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Britain's Economy Has Transformed During Queen's 70-Year Reign – BNN

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(Bloomberg) — Sign up for the New Economy Daily newsletter, follow us @economics and subscribe to our podcast.

The UK economy of 2022 is barely recognizable from the one that greeted Queen Elizabeth II 70 years ago.

Butter, bacon and meat were rationed in 1952 as World War II cast a long shadow over an economy that was just a fifth of current size. Money was counted in shillings, men wore ties even on days off and pub goers could enjoy pints of beer for just 6p.

Today, suits and cash are both a far less familiar sight in the British pub, while wine and gin have both become much more popular tipples. Houses that once could be bought on one income now require two. 

But some problems of that era remain familiar. Inflation was at 11.2% when Elizabeth became Queen — within a whisker of the level economists expect to see later this year.

Following are charts that describe the massive shifts the economy has seen since the coronation in 1952.

The UK as a whole is richer and healthier. The cohort born in 1952 had incomes higher than the average of their fellow citizens throughout their lives, according to the Institute for Fiscal Studies. At age 70, men and women can both expect to live seven years longer than they did seven decades ago.

The economy meanwhile has had a number of booms and busts. Oil shocks, currency crises, financial crashes along with Britain’s exit from the European Union and the pandemic have bookended periods of rapid growth. The overwhelming trend has been one of expansion. 

Much of that increase has been fueled by a boom in services, which have flourished as the manufacturing sector receded. While the “big bang” deregulation of banking made Britain a global financial center, the portion of jobs done in factories has plunged to just 7%, from almost 30% in 1952.

Nowhere has Britain’s transformation been more apparent than in the housing market. The average house price has jumped from less than £2,000 — the equivalent of around £60,000 today — to a record £270,000, according to Nationwide Building Society. 

It means housing has vastly outpaced inflation and earnings growth, and in some years generated more wealth for homeowners than they gained from employment. Those increases have strained the finances of people buying property. Many families require two incomes now to get on the housing ladder, whereas in 1952 it was mainly the salary of men that provided.

Homeownership surged in the second half of the last century. The shift accelerated under Margaret Thatcher, who promoted her vision of a “property-owning democracy” by encouraging council tenants to purchases their homes in the 1980s. 

However, the trend has gone into reverse in the past 20 years because of the sharp increase in house prices.

The boom in house prices over the past decade was supercharged by record-low interest rates. Since it was founded in 1694, the Bank of England’s benchmark lending rate never strayed below 2% until 2009. 

Then the financial crisis hit, followed by a period of sluggish growth and the coronavirus pandemic. The BOE responded by pushing rates close to zero and buying bonds to depress market rates. Now that inflation has reached a 40-year high, that era is screaming to a halt.

Across the 70 years inflation has averaged just shy of 5%, leaving prices almost 24 times higher in total across the period.

The UK is no longer the trading force it was. In 1960, it accounted for almost 9% of world merchandise exports. Now its share is little more than 2%. 

The decline came as manufacturing shifted to lower-cost economies such as China. A further period of weakness followed Brexit, with exports recovering from the pandemic less strongly than in neighboring countries.

©2022 Bloomberg L.P.

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Uneven economic recovery does not bring all Canadian women with it: experts

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OTTAWA — After more than two years of economic turbulence through the COVID-19 pandemic, Canada’s workforce participation overall appears quite rosy for women.

The share of women aged 25 to 54 years old is at its highest level ever in the country at 85 per cent. Meanwhile, unemployment for all workers hit a record low, according to Statistics Canada.

But experts say while looking at the economic big picture might seem like cause for celebration, a closer inspection at the details offers a more nuanced look at the uneven recovery that has not uplifted all groups of women equally.

Women working in sectors directly affected by the pandemic — public-facing jobs and the care economy — were deeply affected by closures throughout the pandemic. While other groups of women remained at work during this period, they were managing a massive increase in unpaid domestic and care work at home. Taken together, experts said these forces affect women’s economic security and gender equality as a whole.

Women did much worse during the pandemic compared to previous recessions. In past recessions, about 17 per cent of employment losses were for women, with mostly men losing their jobs, said Brittany Feor, economist at the Labour Market Information Council. During the pandemic recession, job losses were almost evenly split between men and women.

A recent report by the council found that this year, the picture is somewhat positive, said Feor, but it depends on the type of job and sector a woman is working in.

