Canada once again has one of the world’s 10 largest economies, according to a new report that forecasts continued economic growth powered in part by immigration over the next decade.
The latest edition of the World Economic League Table places Canada as the world’s 10th-largest economy based on its GDP of US$1.731 billion (CAD$2.251 billion) in 2019.
South Korea had edged into the top 10 at Canada’s expense, but fell back to 11th place this year due to ripple effects of the U.S.-China trade war and the downturn in the Chinese economy.
The U.K.-based Centre for Economics and Business Research, which publishes the annual table, predicted years ago that Canada would drop out of the top 10, but did not foresee its return.
In fact, as of 2016, the centre was expecting Canada’s economy to continue to slip down the ranking. Its newest projection, released Dec. 26, paints a different picture, with Canada’s economy projected to rise to the ninth-largest in the world by 2024 and No. 8 by 2029.
The centre says population growth brought on by immigration has contributed to Canada’s economic strength.
“Countries that are successful in attracting skilled migrants tend to grow faster,” reads a press release accompanying the report.
The report also details several factors weighing on the Canadian economy, including what it sees as high unemployment, a minority government potentially facing roadblocks to implementing its agenda, and the federal debt load.
Globally, the centre’s latest projection sees China eclipsing the U.S. as the world’s largest economy by 2033 — two years later than it previously predicted. Canada’s economy is expected to outpace the economies of Brazil and Italy over the next 15 years.
Trump Administration Faces Economic Test as Coronavirus Shakes Markets – The New York Times
WASHINGTON — The global spread of the deadly coronavirus is posing a significant economic test for President Trump, whose three-year stretch of robust growth could be shaken by supply chain delays, a tourism slowdown and ruptures in other critical sectors of the American economy.
The outbreak of the virus in China has already disrupted global trade, sending American companies and retailers that rely on Chinese imports scrambling to repair a temporary break in their supply chains. Its spread to South Korea, Italy and beyond has hindered global travel. Economic forecasters say that the effects will hurt growth in the United States this year even if they do not intensify — and that if the virus becomes a global pandemic, it could knock the world economy into recession.
Stock markets have plunged this week on fears about the virus, with companies such as Apple and Microsoft among the most prominent businesses that have warned that supply chain disruptions could slow sales. Analysts said this week’s declines were on track to be the steepest since the 2008 financial crisis.
The market’s fall presents a challenge for Mr. Trump, whose presidential success has been deeply tied to the economy and a rising stock market that is now experiencing pronounced jitters. For now, Mr. Trump has publicly played down the potential economic fallout, saying woes at the aerospace giant Boeing, a strike last year at General Motors and the Federal Reserve’s reluctance to slash interest rates have done more to hurt the economy.
“We have been hurt by General Motors,” Mr. Trump said on Wednesday. “We’ve been hurt by Boeing. And we’ve been hurt by — we’ve been hurt, in my opinion, very badly, by our own Federal Reserve.”
Health officials expect a spike in coronavirus cases in the United States, though it remains unclear how soon and how severe an outbreak might occur. Officials have warned the nation to be prepared for the virus to spread.
If the infection gains a big foothold in the United States, it could disrupt the economy, which has been expanding steadily with an unemployment rate that has hovered near a 50-year low for more than a year. In an extreme scenario where the virus severely hits the United States, it could keep workers at home and grind production to a halt, hurting revenue streams and tanking even highly leveraged corporations as they fall behind on debt payments. In the least severe case, the current slowdown in China could cause a short-lived growth blip.
Economists at Goldman Sachs already expect to shave 0.8 percentage points off the United States gross domestic product in the first three months of 2020 because of slumping tourism from China and trade slowdowns. But they expect a quick rebound in the second quarter that will help to make up for the downturn.
Other economists, including those at Moody’s Analytics, foresee more drastic fallout if widespread infections appear in other countries. A global recession “is likely” if the virus “becomes a pandemic, and the odds of that are uncomfortably high and rising with infections surging in Italy and Korea,” Mark Zandi, Moody’s chief economist, wrote on Wednesday.
