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Delta variant threat to the global economy means fiscal prudence may take an election back seat – CBC.ca

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This week, the world’s most influential central banker, U.S. Fed Chair Jerome Powell, called the delta variant a “wild card” for the global economy.

While there are warning signs that the growing impact of this new, more contagious strain may play a role in the upcoming Canadian election, economic observers say that by itself, a slowdown during the campaign may not have the effect it might have had in the past.

As the health of Canadians takes centre stage in the minds of voters, and as parties take turns proposing their own stimulus measures, some say fiscal conservatives may have more trouble rousing voters this time around.

That is not to say economic issues related to the pandemic — such as the cost of housing, a 10-year high for inflation, business shutdowns and the effect of school closings on working parents — won’t also become election issues.

Same goals, different methods

A lot of the difference between the federal parties is less in their economic goals — for each, that includes long-term pandemic recovery — than in the details of how they get there, said Michael Smart, a University of Toronto economist and founder of the think-tank Finances of the Nation.

“It’s a great time to be a policy nerd,” he quipped.

Voters don’t always read the policy fine print. And in a global pandemic, it’s not only the virus and its variants coming from outside Canada — so too do many of its economic impacts.

A surge in Canadian inflation, caused by the kind of stimulus all the parties are supporting, is hard to separate from the even-higher inflation seen in the U.S., our southern neighbour and biggest trading partner. 

Conservative Leader Erin O’Toole has proposed a GST ‘holiday’ — or sales tax cut for the month of December — as a way to stimulate the economy. (Cole Burston/Reuters)

The Bank of Canada always insists it sets rates independently, based on the needs of the Canadian economy. But a sudden jump in rates to quell inflation would inevitably affect the loonie, leading to a potentially devastating effect on Canadian exports.

While Canada’s high vaccination rate may be helping the country avoid the worst of a delta-driven fourth wave,  there are already signs the variant’s spread in places such as the U.S. and China is affecting markets and supply lines.

Reports from the U.S. blamed a sharp fall in retail sales on the spreading delta variant there. And the International Energy Agency has warned that a global slowdown caused by the contagious variant will lead to a decline in oil demand — a crucial measure for Canadian exporters.

Productions lags

The Wall Street Journal reported this week that “repercussions from the delta variant of COVID-19 are starting to ripple across companies,” from higher staff costs, to lower potato chip production and lower profits.

And production and transportation bottlenecks are showing few signs of easing, leading to higher producer prices and thus higher consumer inflation.

“Public health shocks come from abroad. So do economic shocks,” said Smart. “Should Canadians hold politicians responsible for how the economy is performing [right now]? Probably not, to be honest. But will they? I don’t know.”

One COVID-19-related economic issue that commentators say could well have an impact on how people vote is business shutdowns.

While many small businesses have lobbied against some public health measures that they saw as preventing them from earning a living, a number of small business owners are particularly anxious to avoid new shutdowns at all costs, said Shadi McIsaac, CEO of RBC subsidiary Ownr, which helps new companies register and incorporate.

Liberal Leader Justin Trudeau visits a business in Longueuil, Que. More businesses are welcoming measures that will help avoid COVID-19-related shutdowns. (Andrej Ivanov/Reuters)

That may be why a growing number of businesses are now welcoming vaccine mandates and vaccination passports.

“Almost every entrepreneur who lost a customer — and that was upwards of 90 per cent — was still worried about further lockdowns and economic uncertainty that was looming ahead for them,” said McIsaac.

Rather than worrying about how the federal government will pay for all the bailouts so far, businesses are still focused on the danger of a fourth wave and whether they can survive it, she said.

“What we heard from business owners is that they are going to be listening very closely on each party’s policy and perspective, both from a financial standpoint — so what are the funding and grants that are coming forward to support entrepreneurship and small business community; and what’s the sentiment [of each] around further lockdowns.”

