Flames and smoke billow during Israeli strikes in Gaza on Monday. Markets have reacted since the Hamas attack on Israel, but the full extent of economic impact is not yet clear. (Mohammed Salem/Reuters)
The war between Israel and Hamas poses a whole new series of risks to an already fragile global economy, and economists are warning it could take some time for the fallout to be clear.
“The global economy is limping along, not sprinting,” said International Monetary Fund chief economist Pierre-Olivier Gourinchas said at a joint meeting of the IMF and the World Bank in Morocco this week.
The annual meeting and its forecasts were all overshadowed by the crisis unfolding in southern Israel and Gaza.
“It’s a humanitarian tragedy and it’s an economic shock we don’t need,” World Bank President Ajay Banga told Reuters.
Hamas militants swept across the border into Israel this weekend unleashing an unprecedented wave of attacks on villages near the Gaza border. More than 1,000 Israelis were killed, and more than 100 were dragged back into captivity in Gaza. Israeli warplanes have responded with days of airstrikes. Palestinian authorities say at least 900 people have been killed in Israeli airstrikes, and at least 4,500 have been wounded.
Drone video footage shows burned-out cars on the side of the road near an open-air music festival where Hamas gunmen fired on those attending. (South First Responders/Telegram/Reuters)
As the world watched those events in horror, the price of oil jumped by as much as five dollars per barrel, futures markets fell and the Israeli currency, the shekel, sunk to a seven-year low.
Since then, market reaction has been relatively subdued. But most experts believe that’s because no one really knows what will happen in the days ahead.
“Anything in the Middle East has always been high-risk of spreading,” said Paul Samson, the president of the Centre for International Governance Innovation in Waterloo, Ont.
Risk of conflict widening
On Monday, Israeli Prime Minister Benjamin Netanyahu said Hamas had made a mistake “of historic proportions.”
“We will exact a price that will be remembered by them and Israel’s other enemies for decades to come,” he said in a prepared statement.
Israel has called up 300,000 reservists and mobilized tanks along the border. The U.S. is moving an aircraft carrier strike group into the region as a show of support for its ally Israel.
Experts say all that raises the stakes that the conflict could widen.
“If this expands and brings in other parties, then the outlook is for even a weaker global economy, even more inflationary pressures. And the markets are going to be finding it hard to deal with that,” renowned economist Mohamed El-Erian told the financial news channel CNBC.
Right now, oil traders seem to be watching along with the rest of the world unsure of what comes next.
Rory Johnston, the founder and publisher of the newsletter Commodity Context, says the conflict has a very real risk of drawing in two of the region’s biggest oil suppliers: Saudi Arabia and Iran.
“Everyone knows that Iran supports Hamas,” said Johnston. “What we don’t know is the extent of culpability in the explicit planning and green-lighting of this attack.”
Iran’s top authority, Ayatollah Ali Khamenei, denied any involvement, but heralded the attack as a success.
Johnston says the Saudi deal reportedly involved boosting oil production, which would cut the cost of gasoline for global consumers. But now, he says, it’s unclear what will happen with the Saudi deal adding yet another layer of complexity to the oil market’s reaction.
“So, we have the two countries [Iran and Saudi Arabia] that have had the most variable oil production over the past year are now explicitly being implicated and pulled into the conflict and how it evolves from here,” he said.
What this could mean for inflation
The price of oil is directly related to the cost-of-living crisis throughout the Western world. If crude oil prices rise, that means consumers pay more at the pumps.
Saudi Arabia was reportedly considering boosting oil production if it could close a trade deal with Israel. (AP Photo/Hasan Jamali, File) (Hasan Jamali/The Associated Press)
“We were hoping inflation was going down,” said Mark Manger, a professor of political economy at the Munk School of Global Affairs & Public Policy.
Beyond the price of oil, he says the price of bonds has ticked up since the weekend as investors seek out safe havens like U.S. treasuries and German bonds.
And, he says uncertainty and war weigh heavily on global trade as people quickly try to avoid risk.
“Fair to say, all of this is inflationary,” he said.
Samson says consumers, investors and policymakers alike need to brace for the very real chance that however this plays out, it will take a long time to resolve.
“I can’t imagine that the dust is settled within a year,” he told CBC News. “That doesn’t mean a conflict going on, but you know, there is a lot of dust to settle here.”
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.