Both points have to do with the fact that many women work in sectors that were vulnerable to pandemic restrictions and precarious to begin with, like accommodation, food services and recreation, said a recent report by the Canadian Centre for Policy Alternatives.

Pandemic recovery efforts that focus on those facing the greatest barriers are needed to stave off gender equality gains being lost, said the centre’s report.

Feor also cautioned against the risk of backsliding gains by women as time goes on, specifically noting current work participation by moms.

“It’s much higher than it has been in other years, it’s recovered. That seems positive. But it’s also still only 2022. So we want to be mindful to check back in three years and four years and five years. What does that look like?” she said.

The effect of having to stay at home with a young child or work from home with a young child may influence women’s career paths in ways that aren’t immediately known, said Feor.

“The setbacks you faced by not being able to participate in a certain project or work longer hours compared to your male counterparts who didn’t have to do the same thing — those are issues that will play out in the long-term.”

Juggling home care and work responsibilities may affect a woman’s career as well as her health, said Andrea Gunraj, the vice-president of public engagement for the Canadian Women’s Foundation.

The foundation held a recent poll that suggested Canadian moms are much more likely than dads to say they feel anxious and sad, and those feelings haven’t dissipated since they were asked the year prior.

Maru/Matchbox surveyed 1,506 Canadians from April 20-21 on behalf of the foundation. It cannot be assigned a margin of error because online panels are not considered truly random samples.

About two in five moms said they put their career on the back burner to manage home and caregiving responsibilities.

“That, for me, is a really interesting and upsetting finding because what you see is that people are putting aside paid work to be able to manage unpaid work, essentially. And what does that mean for women’s economic well-being, their ability to take care of themselves and their dependants? It’s a huge impact on them,” Gunraj said.

Almost half of moms said they are reaching their breaking point this year, compared to just over 30 per cent of dads saying so.

“It’s really a situation of people being really stretched, and women being disproportionately stretched because of unpaid care responsibilities,” Gunraj said.

At a recent funding announcement, Employment Minister Carla Qualtrough said the government has invested $300 million to create an employment strategy for people with disabilities, created a women’s entrepreneurship fund, and tailoring its apprenticeships and programs to help sectors address labour market needs on women.

When it comes to helping women caregivers, “we know that affordable, accessible child care is No. 1, it’s really going to make a difference,” Gunraj said in reference to the new federal plan to create an affordable child-care system across the country.

Gunraj noted it has to be truly affordable and accessible to the most vulnerable families, which means being able to evaluate its outcomes to determine whether it’s not helping people to the extent it needs to, and then improve it.

The national child care plan helps moms and their children, but it could also help create well-paid care work jobs for newly created early childhood educator positions, the CCPA report said.

This depends on the minimum salaries set out by the provinces and territories, with Ontario setting its minimum wage for early childhood educators at $18 per hour.

At the recent announcement alongside Qualtrough, the families, children and social development minister said the federal government asked provinces to include a wage grid in the signed child-care agreements.

“Working conditions and wages are the jurisdiction of provinces and territories. But we are encouraging them at every turn to do more,” said Karina Gould.

New Brunswick increased its minimum hourly wage for early childhood educators to $23.40, Newfoundland to $25 and Yukon to $30, she said.

This report by The Canadian Press was first published June 25, 2022.

This story was produced with the financial assistance of the Meta and Canadian Press News Fellowship.

 

Erika Ibrahim, The Canadian Press

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Putin Is Pushing Germany's Economy to the Breaking Point – BNN

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(Bloomberg) — In Germany, some industrial furnaces have been running without interruption for decades. If they cool down suddenly, the molten materials harden and the system breaks. 

That’s the kind of concern sweeping through Europe’s largest economy as it faces an unprecedented energy crisis.

What started as vague foreboding over reduced supplies of Russian gas is now very real. After President Vladimir Putin slashed flows on the main link to Europe by 60%, experts in Chancellor Olaf Scholz’s administration this week worked out the scenarios and none of them led to sufficient reserves to make it through the winter.  

“That was the sobering moment,” Klaus Mueller, who heads Germany’s network regulator known as BNetzA, said Friday in an interview with Deutschlandfunk radio. “If we have a very, very cold winter, if we’re careless and far too generous with gas, then it won’t be pretty.”

The risks extend beyond beyond a recession, and a winter of freezing homes and shuttered factories. For decades, Germany has prospered off the back of cheap gas. The answer to the growing economy’s needs more often than not was a new pipeline to Russia. 

That era is now over, and companies from BASF SE to Volkswagen AG are coming to terms with the new reality. 

