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Economic and Social Reports Recent developments in the Canadian economy: Winter 2022 – Statistique Canada

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This article provides an integrated summary of recent changes in output, consumer prices and employment. It highlights changes in the economic data during the second half of 2021 and into early 2022. The article also draws on data sources that inform the economic conditions facing businesses as the COVID-19 pandemic continues to evolve. The report is based on data that are publicly available as of March 11, 2022.

Monthly information on government, business and financial market developments, including public health measures related to the pandemic, is available at Canadian Economic News (Statistics Canada n.d.). For a recent overview of social and economic developments during the pandemic, see COVID-19 in Canada: Year-end Update on Social and Economic Impacts (Statistics Canada 2021) and COVID-19 in Canada: A Two-year Update on Social and Economic Impacts (Statistics Canada 2022). Monthly commentary on economic developments related to COVID-19 can be found at Canadian Economic Dashboard and COVID-19 (Statistics Canada n.d.).

Overview

The economic recovery strengthened during the second half of 2021 as output rebounded to pre-COVID levels in the fourth quarter. Business stockpiling, higher export volumes, and increases in residential and non-residential investment contributed to stronger economic activity late in the year. Employment rose markedly during the second half while unemployment and labour underutilization trended down toward pre-pandemic levels. Labour shortages and rising input costs continue to cloud the business outlook. Headline consumer inflation accelerated in the second half, surpassing the five percent mark in early 2022 for the first time in over thirty years.

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Authors

Sean Clarke and Guy Gellatly work with the Strategic Analysis, Publications and Training division, Analytical Studies and Modelling Branch, Statistics Canada.

Economic growth strengthens as exports and investment continue to recover

Real gross domestic product rose 1.6% in the fourth quarter, after advancing 1.3% in the third. Inventory buildups contributed substantially to growth in late 2021 as stockpiles rose in manufacturing and wholesaling (Chart 1).

Chart 1 Contributions to real GDP growt, selected components

Data table for Chart 1



Data table for chart 1
Table summary
This table displays the results of Data table for chart 1 Q3 2021 and Q4 2021, calculated using percentage point contribution units of measure (appearing as column headers).

Q3 2021 Q4 2021
percentage point contribution
Gross domestic product at market prices 1.345 1.627
Household final consumption expenditure 2.485 0.134
Business investment – residential structures -0.907 0.229
Business investment – non-residential structures 0.042 0.140
Business investment – machinery and equipment -0.008 0.035
General governments final consumption expenditure 0.004 0.116
Investment in inventories -0.986 1.031
Exports – goods and services 0.523 0.992
Imports – goods and services 0.123 -1.048

Trade volumes ramped up in late 2021 as exports and imports posted their largest quarterly increases since the economy emerged from the initial lockdowns. Total exports rose 3.2% in the fourth quarter, up from 1.7% in the third. Goods exports rose 2.5%, led by higher shipments of motor vehicles and parts. While exports of passenger cars and light trucks strengthened late in the year, their volumes remained one-quarter below pre-pandemic levels as supply disruptions continue to weigh on automakers and parts suppliers. Higher shipments of consumer goods, metal ores and non-metallic minerals, and energy products also contributed to stronger headline exports in the fourth quarter.

Despite gains in five out of the last six quarters, goods exports remained 4% below pre-COVID levels. Service exports, bolstered by higher receipts for travel services as cross-border travel restrictions eased, rose steadily during the second half, but remained 12% below their pre-pandemic baseline.

After edging down in third quarter, total import volumes were up 3.4% in the fourth, led by increases in motor vehicles and parts. Higher imports of consumer products, metal ores, and communications equipment also supported the increase in headline imports.

Non-residential business investment continues to recover. Combined outlays on structures and machinery and equipment (M&E) have risen for six consecutive quarters, and, in late 2021, were 6% below pre-pandemic levels (Chart 2).  Outlays on non-residential structures rose 2.7% in the fourth quarter, but remain 10% below levels observed in late 2019. Business investment in M&E, supported by higher spending on communications equipment, also rose late in the year, recovering to pre-COVID levels. Spending on intellectual property products fell for the second consecutive quarter.

After scaling back for two quarters, investment in housing ramped up late in the year, led by a double-digit increase in ownership transfer costs as resale activity strengthened. Renovation activity also edged higher after a sharp decline in the third quarter. Total business outlays on housing in late 2021 were 14% above pre-COVID levels.

