United States President Donald Trump on Wednesday evening deviated slightly from his usual playbook of relentlessly touting the strength of the US economy, acknowledging during a news conference that the coronavirus could dent growth.
But when asked about the sharp selloff in US stocks – that has seen the DJIA plummet more than 2,000 points or 7 percent since the start of trading this week – Trump seized the opportunity to deflect blame on to his Democratic rivals for the presidency who had held a televised debate Tuesday evening.
“I think the financial markets are very upset when they look at the Democratic candidates standing on that stage making fools of out of themselves,” Trump told reporters.
“And it (the stock market) certainly took a hit because of [the coronavirus] and I understand, that’s also because of supply chains and various other things,” he added. “I think the stock market is will recover. The economy is very strong.”
Though Trump’s outlook may be characteristically rosy, according to experts who spoke with Al Jazeera, the risks the outbreak presents to the US economy – now in year 11 of a record expansion – remains far from certain.
‘Things may calm down’
At least 2,770 people have died from the coronavirus and although the outbreak shows signs of slowing in China, it is accelerating in other parts of Asia, Europe and the Middle East.
On Wednesday, concerns mounted in the US after health authorities confirmed a Northern California resident who had not travelled abroad to an affected area or had contact with someone known to be infected had contracted the virus.
On Thursday, Goldman Sachs strategists lowered their profit growth outlook for US companies this year to zero, citing fallout from coronavirus including a severe decline in Chinese economic activity, lowered end-demand for US exports, supply chain disruptions, slowing US economic activity and heightened uncertainty.
But some forecasters are reluctant to make definitive calls on how the outbreak could unfold and inform the trajectory of fears that are already gripping investors and businesses.
“It is still too soon to tell because we do not know how far geographically it will spread,” said Christine McDaniel, a senior research fellow focusing on trade at George Mason University’s Mercatus Center.
“If the new reality is that we are going to be living with this new virus strain, then the sooner that reality sets in – and individuals and workers and firms internalise, ie, once societies resign to this new reality – then the fear factor may diminish,” McDaniel told Al Jazeera, adding that “things may calm down.”
Yanzhong Huang, a senior fellow for global health at the Council on Foreign Relations, also thinks it is premature to advance concrete estimates where coronavirus and the economy are concerned.
But he told Al Jazeera that the implications for the aviation, hotel, restaurant, cruise and shipping industries were undeniably bad, adding that the retail sector “could also potentially be another victim” on the demand side of the economy.
That would be a big blow because consumer spending is the engine of the US economy, accounting for some two-thirds of growth.
“It is very clear that this is an acute disease outbreak, [with] an impact on people’s consumption patterns,” said Huang, adding that citizens adopt “social-distancing measures and governments adopt quarantine-related measures”.
An illustration released by the Centers for Disease Control and Prevention in Atlanta, Georgia, shows the coronavirus [MAM/CDC/Reuters]
Knock-on effects
With governments – including in the US – responding to the outbreak by curtailing flights, the effect on the travel sector is likely to be vast.
Only Chinese airlines are currently flying from China to the US, with fewer than 1,000 travellers arriving on American shores a day – other carriers have simply cancelled flights.
This could have a knock-on effect for the whole US economy says McDaniel, who notes that the tourism industry accounted for about 9 percent of the country’s economic output in 2018, about $1.87 trillion of gross domestic product. That translates into almost eight million jobs and 11 percent of exports.
“People are not going to want to travel with this new fear, at least until a vaccine is found,” said McDaniel. “For every one dollar spent directly on tourism and travel, another 72 cents is [indirectly] generated from that dollar.”
On the supply side, some experts are concerned that the high level of absenteeism at plants in China could threaten US manufacturers who rely on Chinese-made components, particularly the automotive, electronics and pharmaceutical sectors.
“Many pharmaceuticals so heavily rely upon active pharmaceutical ingredients from China and India,” Huang said. “If factories are shut down past April, it could have a huge impact on the global drug supply.”
The pharmaceutical industry is one of many where US manufacturers rely on a supply chain that begins in China [File: Reuters]
‘This will be contained’
As fears mount that US companies will face losses stemming from the outbreak, investors have been fleeing stocks for safe havens like gold and bonds.
But some analysts caution against using stock prices as a proxy for the economic impact of coronavirus.
“The stock market is overreacting, like they always do,” said Robert Scott, an economist at the Economic Policy Institute.
“But there’s no question it can have a real negative impact on the economy,” he told Al Jazeera. “It could certainly curtail trade between the US and China in the short term, over the next month or two – particularly disruptive in manufacturing,” he added noting how dependent US manufacturers are on parts sourced from China.
