BRUSSELS (Reuters) – Struggling to get its vaccine campaign and economic recovery plan in gear, Europe can only watch with envy the stratospheric growth path projected for the stimulus-fueled U.S. economy.
But officials and economists caution against direct comparisons between the two, noting that much of the divergence masks in-built support that European workers and businesses get from the region’s more extensive welfare states, supplemented in many cases by generous furlough schemes.
The bigger question, they say, is whether Europe’s web of greater social protections will in the longer term stifle the remodelling of its economy which leaders hope will be one of the few positive takeaways from the health crisis.
“The European social contract leads to a slower rebound,” Daniel Gross, head of the Centre for European Policy think tank in Brussels, said of the implicit trade-off between securing existing jobs and businesses and allowing new ones to emerge.
“It might also impair medium term growth as structural changes are too slow,” he warned.
The same factors were at play when Europe emerged much more slowly than the United States from the 2008-09 global financial crisis. This time, the added concern is that delays with vaccine rollouts across the 27-nation EU make it vulnerable to further crippling lockdowns even as the U.S. economy returns to life.
Washington’s new $1.9 trillion stimulus package has shone a yet harsher light on the EU’s woes: the Federal Reserve this week projected a 6.5% growth rate for the United States in 2021 compared to a mere 3.7% forecast for the European economy.
The International Monetary Fund sees the United States returning to its pre-crisis output levels by year-end, six months ahead of the EU – and even that assumes Europe can master the pandemic and return to a degree of normality.
SAFETY NET
Critics have asked why Europe has not yet mustered anything of the sheer scale of the Biden package. But EU officials say that is like comparing apples with oranges.
“The EU is not a federal state, so support measures at both national and European level must be counted,” European Economics Commissioner Paolo Gentiloni told Reuters.
“And through our social systems, a much higher level of support kicks in automatically during a downturn than in the U.S.,” he added.
Gentiloni said that when existing welfare support and other state measures were combined with one-off emergency aid, total support in individual EU countries came to 8% of the economy, with governments providing a further 19% of GDP in liquidity support for 3.5 trillion euros ($4.17 trillion) in total.
By comparison, the United States in 2020 provided 11% of its GDP in automatic and discretionary measures and 5% in liquidity support, or some $3.35 trillion, EU officials estimate.
The United States has now pulled clearly ahead with its $1.9 trillion plan.
Gentiloni said, however, that the rest of the world would also benefit from its positive spillovers, including Europe, where all governments pledged to keep spending this year and next.
It is true that the EU suffered economically more in 2020 than the United States because the pandemic hit Europe before it went across the Atlantic, forcing lockdowns a month earlier.
But while the EU economy contracted more, European labour support has kept unemployment barely changed during the bloc’s biggest ever recession, with the jobless rate edging up from 6.5% to a peak of 7.8% and then easing again to 7.3% in January.
U.S. unemployment, by contrast, surged to 14.8% of the workforce in April 2020 from 4.4% in March to then gradually slid back to 6.3% in January this year.
“The European social protection nets are deeply rooted in the social and political history of our countries,” the chairman of euro zone finance ministers Paschal Donohoe told Reuters.
“That’s why the EU has chosen to focus its response on protecting employment through the deployment of large job retention schemes, rather than relying on direct transfer payments,” he said.
LIVES SAVED
No small matter is also the fact that, while stringent EU lockdowns hit the economy more than they did in the United States, they likely saved lives: in the EU there have been 5,365 COVID-19 cases and 127 deaths per 100,000 citizens, against 8,910 infections and 162 deaths per 100,000 Americans.
The most immediate challenge for Europe now is to get its vaccine campaign back on track after France, Germany and other nations resumed usage of AstraZeneca’s vaccine following safety reassurances from regulators.
After that, the question is whether Europe can make good its longer-term goal of transforming its economy to make it neutral in terms of carbon emissions by 2050, ready for the digitalised world and better prepared for future health emergencies.
To achieve that, the EU will jointly borrow, spend and repay 750 billion euros, most of which will be distributed to EU governments in loans and grants for investment and reforms. That is due to add two percentage points to EU growth by 2026.
While the first money from that package is to be paid out in the second half of this year, most of it will only come in 2022 and 2023. The United States is also considering another stimulus package focused on infrastructure later this year.
“There is a time lag between the two, let’s face it,” European Central Bank President Christine Lagarde told reporters last week, highlighting the speedy U.S. stimulus in her latest plea for quick disbursements from the EU recovery fund.
“…Our own fiscal measures are not kicking in yet. And we need that,” she added.
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.