Chart 2 Real gross domesic product, selected aggregates

Data table for Chart 2



Data table for chart 2
Table summary
This table displays the results of Data table for chart 2 Household expenditure, General governments final consumption expenditure, Non-residential business investment, Exports of goods and services and Residential business investment (appearing as column headers).

Household expenditure General governments final consumption expenditure Non-residential business investment Exports of goods and services Residential business investment
2019
Q4 100.0 100.0 100.0 100.0 100.0
2020
Q1 97.8 99.5 100.2 96.7 98.9
Q2 84.2 95.3 81.9 80.8 85.5
Q3 95.0 100.3 87.1 92.3 110.6
Q4 95.3 102.1 88.1 93.1 114.8
2021
Q1 95.7 104.2 88.3 93.6 125.6
Q2 95.5 103.9 91.5 89.4 122.0
Q3 100.0 103.9 91.9 91.0 111.2
Q4 100.2 104.5 93.8 93.9 113.9

After rising sharply in the third quarter as COVID-19 restrictions eased, household spending moderated in the fourth, edging up 0.2% as higher outlays on services offset lower spending on goods. Canadians increased their spending abroad while outlays on food services declined as restrictions in response to the Omicron variant were introduced late in the year. Total household spending, supported by higher outlays on goods over the course of the pandemic, has rebounded to its pre-COVID baseline.

Nominal GDP rose 3.3% in the fourth quarter, up from 2.5% in the third. Canada’s terms of trade improved late in the year, largely reflecting higher export prices for crude oil. Real gross domestic income, which accounts for changes in the terms of trade and measures the purchasing power of domestic production, rose 2.0% in the fourth quarter, and has outpaced real GDP growth in five of the last six quarters.

For 2021 as a whole, real GDP in Canada rose 4.6% after contracting by 5.2% in 2020. Real GDP in the United States grew 5.7% in 2021, following a 3.4% decline in 2020.

Economy-wide output rebounds to pre-COVID levels

Economic output rose steadily from June to November, recovering to pre-COVID levels nineteen months after the initial lockdowns in March and April 2020. Output was essentially unchanged in December as tighter restrictions related to Omicron weighed on activity at client-facing businesses. Overall, output growth in the fourth quarter was broad based, with 18 of 20 major industrial sectors posting gains.

Factory output rallied late in the year, buoyed by higher production at automakers and parts suppliers. Monthly output at assembly plants rose steadily after September as production disruptions eased, but remained almost about one-third below pre-pandemic levels at year end (Chart 3). Total factory output  in December was 1.5% below levels observed in February 2020.

Chart 3 Current output relative to pre-COVID levels (February 2020 to December 2021)

Data table for Chart 3



Data table for chart 3
Table summary
This table displays the results of Data table for chart 3 Percentage change (appearing as column headers).

Percentage change
Motor vehicle manufacturing -35.0
Arts, entertainment and recreation -25.0
Motor vehicle parts manufacturing -17.5
Accommodation services -15.7
Food services and drinking places -11.5
Crop production -10.2
Petroleum refineries -7.3
Rail transportation -6.6
Non-residential building construction -6.0
Oil and gas extraction -3.8
All industries 0.4
Retail trade 1.8
Food manufacturing 5.0
Residential building construction 6.9
Finance and insurance 7.2
Wood product manufacturing 10.8
Computer systems design 11.5
Mining and quarrying 16.0
Offices of real estate agents 28.8

While wholesale activity rose steadily from August to December, retail volumes moderated late in the year, with lower activity at brick and mortar stores at year end.  Sales at clothing stores and furniture stores were heavily impacted by Omicron-related restrictions, as they were earlier in the pandemic when public health measures tightened in response to the Beta and Gamma variants.

Homebuilding scaled back substantially after surging early in the year. After peaking in April, residential building construction posted six declines over the next eight months, ending the year 7% above pre-COVID levels (activity at April’s peak was one quarter above its pre-pandemic baseline).

While activity at real estate agents and brokers also scaled back after housing markets surged in the spring, activity ramped up in October as resale activity strengthened.  With two modest declines to end the year, activity at agents and brokers remained almost 30% above pre-pandemic levels.