Chang-Tai Hsieh, an economist at the University of Chicago’s Booth School of Business who tracks Chinese economic data, said in an interview Thursday that the effects on American growth will be “huge” even in a best-case scenario with the virus. Chinese business activity, he said, is running at about 20 percent of normal levels.
“The economic consequences are, everything is down” in China, he said. “Everything is down tremendously.”
As forecasts worsen, investor expectations of a Fed cut are quickly increasing. As of Thursday, investors were betting on a March rate cut, a move that seemed highly unlikely as recently as a week ago. Many now expect two cuts by June, market pricing suggests.
Democrats on the House Financial Services Committee sent a letter on Thursday to Jerome H. Powell, the chairman of the Federal Reserve, asking for more information about whether an outbreak of the virus in the United States could cause a recession and what tools the central bank had to combat a supply shock to the economy.
Central bank policymakers said on Thursday that they were closely monitoring viral developments, though they did not yet signal a coming cut.
“It really depends on: What are the medium-term implications for the U.S. economy?” Loretta Mester, the president of the Federal Reserve Bank of Cleveland, said in an interview. “If people are temporarily staying home, not traveling, not interacting and purchasing things, that could be a short-term hit. Or it could develop into something broader — and that’s the kind of calculus you have to do when you’re thinking about monetary policy.”
But rate cuts may have a limited effect: They work by stimulating demand, which could help if consumers and investors get spooked and stop spending. But cuts will do little to restart factories and correct supply problems.
“We’d absolutely expect to see a response from the Federal Reserve, not least to shore up confidence,” said Paul Ashworth, an economist at Capital Economics, a research consultancy. But he pointed out that monetary policy worked on the economy with a six- to nine-month lag, and “it doesn’t deal with the supply-side impact of, say, one-third of your work force catching this.”
The more critical response may come from Congress and the Trump administration, which have done little thus far to script a fiscal response.
Perhaps the most important thing the government can do to insulate the economy is to stem the outbreak, keeping Americans on the job and spending. If that fails, though, fiscal responses are an option; Hong Kong and China, both hit hard, have rolled out packages to help bolster growth. Tax and spending policies might also encourage demand more than fixing supply, but they can also work more quickly than monetary policy.
House Speaker Nancy Pelosi of California and Senator Chuck Schumer of New York, the Democratic leader, on Thursday morning called for Congress and Mr. Trump to fashion a spending bill meant to “address the spread of the deadly coronavirus in a smart, strategic and serious way.” A response should include interest-free loans for “small businesses impacted by the outbreak.”
Such a program would represent targeted relief but not an effort to dramatically increase consumer demand in the economy.
But such a plan seems far-off, if not improbable. Democratic and Republican leaders in Congress have not opened talks with the White House or between the House and Senate over any possible package of tax cuts and spending increases that would be meant to stimulate the economy in the event of a virus-related downturn. Top Senate aides said on Thursday that it was too soon for such conversations, with Mr. Trump’s allies noting the persistence of low unemployment and continued economic growth.
Michael Zona, a spokesman for the Senate Finance Committee and its chairman, Charles E. Grassley of Iowa, said on Thursday that “at this point, the coronavirus has not had a broad impact on the U.S. economy, and its effects have been limited.” But Mr. Zona said Mr. Grassley and the committee were “ready to consider appropriate tax relief responses if that becomes necessary and the extent of the problem can be determined.”
Mr. Trump’s economic advisers had already been working on a package of tax cuts intended to serve as a centerpiece of his 2020 campaign. That package, which is still in flux and probably months away, could include new tax cuts for the middle class and for start-up businesses, along with extensions of some expiring provisions of the 2017 tax cuts. Tax experts who have spoken with the administration do not see the effort as an immediate stimulus package, but more as an attempt to build on the 2017 law and offer voters a contrast between Mr. Trump and his Democratic opponent.
On Thursday, the White House added Treasury Secretary Steven Mnuchin and Larry Kudlow, the director of the National Economic Council, to the president’s coronavirus task force. Both officials have been working on the tax plan. The Financial Banking and Information Infrastructure Committee, chartered under the president’s Working Group on Financial Markets and chaired by Treasury, is in regular communication and is also monitoring the economic fallout from the virus.
