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Canadian dollar touches 10-day low amid Ukraine uncertainty

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The Canadian dollar edged lower against the greenback on Monday, as investors weighed warnings that Russia could invade Ukraine at any time and a major trade route between Canada and the United States reopened.

World shares skidded and the safe-haven U.S. dollar gained ground against a basket of major currencies as the United States said Russia might create a surprise pretext for an attack on Ukraine.

Still, hints by Ukraine at possible concessions to Russia helped cap the price of oil, one of Canada’s major exports.

U.S. crude prices fell 0.6% to $92.55 a barrel, while the Canadian dollar was trading 0.1% lower at 1.2752 to the greenback, or 78.42 U.S. cents. It touched its weakest intraday level since Feb. 4 at 1.2783.

North America’s busiest trade link reopened for traffic late Sunday evening, ending a six-day blockade, the Canada Border Services Agency said, after Canadian police cleared the protesters fighting to end COVID-19 restrictions.

Canada’s inflation report for January, due on Wednesday, could offer clues on the outlook for Bank of Canada interest rate hikes. Money markets expect the central bank to tighten next month for the first time since October 2018 to fight inflation.

Canadian government bond yields were higher across the curve, tracking the move in U.S. Treasuries.

The 10-year was up 3.3 basis points at 1.904%, after touching on Friday its highest intraday level in nearly three years at 1.961%.

 

(Reporting by Fergal Smith; Editing by Paul Simao)

Economy

‘Difficult to believe’: Biden’s economy plan a tough sell in Asia – Al Jazeera English

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Phnom Penh, Cambodia – US President Joe Biden’s arrival in Seoul on Friday marks not only the start of his first visit while in office to South Korea and Japan, but the beginnings of an economic initiative aimed at deepening United States ties across Asia.

Though many of the Indo-Pacific Economic Framework’s details have yet to be finalised, the Biden administration has made one point clear – the plan is not a traditional trade agreement that will lower tariffs or otherwise open access to US markets, but a partnership for promoting common economic standards.

While many of China’s regional neighbours share Washington’s concerns about the burgeoning superpower’s ambitions, the IPEF’s lack of clear trade provisions could make it an uninspiring prospect for potential members, especially in Southeast Asia.

“You can sense the frustration for developing, trade-reliant countries,” Calvin Cheng, a senior analyst of economics, trade and regional integration at Malaysia’s Institute of Strategic and International Studies, told Al Jazeera. “There’s always talk about engaging Asia, the idea, but what exactly is it – and what are the incentives for developing countries to take up standards that are being imposed on them by richer, developed countries?”

Since announcing the IPEF in October, the Biden administration has characterised the initiative as a way of promoting common standards under the pillars of fair and resilient trade; supply chain resilience; infrastructure, clean energy, and decarbonisation; and tax and anti-corruption.

A fact sheet distributed by the White House in February describes the framework as part of a wider push to “restore American leadership” in the region by engaging with partners there to “meet urgent challenges, from competition with China to climate change to the pandemic”.

Nevertheless, Biden’s decision not to pursue a major trade deal harks back to the protectionist leanings of former US President Donald Trump, and, in particular, his administration’s abrupt pullout from the landmark Trans-Pacific Partnership (TPP).

Trump, whose antipathy towards traditional alliances sparked anxiety in many Asian countries, scuttled that agreement in 2017 despite sharing the deal’s aims of countering expanding Chinese economic influence.

Yoon Suk-yeol
South Korean President Yoon Suk-yeol has expressed support for Biden’s new economic initiative [File: Seong Joon Cho/Bloomberg]

But even without clear benefits to boost trade, Asian leaders have, for the most part, reacted favourably to the prospect of renewed US engagement in Asia.

Longtime allies Japan and South Korea are expected to be among the first to engage with the IPEF, as are Singapore and the Philippines.

From Vietnam, Prime Minister Pham Minh Chinh said at the recent US-ASEAN summit that Vietnam “would like to work with the US to realise the four pillars of that initiative”.

However, he added that Vietnam needed more time to study the framework, as well as to see more “concrete details”.

Thailand has also demonstrated interest, while leaders in Indonesia and India have yet to take a clear position.

Huynh Tam Sang, a lecturer of international relations at the University of Social Sciences and Humanities in Ho Chi Minh City, said Hanoi wished to avoid antagonising either the US or China – a common position for Southeast Asian states attempting to stay clear of great power struggles while avoiding being dominated by their northern neighbour.

“The Vietnamese government has been rather prudent not to showcase any intentions to join the IPEF or not, though I think there are many benefits to joining,” Sang told Al Jazeera, listing clean energy and reliable supply chains as common interests.