Rail transportation declined late in the year after flooding in British Columbia impacted carloadings in western Canada. While air transportation continued to recover steadily as domestic and international travel picked up, volumes remain severely impacted by cross-border travel restrictions.  Despite nine consecutive monthly increases, output in the air transportation industry at year end was over one-half below levels observed in February 2020. Accommodation services has risen for seven consecutive months, but remained 16% below pre-pandemic levels.

Activity at restaurants and bars moderated during the fall after surging in the late spring and summer months. From June to August, volumes at these establishments ramped up rapidly as households shifted to out-of-the-home expenditures following lockdowns in the spring.Note  Output at food services and drinking places then fell in September and October as restrictions tightened in response to the Delta variant, and then again at year end as Omicron-related measures came into effect. At year end, activity levels at these establishments were 12% below their pre-COVID baseline.

Output in the arts, entertainment and recreation sector remained about 25% below its pre-pandemic level at year end, despite gains in six of the last seven months.

Increases in resource extraction supported output growth during the second half of 2021. Mining, quarrying and oil and gas extraction rose steadily from May to October, before back-to-back declines to end the year. Output at year end was essential unchanged from pre-pandemic levels.

Businesses continue to strengthen their capital plans

Private sector organizations expect to spend almost 8% more on tangible assets in 2022 as planned capital outlays rebounded to pre-COVID levels. Higher anticipated spending on structures accounts for two thirds of the planned increase in private spending. Capital intentions among public sector organizations are up almost 10% in 2022, and are currently one-quarter above their pre-pandemic baseline.

While public outlays have risen sharply in recent years, private sector spending on structures and M&E has trended lower since oil prices fell sharply in the mid-2010s. Private intentions in 2022 remain nearly 10% below peak levels observed in 2014, when the growth in capital spending was largely driven by higher outlays in Alberta.

Chart 4 Capital expenditures on tangible assets, by selected industry

Data table for Chart 4



Data table for chart 4
Table summary
This table displays the results of Data table for chart 4 All industries, Mining, quarrying and oil and gas extraction, Manufacturing and All industries excluding mining, quarrying and oil and gas
extraction and manufacturing, calculated using Index 2006=100 units of measure (appearing as column headers).

All industries Mining, quarrying and oil and gas extraction Manufacturing All industries excluding mining, quarrying and oil and gas
extraction and manufacturing
index 2006=100
2006 100.0 100.0 100.0 100.0
2007 106.3 103.9 103.2 107.5
2008 113.1 114.1 100.6 114.4
2009 97.4 73.1 70.3 109.7
2010 110.5 111.5 78.3 114.2
2011 119.0 140.8 89.7 114.9
2012 126.2 162.7 88.9 117.7
2013 129.6 174.3 92.4 118.2
2014 137.7 187.9 105.0 123.7
2015 127.2 132.6 109.4 127.6
2016 116.4 100.2 96.5 124.9
2017 121.4 105.1 89.9 131.5
2018 133.3 100.6 124.2 146.4
2019 138.6 95.4 137.3 154.4
2020 126.0 66.1 117.5 148.9
2021 139.0 74.0 127.5 164.2
2022 151.0 89.3 127.4 176.4

Despite strong upward pressure on oil and commodity prices, planned 2022 capital spending in mining, quarrying and oil and gas extraction remain below levels observed before the pandemic. At $43 billion, mining, oil and gas intentions are up about 20% from 2021 levels, but still 6% below levels in 2019, and over 50% below peak levels reported in 2014. Capital intentions among manufacturers in 2022 are little changed from 2021 spending levels, with lower planned spending on structures offsetting higher outlays on machinery and equipment. Total 2022 intentions in manufacturing remain 7% below their 2019 pre-pandemic baseline.

Rising input costs and labour shortages cloud the outlook

The most recent data from the Canadian Survey on Business Conditions suggest that obstacles related to input costs and workforce recruitment and retention are becoming more widespread. One half of businesses in the first quarter of 2022 expect rising costs related to labour, capital, energy or materials to be an obstacle in the coming months, up from 43% in late 2021. This includes almost three quarters of manufacturers and two thirds of businesses in accommodation and food services. In addition, over one third of businesses anticipate obstacles related to transportation and insurance costs.