With Democrats controlling the House, there has been little expectation of major tax legislation before the November election. There was no sign on Thursday, from inside or outside the White House, that the coronavirus had changed that.
“The bipartisan consensus on Capitol Hill is that substantive tax policy is not happening before the lame duck” session after the election, said George Callas, the managing director at Steptoe & Johnson LLP, who was tax counsel to former House Speaker Paul D. Ryan of Wisconsin. “I haven’t seen that change in thinking happen yet.”
The fatigued Canadian consumer's days of propping up the economy may be coming to an end – Financial Post
The Canadian consumer has been one of the unsung heroes of the economy, but the latest retail sales data shows consumption fatigue at a time when the Canadian businesses need them to open up their wallets.
Retail sales growth slowed to just 1.6 per cent in 2019 — the slowest pace since 2009, according to data from Statistics Canada. Of particular concern was that December sales were flat — a time when shops see their biggest traffic in the year.
“The holiday period didn’t really accelerate things,” said Ed Strapagiel, a Scarborough, Ont., retail and marketing consultant. He says that declines in brick-and-mortar shopping, automotive and gasoline sales dragged down the sector in particular.
As commodity prices falter and manufacturing sees uncertainty, the Canadian consumer has stepped up to the plate, driving up, among other things, retail sales over the past few years.
Canadians racked up outstanding credit card balances of more than $100 billion in the third quarter of 2019 for the first time, according to TransUnion Co. And the average Canadian’s non-mortgage debt may rise by another 1 per cent to $31,531 by the end of 2020, according to a forecast by the credit-tracking agency.
But broader economic factors are sapping consumer sentiment.
“The lagged impact of earlier interest rate hikes cutting into household spending power likely is part of the explanation, and also helps to explain why household insolvency rates edged higher last year,” said RBC Capital Market economist Nathan Janzen in a research note last week.
One potential bright spot in the retail data are e-commerce sales, which grew by 31.1 per cent in the month of December from the same time last year, to 4.6 per cent of all retail sales, a record high online market share. Given the difficulty of tracking online sales, that number could be even higher.
“What’s not captured in the Canadian data is what Canadians are spending on foreign websites. Statistics Canada does its surveys on strictly Canadian businesses,” Strapagiel said, which leaves out some online spending at foreign retailers.
Strapagiel says that the retail slowdown is a cyclical issue as the economy worsens, and that inflation and population growth should continue to push up sales over the long-term.
“All things considered, retail should be doing about 3.5 per cent per annum,” he said, describing the long-term trend, “and we’re quite well below that now.”
Statistics Canada is expected to release fourth quarter GDP numbers on Friday, which could help the Bank of Canada decide on interest rates next Wednesday.
RBC Capital Markets thinks transitory factors cut about 0.5 percentage points from annualized growth in the final quarter of 2019, slightly more than in the previous quarter.
“With underlying growth also appearing to have slowed, our Q4/19 forecast has been lowered to 0.3 per cent,” RBC said, noting that the first quarter of 2019 may see a below-trend 1.4 per cent GDP gain.
“A permanent hit to auto production following the closure of the GM Oshawa plant will subtract a couple of tenths from growth in the quarter. The coronavirus outbreak will also represent an economic headwind in early-2020.”
The retail slowdown, combined with disruptions from the coronavirus, or COVID-19, and the shutdown of rail networks, has some analysts warning the risk of recession in the Canadian economy is high.
“Auto, rail, and teacher strikes, manufacturing and retail sector layoffs, the COVID-19 outbreak and now rail blockades are all hitting an already vulnerable Canadian economy,” said Tony Stillo, an analyst at Oxford Economics. “We think Canada’s 12-month recession odds remain worrisome at 40 per cent.”
• Email: KMartine@postmedia.com
US economy grew at 2.1% rate in Q4 but virus threat looms – OttawaMatters.com
WASHINGTON — The U.S. economy grew at an annual rate of 2.1% in the final quarter of last year, but damage from the spreading coronavirus is likely depressing growth in the current quarter and for the rest of the year.