Sang said, however, that other standards, such as those related to taxes and anti-corruption efforts, could be a step too far for the Vietnamese government.

“I think Vietnam could be really reluctant to join that pillar for fear of the US intervening in Vietnam’s domestic politics,” he said.

“The anti-corruption campaign is definitely going on, but many Vietnamese are very sceptical of this view of cooperation, especially with the US when the Biden administration has prioritised democratic values when fostering ties with regional countries.”

Strings attached

Such concerns could undercut the renewed US engagement, particularly when China has made a point to engage in trade without such values-based strings attached. The Regional Comprehensive Economic Partnership (RCEP), a free trade deal that went into effect at the start of this year, is a testament to that hands-off approach to some observers.

China played a key role in negotiating the RCEP, which also includes Japan and South Korea, plus all 10 of the ASEAN member-states –  Brunei, Cambodia, Indonesia, Laos, Malaysia, Myanmar, the Philippines, Singapore, Thailand and Vietnam – as well as Australia and New Zealand.

In total, the RCEP covers some 2.3 billion people and an estimated 30 percent of the global economy. The partnership is widely seen as being more focused on promoting trade by removing tariffs and red tape, with a less holistic approach to raising economic standards than the TPP or its successor, the reassembled Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP).

Cheng described the CPTPP, of which the US is not a member, as the “gold standard” for trade deals in the region, noting its commitment to expanded trade access as well as provisions to safeguard labour rights, promote transparency and address environmental issues and climate change.

“So the IPEF is pretty much that, but taking out the trade deal aspect of it, leaving just the standards,” he said.

It remains to be seen how far the standards-only method will go in terms of winning acceptance across Asia.

Malaysian Prime Minister Ismail Sabri Yaakob
Malaysian Prime Minister Ismail Sabri Yaakob has called on the United States to take a more comprehensive approach to trade [File: Samsul Said/Bloomberg] (Bloomberg)

Already, Malaysian Prime Minister Ismail Sabri Yaakob and international trade minister Azmin Ali have said the US should take a more comprehensive approach.

Ali described the framework proposal in an interview with Reuters as a “good beginning for us to engage on various issues” and said Malaysia would decide which IPEF pillars it would consider joining. At the same time, he made clear the IPEF was not a replacement for the more-comprehensive TPP.

Some of the most straightforward public criticism of the new framework on that front has come from prominent former ministers in Japan, one of the region’s most steadfast US allies.

Earlier this month, former foreign minister Taro Kono and former justice minister Takashi Yamashita spoke at an event in Washington of the new framework’s lack of hard commitments, an aspect they found glaring in the context of the abrupt collapse of the TPP. In their comments, the two maintained the IPEF would only serve to undermine the CPTPP.

“Now the Biden administration is talking about the Indo-Pacific Economic whatever, I would say forget about it,” Kono said.

Hiroaki Watanabe, a professor of international relations at Ritsumeikan University in Kyoto, said the US withdrawal from the TPP had undermined Japanese perceptions of the IPEF’s stability. Though Biden may promote his framework while in power, Watanabe said, there was no guarantee the next president would.

“Right now, it’s the Biden administration, but we don’t know what will come next – it could even be Trump again,” Watanabe told Al Jazeera.

“From a non-American perspective, it’s really difficult to believe what America is saying when it says it wants to commit itself to these plans,”  Watanabe added. “There are many challenges to the logistics of this, and then the US may just throw away the kind of commitment as measured by the IPEF in the future. Practically, it’s not meaningless, but it’s not significant either.”

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ATB's economic forecast for Alberta grows more optimistic – Calgary Herald

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The Russian invasion of Ukraine and rising oil prices have contributed to Alberta’s rising GDP

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Alberta is on pace for a better economic year than previously predicted, due in large part to the Russian invasion of Ukraine, but the conflict could have negative effects if it drags on.

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Rob Roach, ATB’s deputy chief economist, said Thursday that Alberta’s GDP is now expected to rise five per cent, up from a forecast of 4.4 per cent before the invasion. While he said the report is positive, there are some headwinds.

Much of the positivity has been driven by an oil and gas sector that continues to outperform expectations, due in large part to the conflict in Ukraine that has strained global supplies and driven up demand for oil and gas from Canada.

“We do think Alberta will have a decent year and overall economic growth, but it will vary for a lot of different individuals, families and businesses,” he said. “It might not feel like a particularly good year because of the turbulence and still trying to recover from the last two years of pandemic.”

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He said despite efforts to diversify Alberta’s economy, the province is still heavily reliant on oil and gas.