Chart 5 Anticipated business obstacles over the next three months

Data table for Chart 5



Data table for chart 5
Table summary
This table displays the results of Data table for chart 5 Q3 2021, Q4 2021 and Q1 2022, calculated using percentage of businesses identifying as an obstacle units of measure (appearing as column headers).

Q3 2021 Q4 2021 Q1 2022
percentage of businesses identifying as an obstacle
Rising cost of inputs 38.5 42.5 50.3
Recruiting skilled employees 34.6 35.4 38.5
Shortage of labour force 30.3 32.7 37.0
Cost of insurance 25.3 31.9 35.6
Retaining skilled employees 24.5 26.1 30.4
Transportation costs 22.8 30.9 34.6
Fluctuations in consumer demand 22.6 21.2 23.6

Similarly, 37% of businesses in the first quarter expect labour shortages to be an obstacle over the next three months, compared with 33% in late 2021. This includes almost one half of businesses in manufacturing and construction, and nearly two thirds of those in accommodation and food services.Note Nearly four in ten businesses anticipate challenges recruiting skilled employees.

Many businesses are adjusting their wage plans. Over four in ten expect to raise wages for existing employees over the next year, including over 60% of businesses in accommodation and food services.

Headline consumer inflation at a thirty year high

Headline consumer inflation accelerated during the second half of 2021, surpassing the five percent mark in January 2022 for the first time in over three decades.  January marked the tenth consecutive month that the headline rate has been above three percent, and its sixth consecutive month above four percent.  During this period, higher prices for gasoline, shelter, consumer durables and food have all put upward pressure on headline inflation, as supply disruptions coupled with strong demand have continued to fuel price growth.Note

Higher gasoline prices continue to impact the pace of consumer inflation. Prices at the pump, measured year-over-year, were up 31.7% in January, the eleventh straight month of annual increases above the 30 percent mark.Note Excluding gasoline, consumer prices rose 4.3% in January, the largest yearly increase since this index became available in the late 1990s. Higher prices for food and shelter have contributed to this acceleration, with annual increases for both outpacing the headline rate.

Food prices have risen steadily in recent months, and were up 5.7% on a year-over-year basis in January. Grocery prices, up 6.5%, posted their largest yearly increase since 2009. Annual price increases for beef remained in double-digit territory for the fifth consecutive month, while those for fresh fruit rose above 8% to start the year.

Higher housing-related costs continue to bolster headline inflation. Prices for owned accommodation rose 6.1% in the twelve months to January, as annual increases in the homeowners’ replacement cost index, which partly reflect prices for new homes, remained in double-digit territory for the ninth consecutive month. Annual prices increases for rented accommodation rose above the three percent mark in January for the first time since late 2019.

Consumer inflation has outpaced average wage growth since early 2021. In January, average hourly wages, adjusted for changes in the composition of employment due to the pandemic, were up 2.7% on a year-over-year basis. Without adjustment, average wages rose 2.4%, less than half the pace of headline inflation.Note  Both measures of annual wage growth rose at a faster pace in February.

Chart 6 Anticipated business obstacles over the next three months

Data table for Chart 6



Data table for chart 6
Table summary
This table displays the results of Data table for chart 6 Average hourly wages (fixed weight measure) and Consumer price index, calculated using Index January 2018=100 units of measure (appearing as column headers).

Average hourly wages (fixed weight measure) Consumer price index
index January 2018=100
2018
M1 100.00 100.00
M2 100.26 100.61
M3 100.49 100.91
M4 100.79 101.21
M5 101.05 101.29
M6 101.09 101.44
M7 101.28 101.97
M8 101.24 101.90
M9 101.54 101.52
M10 101.46 101.82
M11 101.54 101.37
M12 101.84 101.29
2019
M1 102.18 101.44
M2 102.97 102.13
M3 103.19 102.81
M4 103.68 103.26
M5 103.90 103.72
M6 104.39 103.49
M7 104.73 104.02
M8 104.32 103.87
M9 105.29 103.42
M10 105.33 103.72
M11 105.52 103.57
M12 105.26 103.57
2020
M1 106.08 103.87
M2 106.57 104.33
M3 107.13 103.72
M4 109.23 103.04
M5 108.97 103.34
M6 108.18 104.18
M7 108.03 104.18
M8 107.77 104.02
M9 108.03 103.95
M10 108.30 104.40
M11 108.00 104.56
M12 108.41 104.33
2021
M1 109.23 104.94
M2 109.35 105.47
M3 109.23 106.00
M4 109.80 106.53
M5 109.95 107.06
M6 109.61 107.37
M7 109.57 108.05
M8 109.72 108.28
M9 110.17 108.50
M10 110.70 109.26
M11 111.00 109.49
M12 111.22 109.34
2022
M1 112.24 110.33
M2 112.65 Note : not applicable