As Smart explained, there are broadly two considerations for the economy during this election — and both involve more stimulus. One is having a response ready in case the economic recovery falters, whether due to a new variant or some other cause; the other is to recharge the economy once the threat from the virus finally passes. 

Sales tax holiday 

Whether the stimulus is in new spending, or as the Conservatives have proposed, a sales tax holiday to drive immediate consumer spending, that stimulus will likely end up circulating in the Canadian economy and will pay for itself in higher future tax revenues, said Smart.

David Macdonald, senior economist at the Canadian Centre for Policy Alternatives, agrees that balancing the budget will be a very theoretical consideration in this election.

“I think no matter which party you are, there’s no realistic way you’re going to get to a zero deficit, probably, in the next three years,” said Macdonald. 

Beyond retail closures, Macdonald pointed to what could be an even more politically contentious kind of lockdown: Schools, which will open well before voting day on Sept. 20.

Another round of school closures would not just annoy long-suffering parents, he said, but would have an important economic impact, as workers are forced to stay home to supervise kids, many of whom are unvaccinated.

If that happens, he said, the question is where the blame will land for voters.

“I think really the biggest economic issue right now is how we get through the fourth wave,” said Macdonald. “How do we support workers and businesses, just the way we’ve been doing for a year-and-a-half?”


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Analysis | Cost of Victory: Converting a Wartime Economy to Peace – The Washington Post

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Strained supply chains, inflationary pressures in the pipeline and worries about the health of the labor market. Sound familiar? This is the US in 1945 as President Harry S. Truman tried to engineer an end to World War II and minimize disruptions that would accompany peace. 

The  role of the atomic attacks on Japan, fears of Russian encroachment and the collapse of Japanese industry are well charted in discussions surrounding Tokyo’s capitulation on Aug. 15, 1945. Less well known is the impact of financial and commercial tensions developing on the home front. I spoke to Marc Gallicchio, professor of history at Villanova University and author of “Unconditional: The Japanese surrender in World War II,” which dives into the debates within Truman’s team about ending the war, including fears of an impending economic calamity.  

These concerns didn’t stop at America’s shores. What did planners envisage for Japan’s economy and did they drop the ball by not thinking more about the prospect that China — a wartime ally — would one day challenge the US? The conversation has been edited for clarity and length.  DANIEL MOSS: Describe domestic economic conditions and how were they shaping Washington’s decisions in 1945? 

MARC GALLICCHIO: From early that year, with the impending defeat of Germany, people were beginning to look past the war. Not only the general public, but also business leaders, who were concerned that not enough emphasis had been placed on reconversion to a peacetime economy. If peace burst upon the US suddenly, the economy would be unprepared. Manufacturers were still in wartime mode, primarily producing goods for the military. There were restrictions on consumer activity, there was food rationing, price limits imposed. There was anxiety that if the war ended suddenly, all these soldiers and sailors would come home and the domestic economy would be in no shape to absorb them into the workforce.  

There was this rising chorus of complaints among executives and legislators — you begin to see it in the newspapers — that the army is absorbing too much manpower and material. Now that they have a one front war to fight, the questions were increasingly about why so much was needed to fight just Japan when they had been fighting both Japan and Germany? The worry was all these wartime jobs and contracts would end and business would not be ready make the transition to domestic production.  

There was great fear of unemployment. That turned out to be less of a problem than expected, but access to consumer goods and worries about inflation were real issues. By the early summer of 1945, the coal industry was warning that unless it could get more miners, there would be shortages. For that they needed personnel released from the army, which was reluctant. Moving people and goods across the US was becoming more difficult after four years. There was a lot of track maintenance that needed to be done. So there were petitions for the early release of people from various professions and the military just didn’t want to do that.     

DM: What priority did Truman give these economic pressures, given the development of the atomic bomb and worries about the implications of Russia’s entry into the war against Japan?

MG: Before Truman went to the final summit of the war at Potsdam in July, he sided with the army. But Treasury Secretary Fred Vinson, in whom Truman had great confidence, opposed the army’s position. It’s not clear what Truman would have done if he didn’t have the bomb.

