province would wait for the federal government to adopt legislation establishing a wind industry off Canada’s East Coast, but that process has been “progressing slowly.”
Federal legislation that would enable the development of offshore wind farms in Nova Scotia and Newfoundland and Labrador has passed through the first and second reading in the Senate, and is currently under consideration in committee.
Rushton says the Nova Scotia bill mirrors the federal legislation and would prevent the province’s offshore wind industry from being held up in Ottawa.
This report by The Canadian Press was first published Sept. 10, 2024.