Strong employment growth as economic activity ramps up

Employment rose markedly during the second half of 2021 as unemployment and labour underutilization trended back toward pre-pandemic levels. Net employment gains from May to December totaled nearly 800,000 as economic activity ramped up in the wake of tighter restrictions related to the Gamma variant in the spring. Total employment rebounded to its pre-COVID baseline in September, and then rose by an additional quarter of a million in the fourth quarter.

Employment among core-age workers and youth rose substantially during the second half of 2021. At year end, the employment rate among core-age workers was 84.2%, one percentage point above its pre-pandemic baseline, reflecting strong cumulative job gains among both core-age men and core-age women (Chart 7). Employment rates among young men and women also fully recovered to pre-pandemic levels.

Sharp differences in the pace of the employment recovery continued to persist across major industrial sectors. At the end of 2021, cumulative employment losses in accommodation and food services remained over 200,000, while employment in retail trade had recovered to its pre-pandemic level, bolstered by gains during the fall. In contrast, employment in professional, scientific and technical services at year end was over 180,000 above levels reported in February 2020.

Chart 7 Anticipated business obstacles over the next three months

Data table for Chart 7



Data table for chart 7
Table summary
This table displays the results of Data table for chart 7 Men and Women, calculated using percent units of measure (appearing as column headers).

Men Women
percent
2020
January 86.5 79.8
February 86.7 79.7
March 84.8 75.6
April 76.1 69.2
May 77.4 70.1
June 81.6 73.7
July 82.6 75.0
August 83.3 75.8
September 84.2 77.7
October 84.5 78.2
November 84.7 78.2
December 84.6 78.1
2021
January 84.2 77.1
February 84.9 78.2
March 85.5 78.4
April 85.3 78.0
May 85.3 77.8
June 85.3 78.5
July 85.3 78.7
August 85.5 78.7
September 86.2 79.9
October 86.6 79.9
November 87.1 80.7
December 87.8 80.7
2022
January 87.5 80.0
February 88.2 81.0

Employment rebounds as Omicron-related restrictions ease

Total employment fell by 200,000 in January as tighter restrictions in response to the Omicron variant impacted client-facing sectors. Lower employment among youth accounted for over two thirds of the headline decrease, while losses in accommodation and food services totaled 113,000. The unemployment rate increased to 6.5% due to a sharp rise in temporary layoffs, while workplace absences due to illness or disability rose to record levels

Omicron’s impact on the labour market was short-lived. Employment surged in February, more than offsetting January’s headline decrease. Total employment rose by 337,000, led by gains among core-age workers and youth. Gains in accommodation and food services fully offset steep losses in January, while employment in information, culture and recreation services rose above pre-COVID level for the first time. Professional, scientific and technical services and construction also posted notable gains.

The unemployment rate fell to 5.5% in February, edging below its pre-pandemic baseline, while the rate among core-age workers declined to 4.4%. The employment rate among core-age men rose to a 40-year high and was at record levels among core-age women.

Workplace absences declined sharply in February, while total hours worked surpassed its pre-pandemic baseline, also reaching a record high.

References

Statistics Canada. n.d. Canadian Economic News. Last updated March 10, 2022. Available at: https://www.statcan.gc.ca/eng/dai/btd/cen/index#census (accessed March 10, 2022).

Statistics Canada. n.d. Canadian Economic Dashboard and COVID-19. Last updated March 10, 2022. Available at: https://www150.statcan.gc.ca/n1/pub/71-607-x/71-607-x2020009-eng.htm?HPA=1 (accessed March 10, 2022).

Statistics Canada. 2021. COVID-19 in Canada: Year-end Update on Social and Economic Impacts. Catalogue no. 11-631-X, December  22. Ottawa: Statistics Canada. Available at: https://www150.statcan.gc.ca/n1/pub/11-631-x/11-631-x2021003-eng.htm (accessed December 22, 2021).