Truman receives these extraordinary cables from Vinson at Potsdam telling him there will be a serious crisis if the US doesn’t move more forcefully toward reconversion. Vinson starts to suggest that surely the army doesn’t need all these resources. We need unconditional surrender, but maybe we can get there through blockade and bombardment, which would allow for fewer men. The military was against that view because they believed it would lead to a protracted war, the American public would lose interest and the Japanese would use that to their advantage. What Vinson was proposing in order to avoid disaster was a modification of unconditional surrender. He didn’t outright say that, but that would probably have been the result.

Truman learns in Potsdam that the bomb can be deployed months before the scheduled invasion of Japan and probably before Russia came in. I don’t think he thought the bomb would keep Russia out, necessarily. His first reason for using it was to bring about the defeat of Japan, though he may have viewed the possibility that the war could be over before Russia got too far into Northeast Asia as a bonus. 

The bomb made invasion unnecessary. It also meant this slow-moving crisis in the US economy could be addressed. 

DM: There was intense debate over whether to modify the demand for unconditional surrender in hopes of coaxing Japan to lay down its arms. What kind of compromise, if any, was made?

MG: The idea that an imperial institution would remain never made it to the statement issued at Potsdam. But there was this idea of a liberal peace that would allow the return of soldiers to Japan, allow the country to re-enter the world community, have access to raw materials abroad — as opposed to control of them. Japan would be incorporated into a liberal postwar international economy. They could have a government of their choice once they have convinced the peace-loving nations of the world that they would no longer be a threat. You could read between the lines and say that if the emperor shut things down quickly, he would be someone who could lead Japan toward that state described in Potsdam.

DM: The struggle against Covid has often been framed in martial terms. Did the US have what amounted to a wartime economy during the peak of the pandemic? 

MG: We didn’t get extensive regulation of the overall economy. There were big restrictions on bars, restaurants, airlines. State support was there, but it wasn’t as omnipresent during people’s lives as during WWII. What didn’t surprise me one bit was the enormous demand to lift restrictions on social lives and the economy.

We have this collective memory of WWII as being a time when there was unity, where everyone was willing to sacrifice and that’s contrasted with later wars like Vietnam, where there was a lot of controversy. But by 1945, that just wasn’t the case. There was growing dissent, a great deal of anger, directed particularly at the army. 

DM: Did US officials give much thought to what Japan’s economy might look like after the war?

MG: There was clash between New Dealers and business-friendly planners and advisers to Truman. People like Henry Stimson, Secretary of War, and Joseph Grew, Undersecretary of State, saw Japan as having done a remarkable job of industrialization since the late 19th century. They didn’t see the monarchy as an inherently dangerous institution, as far as the US was concerned. All you had to do was sweep away the militarists. Their fear was that if you did away with the emperor and undertook deep, extensive reforms, that would sow the seeds for revolution and communism. 

Then there were New Dealers who saw the problems as much deeper. They felt that in the process of modernization, Japan never moved beyond a feudal structure. They thought the emperor’s status enhanced the power of the military and the big industrial conglomerates. In order to get a really democratic Japan, you have to do away with the emperor, do away with big trusts and democratize Japan socially and economically. Liberate women, allow unions to properly organize and so on.

A lot of critics of unconditional surrender said after the war that Truman should have told Japan it could keep the emperor, since that is what ended up happening anyway. But it’s important to note that after unconditional surrender, the emperor did not have the same authority that he would have had if Truman had committed to keeping Hirohito on the throne. In the end, the US was able to implement a host of significant reforms because Truman insisted on unconditional surrender and occupation. One of the biggest reforms was a new constitution that reduced the emperor to the figurehead that Grew and Stimson mistakenly claimed he had always been.

DM: In 1945, what would they have thought if told that China would emerge as the key rival to the US? 

MG: There was not much anticipation of China playing a leading role in the Far East for quite some time. That was in part the reason why people like Stimson and Grew thought it necessary to build Japan back quickly so it could be a force for stability. None of them foresaw a juggernaut emerging in China.

