Economy

UK to Be the Only G-7 Economy in Recession This Year, IMF Says

Published

2 years ago

January 30, 2023

(Bloomberg) — Britain faces the bleakest two years of any major industrial nation with a recession in 2023 and the slowest growth of peers in 2024, the International Monetary Fund predicts.

The UK will be the only Group of Seven member whose economy will shrink this year, with a contraction of 0.6%, the IMF said. The Washington-based institution downgraded its outlook by a massive 0.9 percentage point from October, saying higher interest rates and taxes along with government spending restraint will exacerbate a cost-of-living crisis.

The forecast highlights the challenges Prime Minister Rishi Sunak’s government faces in the leadup to the next election. Chancellor of the Exchequer Jeremy Hunt suggested the economy is likely to perform better than the IMF expects.

“The governor of the Bank of England recently said that any UK recession this year is likely to be shallower than previously predicted,” Hunt said in a statement. “We are not immune to the pressures hitting nearly all advanced economies. Short-term challenges should not obscure our long-term prospects.”

In 2024, the economy will rebound only slowly, growing at 0.9% — matching Japan and Italy at the bottom of the G-7 league table for growth.

The forecast anticipates the first UK recession, excluding the pandemic, since the financial crisis in 2009. Across the two years leading up to the deadline for Prime Minister Rishi Sunak to call an election, the economy will effectively stagnate — expanding just 0.3%.

The IMF did not downgrade any other G-7 economy this year as it raised its global growth forecast from 2.7% to a still sluggish 2.9%. An escalation of the war in Ukraine or a health crisis in China as Covid spreads could set back the world economy, it said in its World Economic Outlook update. However, “adverse risks have moderated since October.”

The downgrade to UK growth is striking because the IMF’s October forecast was prepared before the £45 billion ($55.7 billion) unfunded tax giveaway in the September budget during the short-lived Liz Truss premiership. At the time, the fund said the fiscal splurge would have boosted growth.

Since then financial conditions have tightened, rising borrowing costs for businesses and households. The Bank of England has raised rates from 2.25% to 3.5%, and markets now expect rates to settle around 4.5%. The IMF said it’s downgrade also reflected “tighter fiscal” policy but, according to Treasury figures, fiscal policy is looser this year than at the last forecast.

In October, the IMF attacked the UK’s massive spending spree — arguing that fiscal and monetary policy should not be working at cross purposes and that the government needed to bring the public finances under control.

IMF Chief Economist Pierre-Olivier Gourinchas repeated the warning. In a blog post alongside the forecast, he said many countries are being too generous with their energy support, which is “costly and increasingly unsustainable.”

Instead, countries should “adopt targeted measures that conserve fiscal space, allow high energy prices to reduce demand for energy, and avoid overly stimulating the economy,” Gourinchas said.

He also urged central banks, like the Bank of England, to press on with rate rises even if it means inflicting more misery on cash-strapped households. The BOE is expected to raise rates a half point to 4% on Thursday.

“Where inflation pressures remain too elevated, central banks need to raise real policy rates above the neutral rate and keep them there until underlying inflation is on a decisive declining path,” Gourinchas said. “Easing too early risks undoing all the gains achieved so far.”

UK Wage Inflation Points to Another Big Rate Hike This Week

–With assistance from Andrew Atkinson.

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Economy

Minimum wage to hire higher-paid temporary foreign workers set to increase

Published

2 days ago

October 21, 2024

Anne Joseph

OTTAWA – The federal government is expected to boost the minimum hourly wage that must be paid to temporary foreign workers in the high-wage stream as a way to encourage employers to hire more Canadian staff.

Under the current program’s high-wage labour market impact assessment (LMIA) stream, an employer must pay at least the median income in their province to qualify for a permit. A government official, who The Canadian Press is not naming because they are not authorized to speak publicly about the change, said Employment Minister Randy Boissonnault will announce Tuesday that the threshold will increase to 20 per cent above the provincial median hourly wage.

The change is scheduled to come into force on Nov. 8.

As with previous changes to the Temporary Foreign Worker program, the government’s goal is to encourage employers to hire more Canadian workers. The Liberal government has faced criticism for increasing the number of temporary residents allowed into Canada, which many have linked to housing shortages and a higher cost of living.

The program has also come under fire for allegations of mistreatment of workers.

A LMIA is required for an employer to hire a temporary foreign worker, and is used to demonstrate there aren’t enough Canadian workers to fill the positions they are filling.

In Ontario, the median hourly wage is $28.39 for the high-wage bracket, so once the change takes effect an employer will need to pay at least $34.07 per hour.

The government official estimates this change will affect up to 34,000 workers under the LMIA high-wage stream. Existing work permits will not be affected, but the official said the planned change will affect their renewals.

According to public data from Immigration, Refugees and Citizenship Canada, 183,820 temporary foreign worker permits became effective in 2023. That was up from 98,025 in 2019 — an 88 per cent increase.

The upcoming change is the latest in a series of moves to tighten eligibility rules in order to limit temporary residents, including international students and foreign workers. Those changes include imposing caps on the percentage of low-wage foreign workers in some sectors and ending permits in metropolitan areas with high unemployment rates.

Temporary foreign workers in the agriculture sector are not affected by past rule changes.

This report by The Canadian Press was first published Oct. 21, 2024.

— With files from Nojoud Al Mallees

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Economy

PBO projects deficit exceeded Liberals’ $40B pledge, economy to rebound in 2025

Published

6 days ago

October 17, 2024

Anne Joseph

OTTAWA – The parliamentary budget officer says the federal government likely failed to keep its deficit below its promised $40 billion cap in the last fiscal year.

However the PBO also projects in its latest economic and fiscal outlook today that weak economic growth this year will begin to rebound in 2025.

The budget watchdog estimates in its report that the federal government posted a $46.8 billion deficit for the 2023-24 fiscal year.

Finance Minister Chrystia Freeland pledged a year ago to keep the deficit capped at $40 billion and in her spring budget said the deficit for 2023-24 stayed in line with that promise.

The final tally of the last year’s deficit will be confirmed when the government publishes its annual public accounts report this fall.

The PBO says economic growth will remain tepid this year but will rebound in 2025 as the Bank of Canada’s interest rate cuts stimulate spending and business investment.

This report by The Canadian Press was first published Oct. 17, 2024.

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Economy

Statistics Canada says levels of food insecurity rose in 2022

Published

7 days ago

October 16, 2024

Anne Joseph

OTTAWA – Statistics Canada says the level of food insecurity increased in 2022 as inflation hit peak levels.

In a report using data from the Canadian community health survey, the agency says 15.6 per cent of households experienced some level of food insecurity in 2022 after being relatively stable from 2017 to 2021.

The reading was up from 9.6 per cent in 2017 and 11.6 per cent in 2018.

Statistics Canada says the prevalence of household food insecurity was slightly lower and stable during the pandemic years as it fell to 8.5 per cent in the fall of 2020 and 9.1 per cent in 2021.

In addition to an increase in the prevalence of food insecurity in 2022, the agency says there was an increase in the severity as more households reported moderate or severe food insecurity.

It also noted an increase in the number of Canadians living in moderately or severely food insecure households was also seen in the Canadian income survey data collected in the first half of 2023.

This report by The Canadian Press was first published Oct 16, 2024.

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