Statistics Canada. 2022. COVID-19 in Canada: A Two-year Update on Social and Economic Impacts. Catalogue no. 11-631-X, March 11. Ottawa: Statistics Canada. Available at: https://www150.statcan.gc.ca/n1/en/catalogue/11-631-X2022001 (accessed on March 10, 2022)

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IMF upgrades outlook for the global economy in 2023 – GuelphToday

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WASHINGTON (AP) — The outlook for the global economy is growing slightly brighter as China eases its zero-COVID policies and the world shows surprising resilience in the face of high inflation, elevated interest rates and Russia’s ongoing war against Ukraine.

That’s the view of the International Monetary Fund, which now expects the world economy to grow 2.9% this year. That forecast is better than the 2.7% expansion for 2023 that the IMF predicted in October, though down from the estimated 3.4% growth in 2022.

The IMF, a 190-country lending organization, foresees inflation easing this year, a result of aggressive interest rate hikes by the Federal Reserve and other major central banks. Those rate hikes are expected to slow the consumer demand that has driven prices higher. Globally, the IMF expects consumer inflation to fall from 8.8% last year to 6.6% in 2023 and 4.3% in 2024.

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“Global conditions have improved as inflation pressures started to abate,” the IMF chief economist, Pierre-Olivier Gourinchas, said at a news conference in Singapore. “The road back to a full recovery with sustainable growth, stable prices and progress for all has only started.”

A big factor in the upgrade to global growth was China’s decision late last year to lift anti-virus controls that had kept millions of people at home. The IMF said China’s “recent reopening has paved the way for a faster-than-expected recovery.’’

The IMF now expects China’s economy — the world’s second-biggest, after the United States — to grow 5.2% this year, up from its October forecast of 4.4%. Beijing’s economy eked out growth of just 3% in 2022 — the first year in more than 40, the IMF noted, that China has expanded more slowly than the world as a whole. But the end of virus restrictions is expected to revive activity in 2023.

Together, China and India should account for half of this year’s global growth, while the United States and Europe contribute 10%, according to Gourinchas.

“China’s reopening is certainly a favorable factor that’s going to lead to more activity,” Gourinchas said. “But this is in the context in which the global economy itself is slowing down.”

The IMF’s 2023 growth outlook improved for the United States (forecast to grow 1.4%) as well as for the 19 countries that share the euro currency (0.7%). Europe, though suffering from energy shortages and higher prices resulting from Russia’s invasion of Ukraine, proved “more resilient than expected,’’ the IMF said. The European economy benefited from a warmer-than-expected winter, which held down demand for natural gas,

Russia’s economy, hit by sanctions after its invasion of Ukraine, has proved sturdier than expected, too: The IMF’s forecast foresees Russia registering 0.3% growth this year. That would mark an improvement from a contraction of 2.2% in 2022. And it’s well above the 2.3% contraction for 2023 that the IMF had forecast for Russia in October.

The United Kingdom is a striking exception to the IMF’s brighter outlook for 2023. It has forecast its economy will shrink 0.6% in 2023; in October, the IMF had expected growth of 0.3%. Higher interest rates and tighter government budgets are squeezing the British economy.

“These figures confirm we are not immune to the pressures hitting nearly all advanced economies,’’ Chancellor of the Exchequer Jeremy Hunt said in response to the IMF forecast. “Short-term challenges should not obscure our long-term prospects — the U.K. outperformed many forecasts last year, and if we stick to our plan to halve inflation, the U.K. is still predicted to grow faster than Germany and Japan over the coming years.”

The IMF noted that the world economy still faces serous risks. They include the possibility that Russia’s war against Ukraine war will escalate, that China will suffer a sharp increase in COVID cases and that high interest rates will cause a financial crisis in debt-laden countries.

Asked about the impact of U.S. efforts to limit Chinese access to advanced processor chip technology due to security concerns, Gourinchas cautioned that curbs on semiconductor trade and government pressure to pull back industries to within their own borders and limit reliance on foreign partners “potentially could be harmful to the global economy.”

“Diversification of supply chains is much more important in trying to improve resilience, improve growth, improve standards of living, rather than moving toward re-shoring or ‘friend shoring,’” Gourinchas said.