DM: Was it a mistake to pay insufficient attention to what China might become?

MG: China kind of gets pushed off the page. American military thinking was sequential in that the goal was defeat Japan first and then look over the horizon and see what is out there. It might seem like short-sighted policy, but the view was “look, if we have Japan, we can keep the rest of the world out of the Pacific and we will be able to defend the US come what may in China.”

People just wanted to be done with it, to bring the boys home. Even though American power was at high tide, that tide was also starting to run out. The staying power wasn’t there.

More From Bloomberg Opinion:

• 1947, 1970s, 2008. Take Your Pick, Inflationistas: Daniel Moss

• What the World Got Wrong About Shinzo Abe: Gearoid Reidy

• WWI History Is Wrong, and Skewing Our View of China: Hal Brands

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

Daniel Moss is a Bloomberg Opinion columnist covering Asian economies. Previously, he was executive editor of Bloomberg News for economics.

More stories like this are available on bloomberg.com/opinion

©2022 Bloomberg L.P.

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Charting the Global Economy: US Inflation Comes Off the Boil – BNN Bloomberg

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(Bloomberg) — Sign up for the New Economy Daily newsletter, follow us @economics and subscribe to our podcast.

Inflationary pressures in the US simmered down on the heels of cheaper gasoline and other fuel costs, which may help persuade the Federal Reserve to ease up a touch on the monetary policy brakes.

In the UK, the economy shrank in the second quarter for the first time since Covid-19 lockdowns more than a year ago. Singapore reduced its growth forecast for this year after its economy contracted last quarter, while rapid inflation encouraged steep interest-rate hikes by monetary authorities in Mexico and Argentina.

Here are some of the charts that appeared on Bloomberg this week on the latest developments in the global economy:

US

Inflation decelerated in July by more than expected, reflecting lower energy prices, which may take some pressure off the Federal Reserve to continue aggressively boosting interest rates. Consumer prices increased 8.5% from a year ago after hitting a more than 40-year high of 9.1% a month earlier.

Ending emergency unemployment benefits had a significant impact on boosting employment, according to a St. Louis Fed working paper that may underline Republican criticism of a 2021 program.

Rental costs are soaring at the fastest pace in more than three decades, surpassing a median of $2,000 a month for the first time ever.

Europe

The UK economy shrank in the second quarter for the first time since the pandemic, driven by a decline in spending by households and on fighting the coronavirus. Gross domestic product fell 0.1% after an 0.8% gain in the first quarter. The Bank of England expects that inflation raging at a 40-year high will tip the economy into a recession later this year.

Spain is opening its doors to foreign workers to fix labor shortages and ease a demographic slump threatening its future prosperity. In contrast with more anti-immigrant politics in much of Europe, the government has loosened rules to allow the recruitment of employees in their countries, mostly in Latin America, for both skilled and unskilled jobs that are hard to fill.

Asia

Singapore trimmed its 2022 growth forecast to reflect an increasingly challenging global environment, after the economy slipped into contraction in the second quarter. Final data for the June quarter Thursday showed gross domestic product shrank 0.2% from the previous three months, and worse than the zero growth estimated by Ministry of Trade and Industry earlier.

A global spell of high inflation, aggressive monetary tightening and the risk of a recession are prompting economists to revise Indonesia’s economic forecasts for the remainder of the year. Analysts raised inflation projections for the third and fourth quarters by almost a full percentage point to 5% and 5.15%, respectively, median forecasts from Bloomberg’s latest monthly survey showed.

Emerging Markets

Argentina’s central bank raised its benchmark Leliq rate to 69.5%, representing the largest hike in almost three years and signaling a more aggressive stance against surging inflation. Mexico’s central bank boosted its key rate to an all-time high of 8.5%.

Brazil consumer prices tumbled by the most on record in July after President Jair Bolsonaro slashed utility taxes to tame the soaring cost of living and lift his re-election chances. 