He pointed to venture capital investment in the tech sector and startups as an example. Despite record investment of $466 million in Alberta in the first quarter, it pales in comparison to the levels of capital investment before 2014-15 in the energy sector.

“The amount of venture capital coming into the province is really a rounding error to the amount of capital investment that the oil and gas sector spends each year,” he said. “It’s a good thing but it does highlight that the amount of economic boost we get from even a small increase in oil and gas investments can really outweigh even a large increase in other sectors.”

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Trevor Tombe, an economics professor with the University of Calgary and a research fellow at the School of Public Policy, estimated the amount of oil and gas investment pre-bust at around $40 billion to $50 billion per year.

The forecast further predicts Alberta’s GDP growth to drop to 3.4 per cent in 2023 and 2.7 per cent the following year.

The report also projects Alberta’s annual unemployment rate at 6.7 per cent, although the province is currently sitting at 5.9 per cent.

There are other challenges ahead.

The conflict in Ukraine has also inflated the value for other commodities such as wheat, but the gains in the agriculture sector have been largely offset by the rising cost of inputs such as fertilizer due to the war and weather disasters.

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Inflation also continues to be a major issue. Roach said there is hope that the Bank of Canada raising the interest rate will help chill the cost of living increase but it is not a guarantee.

“The fear is if that doesn’t work, if it doesn’t also bring down inflation, we’ll have a situation where we are actually reducing our economic output and slowing growth without a big impact on inflation,” he said. “That’s the worst-case scenario.”

Tombe also said he does not expect the decision by Premier Jason Kenney to resign to knock the province off its trajectory.

“The government doesn’t matter as much as people think for how the economy grows or shrinks, they matter only at the margin — they can nudge things here or there,” said Tombe. “It doesn’t matter who the premier is or who the governing party is in the short term, and in an economy like Alberta, especially, it’s going to rise and fall based on factors external to the province.”

Jaldrich@postmedia.com

Twitter: @JoshAldrich03

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What Business Leaders Should Know About The Economy – Forbes

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Many business leaders have taken at least one course in economics, but most of them were taught the wrong part of economics, at least wrong for someone running a company. A little focus on the business impacts of economic analysis can help an executive or small business owner better understand how the external environment impacts sales and costs.

Much of economics instruction runs from theory to public policy implications of that theory. So macroeconomics rolls into fiscal and monetary policy to stabilize the economy. Microeconomics rolls into discussions of rent control, minimum wage and antitrust policy. The focus on policy is odd given that few students will become policy makers, but many will work for businesses or for non-profits that have to cope with fluctuating revenues and costs.

There’s a rich body of knowledge that can aid in business decisions. On the macroeconomics side, some sectors are more sensitive to business cycles (commodities, for example) and others are less sensitive (health care). Some industries rebound earlier after a recession (housing) and some later (business equipment). Business leaders would do well to study past cycles in their industries, looking at degree of cyclicality and timing of sales increases and declines.

The microeconomic theory of supply and demand is well understood by most experienced business people, but elasticities are crucial in practical situations. Take, for example, the increase in oil prices. Supply does not seem to be responding to higher prices as the blackboard sketches show. But most economics courses punt on the issue of how long it takes for supply and demand to come into equilibrium. It turns out that oil demand can rise rapidly when incomes and industrial production grow. Increases in oil supply, however, take many years of exploration, drilling and pipeline building. In the meantime, prices shoot up, only to come down after the new supply comes on line.

Economics teaches the importance of decision-making at the margins. The old paradox of why diamonds are more valuable than water, despite being less necessary for life, was explained years ago by reframing the issue as the value on one additional diamond compared to one additional gallon of water. Similarly, business decisions should not devolve to a simplistic question such as print advertising or online advertising. Instead, good marketing analysts compare the value of an additional dollar of print advertising to the value an additional dollar of online advertising.

Scarcity underlies the entire subject of economics. Management gurus lecture at conferences about the many things that business leaders should add to their to-do lists. But an executive’s time is a scarce resource, often the most critical of a company’s scarce resources. The allocation of that time—for the boss as well as for first level managers—makes the difference between success and failure. Scarcity in its many ramifications is a small bit of economics that plays a huge role.

Most of the economics that business leaders need are taught in Principles of Economics. Understanding the subject well enough to pass a final exam is only a start. The business manager must be able to apply basic principles immediately and intuitively. The advanced courses are valuable in reinforcing the basic principles.

Many economics professors are rightfully proud of their profession’s favorable impact on economic policy at times in the past, as well as the potential gains from better policy in the future. But most students will not become policy makers; instead they will be involved in business or other enterprises subject to market forces (such as non-profits and local governments). Applying economics to these issues will help them in their careers, and also help the overall economy through more effective use of resources.

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