There will be quick fixes — like reviving polluting coal plants and switching fuels in industrial processes — but structural issues loom as the transition to affordable renewable power will still take years.   

Firms making metals, paper and even food could be forced to downscale or close German production sites, accelerating a steady exodus of manufacturing jobs and leaving lasting damage to the country’s economic landscape.

“Companies will move production to where there’s competitive pipeline gas, and this won’t be in Germany,” said Wolfgang Hahn, managing director of Energy Consulting Group GmbH. “You can’t correct 20 years of policy errors in two or three years.”

The latest figures show that it would take 115 days to reach the government’s target of filling gas reserves to 90% capacity by November. That time frame assumes flows remain at the current level, which is unlikely given the Kremlin’s increasingly aggressive posture toward Europe in retaliation for sanctions imposed over Russia’s war in Ukraine. 

In response to the grim prospects, Germany — which still relies on Russia for more than a third of its gas supplies — elevated its threat level to the second-highest “alarm” stage on Thursday. If the squeeze gets tighter, Germany could start rationing supplies. 

The moment of truth is likely to come next month, when the Nord Stream pipeline goes down for scheduled maintenance. Germany worries it may never come back. 

“I would have to lie if I said I didn’t fear that,” Economy Minister Robert Habeck said Thursday in an interview with public broadcaster ZDF. 

Germany’s vice chancellor drew a parallel between the gas squeeze and the role of Lehman Brothers in triggering the financial crisis. If energy suppliers continue to pile up losses by being forced to cover missing Russian supplies at high prices, there’s a risk of a broader collapse.

Uniper SE, Germany’s largest Russian gas importer, has already warned it may face difficulties fulfilling supply contracts to local utilities and manufacturers if Moscow prolongs or increases gas cuts.    

The crisis has already spilled far beyond Germany, with 12 European Union member states affected and 10 issuing an early warning under gas security regulation. Europe’s increased demand for liquefied natural gas will also hit poorer nations around the world as they struggle to compete for cargoes. 

“We are worried” that Russia will cut off gas supplies to Europe, Estonian President Kaja Kallas said at the EU summit in Brussels on Friday.  “We need to be prepared to have different energy mixes, united purchases of liquefied gas and do these things together.”

Read more: Europe Must Declare a War Economy: Andreas Kluth

Scenarios from BNetzA, which would manage Germany’s gas distribution in the event of rationing, take into account a series of emergency measures, including two floating LNG terminals that will come online this winter, auctions of excess fuel for industry and a 15 billion-euro ($15.8 billion) government program to buy gas on the spot market.

“Storage sites in Germany need to be filled as soon as possible,” said Sebastian Bleschke, head of INES, the association of German storage operators. “For some sites, the window of opportunity is closing.”

Bavaria-based Wiegand Glas shows the difficulty of unwinding Germany’s gas demand. The company’s 11 glass-melting furnaces — like all those in the country — operate 24 hours a day for more than a decade. Even if Wiegand idled production, the furnaces would need 75% of normal gas consumption to prevent the molten glass inside from seizing up and destroying the furnace.

“But then we have to carry the energy cost while we have nothing to sell, so this is not really an option,” Chief Executive Officer Oliver Wiegand said in an interview. If the highly-specialized furnaces break, rebuilding would be time-consuming and expensive. “It would take a decade to build up to normal production again,” he added.

Economists are trying to pin down the scope of the risk, but it’s a challenge. European Central Bank President Christine Lagarde said 75% of what the bank got wrong in its inflation prediction last year was due to energy prices.

German economic institutes warned in April that an immediate halt to Russian imports of oil and natural gas would cause a 220 billion-euro hit to output over the next two years. While it could be more benign now as storage levels tick up, predicting the outcome of an unprecedented situation is difficult, said Stefan Kooths, an economist at the Kiel Institute for the World Economy, who was involved in the forecast.

The Bundesbank estimates that Germany’s economy will shrink more than 3% in 2023 if Russian energy supplies stop. That would be the worst slump outside of the recessions sparked by the Covid-19 pandemic and the global financial crisis.

The outlook is already grim. Manufacturing orders at factories have fallen for the past three months, costs are rising and confidence is crumbling. The Ifo Institute’s closely watched measure of business expectations unexpectedly dropped this month.

