(Bloomberg) — A twin-speed economy is developing in Australia and posing a challenge for the central bank, as Chinese demand for iron ore buoys the resource-rich west while eastern states struggle with Covid-19 outbreaks and border closures.
The diverging fortunes of east and west are reminiscent of conditions created by the mining boom a decade ago, and are playing out in Australia’s property market.
“Our market’s quite hot,” said Bev Haymans, a real estate agent in the upmarket coastal suburb of Cottesloe in Western Australia’s state capital of Perth. “There’s a real sense of positivity.”
Meanwhile, 3,300 kilometers (2,050 miles) to the east in Sydney’s beachside suburb of Bronte, Hannan Bouskila is struggling. April’s coronavirus lockdown was “very tough” for the housing market, the 17-year veteran of the real-estate industry said, and the renewed outbreak in neighboring Victoria state has made everyone nervous again.
The divergence poses a challenge for Reserve Bank of Australia chief Philip Lowe as he seeks to tackle spiraling unemployment and the economy sinking into its first recession in nearly 30 years.
The central bank cut its benchmark interest rate to a record low of 0.25% in March and is expected to keep it there Tuesday to support the economy. Data the following day is expected to show the country officially fell into recession in the second quarter, with economists predicting a 6% contraction from the previous quarter.
“The divergences across the states at the moment are vastly larger than normal, as multi-speed economies have opened up,” said Stephen Walters, chief economist for New South Wales Treasury and previously an official at Western Australia’s Treasury. “This is an age-old problem for the Reserve Bank. It has flared up regularly since monetary policy became independent in the 1990s.”
Driving the divergence is demand from China, the first major economy to resume growing after the pandemic. With Chinese factory activity roaring back to life, iron ore shipments from Western Australia’s Port Hedland have surged to record highs.
Now, with iron ore trading for more than $100 a ton and gold near a record, miners in Western Australia are set to ramp up investment to replace aging capital stock and retiring mines. Rio Tinto Group, the world’s No. 2 miner, last November lifted planned sending on new iron ore mines in Australia to $4 billion, while rivals BHP Group and Fortescue Metals Group Ltd. are each investing more than $3 billion in their own developments.
Western Australia “has been able to continue safely operating our resources sector throughout the pandemic, with sustained demand from China and higher commodity prices putting our exports on course for continued growth,” said Chris Rodwell, chief executive officer at the state’s Chamber of Commerce and Industry.
On the east coast, in contrast, households have been gripped by renewed fears about the virus. Consumer sentiment collapsed 15.5% in New South Wales — the country’s most populous state — amid panic that virus cases there would spike following Victoria’s outbreak.
Walters, a former chief economist at JPMorgan Chase & Co., said the RBA’s unconventional policies help it address the different speeds in the economy.
“They have a lot of discretion about which bonds they buy,” he said, referring to purchases of state government securities. “So they can actually have some impact on these different regional economies.”
What Bloomberg’s Economists Say
“Australia’s key mining state, Western Australia, is finally beginning to shrug off the hangover from the mid-2000s mining booms. Once the virus is contained, the two- or even three-speed dynamic within Australia’s economy will begin to test policy makers. This is a good problem to have, but it is yet another challenge for fiscal policy, as cross-state stabilization frameworks could be seen to penalize Covid-free states as they divert funding toward those impacted by the virus.”
James McIntyre, economist
The record-low cash rate and buoyant terms of trade already have sent Australia’s currency soaring: The local dollar is up about 27% since March 19, when the RBA cut rates and set a three-year government bond yield target, both at 0.25%. The Aussie was trading around 72.90 U.S. cents Friday afternoon, with Westpac Banking Corp. expecting it to climb to 80 U.S. cents by the end of 2021.
The currency’s upswing, “which began in March 2020 and is partly associated with China’s extraordinary recovery from its 10% contraction in the March quarter, looks set to last at least two years,” said Bill Evans, chief economist at Westpac. He expects Australia’s current-account surplus to swell to A$46 billion ($33.6 billion) this year, further supporting the currency.
Confidence in Perth and its property market is mimicking the path of the Australian dollar.
“We have a lot of people who are mining or resource-based and they all feel particularly optimistic” about Western Australia, said Haymans, the Perth realtor. “Everyone is quite buoyant.”
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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.