Kenya’s presidential election took place Tuesday as East Africa’s largest economy grapples with surging living costs and rampant unemployment. Deputy President William Ruto and Raila Odinga, a former prime minister who’s running for president for a fifth time, were the clear front-runners to succeed incumbent leader Uhuru Kenyatta. Final results are expected by Aug. 16.

World

When Group of Seven leaders gathered in the Bavarian Alps in June, they pledged to stand with Ukraine for the long haul. Their Group of 20 counterparts are proving less supportive. Only half have joined the international sanctions imposed on fellow member Russia over its invasion of Ukraine.

Chinese exports to Russia are back near levels seen before the Kremlin’s invasion of Ukraine, propelling a rebound in trade that’s helped cool off a historic rally in the ruble. Russia bought $6.7 billion of goods in July from China, an increase of more than a third from the previous month and up by more than an annual 20%.

Bloomberg interviewed several families — in Nigeria, India, Brazil and the US — various times between June and August last year about the swaps and sacrifices they were making in order to keep food on the table as prices rose. It turns out, chronicling what was then eye-popping food inflation wouldn’t capture the depths of what was to come. 

©2022 Bloomberg L.P.

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Victoria looks to be a national leader in the circular economy – Saanich News

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When athletes stood on the podium during last summer’s Tokyo Olympics, the medals hanging from their necks were made from melted-down metals in six million old cell phones and other discarded electronics.

Others, nowadays, enjoy having their home moderated by insulation made from the excess scraps of denim that don’t get to become jeans.

Those are two examples of the circular economy that researchers say could recover $4.5 trillion worth of otherwise wasted resources by 2030. Keeping materials out of the landfill in the market is something the City of Victoria hopes to capitalize on as it adds a circular lens to its 20-year economic strategy.

Spurred by a motion from Coun. Jeremy Loveday, the city will now add a section to Victoria 3.0 on becoming a national leader in the circular economy.

“Making sure our economic priorities align with our goals regarding climate action and waste reduction, I think this helps us also to be in a better place to capitalize on the economic benefit of the circular economy which is predicted to continue to grow,” Loveday said before council approved the motion this month.

The action will include ensuring there are zoned areas for circular businesses and non-profits to operate within the city. Those will include light industry spaces, which Victoria-based Project Zero says reduces a key barrier for entrepreneurs trying to scale up their up-cycle or repair businesses.

“There isn’t anything right now that’s on that smaller scale or that’s financially accessible,” said Georgia Lavender, who leads Project Zero’s circular economy program.

The non-profit has been running a local entrepreneur incubator for five years, but the term “circular economy” was still new to people a couple of years ago, she said. But Lavender has been inspired lately by all sectors and levels of government seeing the approach as a way to support local innovation, job creation and supply chain resiliency.

“We’ve seen a really big shift toward regions wanting to implement a circular economy model and really seeing the opportunities it holds, not only from an environmental perspective but also an economic development perspective,” she said.

Some of Project Zero’s Victoria start-ups now commercializing include the cup-share service Nulla and BinBreeze, which uses waste wood to improve compost bin productivity and pest deterrence.

Lavender said the innovators are helping to cut emissions while creating jobs, and Vancouver Island as a whole has the opportunity to position itself as a leader in the circular sector. The focus could help the supply chain be more resilient, Lavender said, by using local manufacturing to reuse resources instead of shipping waste off the Island for processing.

The Victoria direction also commits to business space in the coming Arts and Innovation District, the creation of a circular economy hub, exploring partnerships for a zero waste demonstration site and launching an innovation grant.

“Things like that just create more opportunity for these ventures to keep their operations within Victoria and not have to move to other regions,” Lavender said.

READ: Project Zero aims to create circular Vancouver Island economy

READ: CRD aims to be zero waste national leader, reduce enough to curb landfill expansion


Do you have something to add to this story, or something else we should report on? Email:jake.romphf@blackpress.ca. Follow us on Instagram.
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