For now, companies are bracing for a prolonged reduction in energy. BASF, Europe’s biggest chemicals maker, may cut output because of the rising cost of gas, which is used as a feedstock in production and to generate electricity. BMW AG, the world’s biggest luxury-car maker, may buy electricity rather burn gas in its own on-site power plants. 

“We could switch some production from gas to oil if needed, but it would be five-times less efficient,” Hagen Pfundner, head of the German operations of Swiss drugmaker Roche Holding AG. “That would not be a durable solution.”

Germany is preparing consumers and businesses for tough times ahead. BNetzA’s Mueller warned that households could face doubling or tripling of their gas bills and called on people to save money and energy. Habeck appealed to Germans sense of solidarity to fend off Putin’s energy attacks. 

Responding to the suggestion of a state bonus for saving gas, he said: “If someone says ‘I’ll only help if I get 50 euros more,’ I’d say ‘you’re not getting it, dude.’”

Read more:

  • Germany Warns of Lehman-Like Contagion From Russian Gas Cuts
  • Gas Rationing Is Getting Closer for Europe
  • The Weakest Link in Germany’s Energy Security Is Fraying
  • Germany Girds for Day of Reckoning in Russian Gas Showdown

©2022 Bloomberg L.P.

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Charting the Global Economy: Activity Cools in Europe, US – BNN

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(Bloomberg) — Sign up for the New Economy Daily newsletter, follow us @economics and subscribe to our podcast.

Business activity in Europe and the US stumbled this month as high inflation, lingering supply constraints and rising borrowing costs took a bigger toll.

Retail and wholesale prices in the UK accelerated, while a key gauge of inflation in Singapore hit an almost 14-year high. Meantime, more central banks around the world continued to raise interest rates.

Here are some of the charts that appeared on Bloomberg this week on the latest developments in the global economy:

Europe

Euro-area economic expansion slowed sharply as surging prices curbed the rebound from pandemic restrictions and factories continued to suffer from supply snarls. An indicator for economic activity by S&P Global fell to a 16-month low in June, driven by rampant inflation, concerns over energy and rising borrowing costs. 

UK inflation rose to a fresh four-decade high in May after broad increases in the cost of everything from fuel and electricity to food and beverages. The cost of goods leaving factories, meantime, rose 15.7% from a year ago, a full percentage point stronger than expected and the most since 1977.

US

The University of Michigan’s final June reading of longer-term US consumer inflation expectations settled back from an initially reported 14-year high, potentially reducing the urgency for steeper Federal Reserve interest-rate hikes.

Business activity took a decisive step back in June as rapid inflation reduced demand for services and led to outright contractions in factory orders and production.

Another month, another record for US single-family rents, which jumped 14% year-over-year in April, marking the 13th period of record-breaking annual gains. Supply shortages and a strong job market are driving prices up, according to CoreLogic, a provider of real estate data.

World

A world economy already contending with raging inflation, stock-market turmoil and a grueling war is facing yet another threat: the unraveling of a massive housing boom. The effects are being seen in countries such as Canada, the US and New Zealand, where once-hot residential real estate markets have suddenly turned cold. 

Central bankers, desperate to tame the relentless march of inflation, have been sending not-so-subtle signals that they would for once welcome a stronger currency, which helps reduce the cost of imports by boosting buying power abroad. If left unchecked, this international competition threatens to handicap manufacturers that rely on exports, upend the finances of multinational companies, and shift the burdens of inflation around the world.

Iceland’s central bank raised borrowing costs again by a full percentage point to a five-year high, doubling down on its struggle to curb inflation and cool one of Europe’s hottest housing markets. Central banks in Mexico, Czech Republic and Norway also boosted rates.

Asia

Chinese President Xi Jinping pledged to meet economic targets for the year even as the government’s zero tolerance approach to combating Covid outbreaks and a weak housing market put the growth goal further out of reach. Most economists expect Beijing will miss its gross domestic product growth goal of around 5.5% this year.

Indonesia’s central bank held its benchmark interest rate at a record low again, saying inflation remains manageable as it cemented its place as an outlier on monetary policy. The move sets Indonesia apart from most central banks.

Singapore’s key inflation gauge accelerated for a third month to the fastest in almost 14 years, bolstering the case for further monetary policy tightening and stronger action to buffer consumers from the drag of rising prices.

Emerging Markets

Mexico’s economy expanded at the fastest pace in over a year, suggesting a recovery seen at the beginning of 2022 is gathering speed. Latin America’s second-largest economy grew 1.1% in April compared to the previous month, the most since March 2021.

©2022 Bloomberg L.P.

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