That interdepenency, said Scott, bolsters arguments against globalisation, which Democrats and Republicans have criticised for damaging US manufacturing and costing US jobs.
A container ship sails near the Kwai Tsing Container Terminal in Hong Kong, China, where the coronavirus outbreak has shut down factories [Paul Yeung/Bloomberg]
“This illustrates to me one of the real costs of increasing globalisation, this reliance on extended international supply chains,” said Scott. “If more of these supplies were produced in the US, we’d be less vulnerable to this type of disruption.”
TORONTO – Canada’s main stock index was higher in late-morning trading, helped by strength in energy stocks, while U.S. stock markets also moved up.
The S&P/TSX composite index was up 34.91 points at 23,736.98.
In New York, the Dow Jones industrial average was up 178.05 points at 41,800.13. The S&P 500 index was up 28.38 points at 5,661.47, while the Nasdaq composite was up 133.17 points at 17,725.30.
The Canadian dollar traded for 73.56 cents US compared with 73.57 cents US on Monday.
The November crude oil contract was up 68 cents at US$69.70 per barrel and the October natural gas contract was up three cents at US$2.40 per mmBTU.
The December gold contract was down US$7.80 at US$2,601.10 an ounce and the December copper contract was up a penny at US$4.28 a pound.
This report by The Canadian Press was first published Sept. 17, 2024.
OTTAWA – Canada’s inflation rate fell to two per cent last month, finally hitting the Bank of Canada’s target after a tumultuous battle with skyrocketing price growth.
The annual inflation rate fell from 2.5 per cent in July to reach the lowest level since February 2021.
Statistics Canada’s consumer price index report on Tuesday attributed the slowdown in part to lower gasoline prices.
Clothing and footwear prices also decreased on a month-over-month basis, marking the first decline in the month of August since 1971 as retailers offered larger discounts to entice shoppers amid slowing demand.
The Bank of Canada’s preferred core measures of inflation, which strip out volatility in prices, also edged down in August.
The marked slowdown in price growth last month was steeper than the 2.1 per cent annual increase forecasters were expecting ahead of Tuesday’s release and will likely spark speculation of a larger interest rate cut next month from the Bank of Canada.
“Inflation remains unthreatening and the Bank of Canada should now focus on trying to stimulate the economy and halting the upward climb in the unemployment rate,” wrote CIBC senior economist Andrew Grantham.
Benjamin Reitzes, managing director of Canadian rates and macro strategist at BMO, said Tuesday’s figures “tilt the scales” slightly in favour of more aggressive cuts, though he noted the Bank of Canada will have one more inflation reading before its October rate announcement.
“If we get another big downside surprise, calls for a 50 basis-point cut will only grow louder,” wrote Reitzes in a client note.
The central bank began rapidly hiking interest rates in March 2022 in response to runaway inflation, which peaked at a whopping 8.1 per cent that summer.
The central bank increased its key lending rate to five per cent and held it at that level until June 2024, when it delivered its first rate cut in four years.
A combination of recovered global supply chains and high interest rates have helped cool price growth in Canada and around the world.
Bank of Canada governor Tiff Macklem recently signalled that the central bank is ready to increase the size of its interest rate cuts, if inflation or the economy slow by more than expected.
Its key lending rate currently stands at 4.25 per cent.
CIBC is forecasting the central bank will cut its key rate by two percentage points between now and the middle of next year.
The U.S. Federal Reserve is also expected on Wednesday to deliver its first interest rate cut in four years.
This report by The Canadian Press was first published Sept. 17, 2024.
FREDERICTON – New Brunswick‘s finance minister says the province recorded a surplus of $500.8 million for the fiscal year that ended in March.
Ernie Steeves says the amount — more than 10 times higher than the province’s original $40.3-million budget projection for the 2023-24 fiscal year — was largely the result of a strong economy and population growth.
The report of a big surplus comes as the province prepares for an election campaign, which will officially start on Thursday and end with a vote on Oct. 21.
Steeves says growth of the surplus was fed by revenue from the Harmonized Sales Tax and federal money, especially for health-care funding.
Progressive Conservative Premier Blaine Higgs has promised to reduce the HST by two percentage points to 13 per cent if the party is elected to govern next month.
Meanwhile, the province’s net debt, according to the audited consolidated financial statements, has dropped from $12.3 billion in 2022-23 to $11.8 billion in the most recent fiscal year.
Liberal critic René Legacy says having a stronger balance sheet does not eliminate issues in health care, housing and education.
This report by The Canadian Press was first published Sept. 16, 2024.