The overall pace of growth in the October-December quarter was unchanged from its initial estimate a month ago, though the components were slightly altered, the Commerce Department said Thursday. A slowdown in business restocking was less severe than first believed. But a cutback in business investment in new equipment was more of a drag on growth than initially thought.
Economists have been downgrading their forecasts for the first quarter of this year as fears of the impact of the virus has escalated. Stock markets have plunged this week on news that the number of coronavirus cases worldwide has now topped 81,000.
On Thursday, the Dow Jones Industrial Average plunged 4.4%, intensifying a weeklong market rout as investors worried that the coronavirus outbreak will seriously damage the global economy.
The virus, which started in Wuhan, China, has spread to more than 30 countries, including the United States, Italy and South Korea.
Vital supply chains from China that companies in the United States and elsewhere depend on have been disrupted, and that problem is expected to worsen. Microsoft and Apple have warned about adverse impacts from the supply chain disruptions.
U.S. companies with sizeable operations in China are being impacted directly. McDonald’s has closed hundreds of stores there. Starbucks has closed more than half of its locations. While it’s begun to open stores in China where the outbreak has abated, it is now spreading faster outside of China.
In a report to investors Thursday, Goldman Sachs said the fallout from the virus would likely wipe out all the earnings growth it had been predicting for 2020 if the virus continues to spread. David Kostin, a strategist for the firm, said his baseline estimate is now for zero growth in S&P 500 earnings per share this year, down from an earlier forecast of 5.5% earnings growth.
The rising fears about the economic damage the virus can do have inflicted the worst losses on U.S. stocks in two years, less than a week after Wall Street was hitting record highs. To try to demonstrate the government’s resolve to deal with the spread of the virus, President Donald Trump announced Wednesday that he was appointing Vice-President Mike Pence to take the lead in co-ordinating U.S. actions.
But economists are warning that if the virus turns into a global pandemic, the impact could be severe enough to push the global economy and the U.S. economy into recessions.
“The global economy was already very weak because of the trade war, and it would not take much to shove it on its heels,” said Mark Zandi, chief economist at Moody’s Analytics.
Zandi said his baseline forecast, which optimistically assumes that the outbreak remains largely contained in China and dissipates by spring, projects that global growth will slow to 2.4% this year — 0.4 percentage point lower because of the virus.
He expects the annual pace of U.S. growth to slow to 1.3% in the current quarter, down by 0.6 percentage point because of the virus. He said for the year, he is forecasting U.S. growth of 1.7%. That would be the slowest annual growth of the Trump presidency and far below the 3%-plus growth that Trump had promised to deliver during the 2016 campaign.
Because of the market turbulence and the rising potential of adverse effects from the virus, expectation of interest rate cuts by the Federal Reserve have risen. The CME Group tracker of investment sentiment has put the possibility of a quarter-point cut as early as March at 37%, up from just 7% a week ago.
Diane Swonk, chief economist at Grant Thornton, said the possibility of two rate cuts this year “has gone up dramatically” because of the virus threats.
Until recently, many economists had expected that the Fed could keep rates unchanged the whole year after three rate cuts last year, when it was struggling to cushion the impact of Trump’s trade war with China and a slowing global economy.
The estimated 2.1% annual growth pace in the October-December quarter followed an identical gain in the third quarter. For 2019 as a whole, the economy grew by 2.3%, the slowest pace since a 1.6% increase in 2016.
Trump is counting on a strong economy to propel him to re-election in November. But for each year of his presidency, economic expansion has fallen below the levels he had promised to deliver during the campaign, when he derided the growth rates achieved under President Barack Obama.
While growth did jump to 2.9% in 2018, propelled by the 2017 tax cut and increased government spending, it returned last year to near the average achieved by Obama.
Thursday’s report from the Commerce Department was its second of three estimates of economic growth for the October-December quarter. It showed that consumer spending, which accounts for 70 per cent of economic growth, grew at a 1.7% annual rate in the fourth quarter, down from an initial estimate of 1.8% growth.
Business investment on new plants and equipment was also lower, falling at a 2.3% rate, worse than the initial estimate of a 1.5% drop. These weaker numbers were offset by more business restocking of store shelves and upward revisions to residential investment and federal government spending.
Martin Crutsinger, The Associated Press
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