Global central banks promised to act as needed to stabilize markets rattled by the coronavirus as the OECD warned the world economy faces its “greatest danger” since the financial crisis more than a decade ago.
Some economists see the potential for international policy makers to coordinate cuts for the first time since 2008
In an emergency statement, Governor Haruhiko Kuroda said the Bank of Japan will “strive to provide ample liquidity and ensure stability in financial markets.” The Bank of England followed by saying it’s working with U.K. and international authorities to “ensure all necessary steps are taken to protect financial and monetary stability.” Already on Friday, Federal Reserve Chairman Jerome Powell opened the door to cutting interest rates to contain what he called the “evolving risks” to economic growth from the virus. The Paris-based OECD now expects the weakest global growth this year since the 2009 recession, and said a ‘long lasting’ epidemic would risk a worldwide recession.
The prospect of central banks’ action helped halt the worst rout in stocks since that crisis. Money markets now see the Fed lowering its main rate by 50 basis points this month, and give a 70 per cent chance the European Central Bank will pare its by 10 basis points.
Economists at Goldman Sachs Group Inc. predicted the Fed will ultimately slash by 100 basis points in the first half of the year. The BOE will cut by 50 basis points and the ECB by 10 basis points, it said.
There is even speculation that the Fed will move before its policy makers gather on March 17-18, and some economists see the potential for international policy makers to coordinate cuts for the first time since 2008. Investors increasingly bet the central banks of Australia, Canada and Malaysia will ease at meetings already scheduled for this week.
“Global central bankers are intensely focused on the downside risks,” Goldman Sachs economists led by Jan Hatzius said in a report on Sunday. “We suspect that they view the impact of a coordinated move on confidence as greater than the sum of the impacts of each individual move.”
With interest rates already low, governments may also need to do more to support demand. The French government said on Monday that Group of Seven finance ministers will hold a conference call this week to coordinate their response. Italy is already seeking to widen its budget deficit to pay for at least 3.6 billion euros (US$4 billion) in proposed emergency economic measures.
Just a week ago, key central bankers were saying it was too soon to respond to the outbreak, a reticence to act that may also reflect their reluctance to be seen as racing to rescue investors. The plunge in global stocks is forcing a change in stance.
“Central banks will almost certainly all induce one form of easing or another, ” said Vishnu Varathan, head of economics and strategy at Mizuho Bank Ltd. in Singapore.
Japan to Indonesia
The Bank of Japan backed up Monday’s promise to help markets by offering to buy 500 billion yen (US$4.6 billion) of government bonds to provide liquidity. Indonesia’s central bank lowered the amount lenders need to keep on reserve to shore up liquidity in its markets.
By not alluding to monetary policy as Powell did, Japan’s statement revealed the constraints the BOJ and many other central banks are under. Japan’s key rate is already minus 0.1 per cent compared to the Fed’s 1.5 per cent to 1.75 per cent range.
The ECB is also limited by a deposit rate that stands at minus 0.5 per cent. Prior to the outbreak, policy makers were signalling a reluctance to reduce it even further given concern that banks, who are already seeing profit margins squeezed by negative rates, might pull back on lending.
President Christine Lagarde said last week that the ECB didn’t yet think the outbreak will have a lasting impact on inflation, its primary mandate.
An ECB spokesman declined to comment on whether a statement would be issued on Monday, and referred back to Lagarde’s comments of last week.
“We are vigilant, we are mobilized, but we remain calm and proportional in the responses we need,” Bank of France Governor Francois Villeroy de Galhau said on BFM Business television on Monday.
Less Effective?
Even before the latest crisis, economists were questioning the benefits of ultra-loose monetary policies given more than 700 interest-rate cuts and several rounds of bond-buying since the financial crisis. They boosted asset prices, but failed to generate substantial rebounds in economic growth.
Lower rates won’t help manufacturers whose factories are closed
For central bankers, whose prior stimulus moves have already greatly depleted their ammunition, the new challenge is that easier policy may be even less effective to combat the economic pain posed by a health emergency. That’s because by shutting workplaces in China and increasingly abroad, the virus is dealing a blow to the world’s capacity to produce goods. Lower rates won’t help manufacturers whose factories are closed or which lack materials to make their own products. On the demand-side, they would likely also fail to spur consumers to shop or travel if they’re worried about infection. But easier monetary policies should counter tighter financial conditions, support markets and maintain the supply of credit, thus helping to drive a rebound in demand once the virus is under control. Weak inflation also gives most central banks scope to act.
Fresh evidence of the economic shock triggered by the virus came Monday as IHS Markit reported its Chinese factory index dropped to the lowest since the series began in 2004. Gauges for Japan and South Korea also slumped.
“Rate cuts are not the silver bullet, although they can support markets somewhat,” said Jerome Jean Haegeli, chief economist at the Swiss Re Institute in Zurich.
Governments will likely have to help too. Economists at Morgan Stanley predict the combined fiscal deficit of the four largest advanced economies plus China will now run to at least 4.7 per cent of global gross domestic product this year, the biggest since 2011.
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.
