Economy
Conference board thinks pandemic’s impact on economy will be twice as bad as initial forecasts – TheChronicleHerald.ca
Alberta’s economy is expected to suffer an 11.3 per cent decline in 2020, the worst in the country, according to a new Conference Board of Canada report that projects the COVID-19 induced recession will hit Canada nearly twice as hard as the group initially thought.
The last time that the board wrote an outlook report was near the height of the pandemic in April when the country was still shut down and economists’ forecasts were clouded by uncertainty. The organization estimated that Canada was heading for a 4.3 per cent GDP contraction by the end of 2020. Four months later, it’s clear the damage will be much worse than initially thought as the board now says Canada is heading for an 8.2 per cent GDP decline by the end of 2020.
“Initially, we thought this would last from March to perhaps June and July and in the second half of the year, the economy would be fully back to operating normally — this is not the case at all,” said Conference Board of Canada chief economist Pedro Antunes after publishing his latest projections Monday. “What we’ve come to realize is the economy will be operating well below (pre-pandemic) levels.”
The board’s province-to-province breakdown was similarly altered. In April, it did not foresee a GDP loss for any province hitting six per cent — the projection of a 5.8 per cent drop for Alberta was the highest. The only three provinces the board expects won’t surpass that number now are Manitoba, P.E.I. and B.C.
Alberta’s deeper decline is due to the “double whammy” of the lockdown and the crumbling of oil prices. West Texas Intermediate prices were hovering above US$50 in February before falling deep into negative territory. Crude prices have rebounded since but are still trading only around US$42.
“The outlook for oil prices over the next two years is quite pessimistic because of the impact on transportation which is a big user of oil,” Antunes said. “That affects profits and royalties the government will have to forgo, but the biggest impact … is the capital investment. Firms have cut down to the bare bones.”
Business investment is not expected to pick up again until Spring 2021, while a stark decline in household spending won’t be corrected until 2022.
Other provinces that rely heavily on the oil-and-gas sector, namely Newfoundland and Saskatchewan, are in a similar position and the board expects them to lose 7.1 per cent and 8.6 per cent of GDP respectively.
The board initially expected the downturns in Ontario and Quebec to result in GDP contractions of 3.2 per cent and 3.8 per cent, but those projections have now been revised to 7.6 per cent and 7.2 per cent.
Quebec was the worst-hit province in terms of the total number of COVID-19 cases and deaths, but the damage to its economy would have been worse if not for the government’s decision to begin the reopening process earlier than others, the report said.
The province’s crucial aerospace industry, in particular, may have a long wait ahead before it can fully recover. Air travel, the report said, likely will not return to normal levels until late 2021 or 2022.
For Ontario, it’s the automotive industry that’s troubled. The report estimates that auto sales plunged by close to 60 per cent this year due to a drop off in exports to the U.S. The province’s recovery will continue to be tied to the U.S. and its ability to keep cases under control. If it cannot do so, Americans won’t exactly be flocking to car dealerships, the report said.
“Even with the rebound starting in the third quarter … it will take until the end of next year for the economy to return to its pre-pandemic level of output,” the report said.
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Copyright Postmedia Network Inc., 2020
Economy
Biden's Hot Economy Stokes Currency Fears for the Rest of World – Bloomberg
As Joe Biden this week hailed America’s booming economy as the strongest in the world during a reelection campaign tour of battleground-state Pennsylvania, global finance chiefs convening in Washington had a different message: cool it.
The push-back from central bank governors and finance ministers gathering for the International Monetary Fund-World Bank spring meetings highlight how the sting from a surging US economy — manifested through high interest rates and a strong dollar — is ricocheting around the world by forcing other currencies lower and complicating plans to bring down borrowing costs.
Economy
Opinion: Higher capital gains taxes won't work as claimed, but will harm the economy – The Globe and Mail
Alex Whalen and Jake Fuss are analysts at the Fraser Institute.
Amid a federal budget riddled with red ink and tax hikes, the Trudeau government has increased capital gains taxes. The move will be disastrous for Canada’s growth prospects and its already-lagging investment climate, and to make matters worse, research suggests it won’t work as planned.
Currently, individuals and businesses who sell a capital asset in Canada incur capital gains taxes at a 50-per-cent inclusion rate, which means that 50 per cent of the gain in the asset’s value is subject to taxation at the individual or business’s marginal tax rate. The Trudeau government is raising this inclusion rate to 66.6 per cent for all businesses, trusts and individuals with capital gains over $250,000.
The problems with hiking capital gains taxes are numerous.
First, capital gains are taxed on a “realization” basis, which means the investor does not incur capital gains taxes until the asset is sold. According to empirical evidence, this creates a “lock-in” effect where investors have an incentive to keep their capital invested in a particular asset when they might otherwise sell.
For example, investors may delay selling capital assets because they anticipate a change in government and a reversal back to the previous inclusion rate. This means the Trudeau government is likely overestimating the potential revenue gains from its capital gains tax hike, given that individual investors will adjust the timing of their asset sales in response to the tax hike.
Second, the lock-in effect creates a drag on economic growth as it incentivizes investors to hold off selling their assets when they otherwise might, preventing capital from being deployed to its most productive use and therefore reducing growth.
Budget’s capital gains tax changes divide the small business community
And Canada’s growth prospects and investment climate have both been in decline. Canada currently faces the lowest growth prospects among all OECD countries in terms of GDP per person. Further, between 2014 and 2021, business investment (adjusted for inflation) in Canada declined by $43.7-billion. Hiking taxes on capital will make both pressing issues worse.
Contrary to the government’s framing – that this move only affects the wealthy – lagging business investment and slow growth affect all Canadians through lower incomes and living standards. Capital taxes are among the most economically damaging forms of taxation precisely because they reduce the incentive to innovate and invest. And while taxes on capital gains do raise revenue, the economic costs exceed the amount of tax collected.
Previous governments in Canada understood these facts. In the 2000 federal budget, then-finance minister Paul Martin said a “key factor contributing to the difficulty of raising capital by new startups is the fact that individuals who sell existing investments and reinvest in others must pay tax on any realized capital gains,” an explicit acknowledgment of the lock-in effect and costs of capital gains taxes. Further, that Liberal government reduced the capital gains inclusion rate, acknowledging the importance of a strong investment climate.
At a time when Canada badly needs to improve the incentives to invest, the Trudeau government’s 2024 budget has introduced a damaging tax hike. In delivering the budget, Finance Minister Chrystia Freeland said “Canada, a growing country, needs to make investments in our country and in Canadians right now.” Individuals and businesses across the country likely agree on the importance of investment. Hiking capital gains taxes will achieve the exact opposite effect.
Economy
Nigeria's Economy, Once Africa's Biggest, Slips to Fourth Place – Bloomberg
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The IMF’s World Economic Outlook estimates Nigeria’s gross domestic product at $253 billion based on current prices this year, lagging energy-rich Algeria at $267 billion, Egypt at $348 billion and South Africa at $373 billion.
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