When I speak about the coronavirus to people who do not relentlessly follow the news or economics Twitter, two questions frequently arise. The first is: The virus does not seem that deadly, so why should I freak out? The second is: How can a virus cause an economic crisis?
Conveniently, the answer to both of these questions are the same. Even if the virus is not a direct threat to your life, you can pass it to someone who is at a greater risk. When sick workers cannot show up to a company in China or Germany that produces supplies Americans or American companies need, that hurts the US economy. The world economy is heavily reliant on the flow of people and goods across diverse geographies. The aggregate impact of our interconnectedness should be a concern for all of us, because public health concerns are economic concerns.
Over the past few months, the coronavirus has quickly spread from a few confirmed cases in Wuhan, China, to nearly every region of the globe. But the origin of the virus is no reason to promote anti-Asian stereotypes. The only reason it matters that the coronavirus spread in China is that China is a hub for international travel and an economic powerhouse. In the year 2000, China made 7 percent of global GDP. Today, it’s nearly 20 percent. For perspective, the United States creates around 15 percent of global GDP. Additionally, over 5 million companies around the world rely on products from businesses in the affected regions in China. If China sneezes, literally or metaphorically, the world gets a cold. The same can be said for the United States.
The economic effects of stifled business supply chains, canceled events and travel plans, and an endangered workforce has not been lost on the financial world. The stock market, a useful but limited measure of investor confidence in the economy, has been incredibly volatile. On Monday, the S&P 500 saw its sharpest one-day decline since the financial crisis in 2008. Macroeconomist Mark Zandi has predicted a prominent slowdown in GDP growth as a result of the pandemic. (Technically, two consecutive quarters of declining GDP is classified as a recession.)
The stock market briefly rebounded after the Federal Reserve slashed interest rates from 1.5 to 1 percent But Fed Chairman Powell expressed a desire to keep the short-term US rate target above zero. Now, the entire US yield curve is below 1 percent for the first time in history, a signal that investors are already planning for a worsening US economic outlook. It remains uncertain if the Fed has enough additional tools to prevent an economic crisis alone.
More importantly, the United States’ continuous failure to support our most vulnerable workers has been laid bare. Without strong labor protections, universal health care and sufficient paid leave for everyone, many working people face a precarious choice: Take care of themselves or lose out on wages, and even their jobs. According Elise Gould, at the Economic Policy Institute articulates, only 30 percent of the lowest-paid workers have access to paid sick days.
So what’s the best way to protect workers and the economy as a whole?
Trump has been trying to cure a cold with a press conference. This lack of presidential leadership has led to the United States having one of the lowest rates of testing per capita among advanced economies. One of the best ways to help the economy right now is to stem the spread of the virus, relieving pressure on the American health care system and, eventually, allowing people, goods, and services to move freely again. Congress, in a rare show of bipartisanship, passed $8 billion in funding for public health measures, the development of treatments and foreign assistance. After much time spent minimizing the magnitude of the coronavirus pandemic, Trump signed the bill last Friday.
Trump has proposed several economic measures, notably a payroll tax cut and aid to the hotel, airline, cruise, and shale industries. While the Republican Party loves to cut taxes, especially for the wealthy, a payroll tax would be less effective than making it easier to access unemployment benefits, social safety programs, and, frankly, directly giving people cash. Payroll tax cuts often go unnoticed, and they do not do as much for those who have had their hours cut. They also are an incentive to work in a climate in which health experts are encouraging “social distancing.”
To understand why bailing out industries is an unwise decision, we need to think about why we care if businesses suffer in a crisis. Companies matter for the long-term health and innovativeness of the US economy. But their profit margins in a downturn matter, because cash-strapped businesses need to cut costs: Wages suffer and jobs are lost. In industries affected by the coronavirus, though, we do not want workers to go to work. We want them to be able to keep their jobs and take paid leave. So, passing paid leave for everyone matters a great deal. Bailing out shale companies does not accomplish that goal.
Moreover, we should be concerned about the ripple effect of job losses in affected industries on people who work in other sectors. Lost jobs lead to pullbacks in spending, putting more jobs at risk. This is why a direct, broad stimulus package has become a popular recommendation in economic circles.
We need to strike a balance between a stimulus to stem the bleeding and the long-run investments necessary to build resilience in the US economy to public health and environmental shocks. Big public investments are slower moving than cash payments. But given the current low interest environment, there is good reason to invest in productive, green infrastructure, à la Green New Deal. Americans also suffer from our lack of universal health care coverage and the profit-driven insurance industry. Many Americans regularly postpone or forgo treatment because of health costs. Yet the United States has yet to make diagnosis and treatment for the coronavirus free.
The United States still has a long way to go to contain the coronavirus and stave off an economic downturn. But one thing is clear: If we treat the economic symptoms only through short-term stimulus without fixing the structural diseases in our economy, we’ll be just as susceptible in the future as we are today.
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.