The global outlook has been shrouded in uncertainty since the coronavirus pandemic struck in early 2020. Forecasters have been repeatedly confounded by events: A severe if brief recession in early 2020; an expectedly strong recovery triggered by vast government stimulus aid; then a surge in inflation, worsened when Russia’s invasion of Ukraine nearly a year ago disrupted world trade in energy and food.

Three weeks ago, the IMF’s sister agency, the World Bank, issued a more downbeat outlook for the global economy. The World Bank slashed its forecast for international growth this year by nearly half — to 1.7% — and warned that the global economy would come “perilously close’’ to recession.

___

AP Business Writer Joe McDonald in Beijing and AP Writer Danica Kirka in London contributed to this report.

Paul Wiseman, The Associated Press



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The $16 Trillion European Union Economy – Visual Capitalist

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The $16 Trillion European Union Economy

The European Union has the third-largest economy in the world, accounting for one-sixth of global trade. All together, 27 member countries make up one internal market allowing free movement of goods, services, capital and people.

But how did this sui generis (a class by itself) political entity come into being?

A Brief History of the EU

After the devastating aftermath of the World War II, Western Europe saw a concerted move towards regional peace and security by promoting democracy and protecting human rights.

Crucially, the Schuman Declaration was presented in 1950. The coal and steel industries of Western Europe were integrated under common management, preventing countries from turning on each other and creating weapons of war. Six countries signed on — the eventual founders of the EU.

Here’s a list of all 27 members of the EU and the year they joined.

Country Year of entry
🇧🇪 Belgium 1958
🇫🇷 France 1958
🇩🇪 Germany 1958
🇮🇹 Italy 1958
🇱🇺 Luxembourg 1958
🇳🇱 Netherlands 1958
🇩🇰 Denmark 1973
🇮🇪 Ireland 1973
🇬🇷 Greece 1981
🇵🇹 Portugal 1986
🇪🇸 Spain 1986
🇦🇹 Austria 1995
🇫🇮 Finland 1995
🇸🇪 Sweden 1995
🇨🇾 Cyprus 2004
🇨🇿 Czechia 2004
🇪🇪 Estonia 2004
🇭🇺 Hungary 2004
🇱🇻 Latvia 2004
🇱🇹 Lithuania 2004
🇲🇹 Malta 2004
🇵🇱 Poland 2004
🇸🇰 Slovakia 2004
🇸🇮 Slovenia 2004
🇧🇬 Bulgaria 2007
🇷🇴 Romania 2007
🇭🇷 Croatia 2013

Greater economic and security cooperation followed over the next four decades, along with the addition of new members. These tighter relationships disincentivized conflict, and Western Europe—after centuries of constant war—has seen unprecedented peace for the last 80 years.

The modern version of the EU can trace its origin to 1993, with the adoption of the name, ‘the European Union,’ the birth of a single market, and the promise to use a single currency—the euro.

Since then the EU has become an economic and political force to reckon with. Its combined gross domestic product (GDP) stood at $16.6 trillion in 2022, after the U.S. ($26 trillion) and China ($19 trillion.)

ℹ️ GDP is a broad indicator of the economic activity within a country. It measures the total value of economic output—goods and services—produced within a given time frame by both the private and public sectors.

Front Loading the EU Economy

For the impressive numbers it shows however, the European Union’s economic might is held up by three economic giants, per data from the International Monetary Fund. Put together, the GDPs of Germany ($4 trillion), France ($2.7 trillion) and Italy ($1.9 trillion) make up more than half of the EU’s entire economic output.

These three countries are also the most populous in the EU, and together with Spain and Poland, account for 66% of the total population of the EU.

Here’s a table of all 27 member states and the percentage they contribute to the EU’s gross domestic product.

Rank Country GDP (Billion USD) % of the EU Economy
1. 🇩🇪 Germany 4,031.1 24.26%
2. 🇫🇷 France 2,778.1 16.72%
3. 🇮🇹 Italy 1,997.0 12.02%
4. 🇪🇸 Spain 1,390.0 8.37%
5. 🇳🇱 Netherlands 990.6 5.96%
6. 🇵🇱 Poland 716.3 4.31%
7. 🇸🇪 Sweden 603.9 3.64%
8. 🇧🇪 Belgium 589.5 3.55%
9. 🇮🇪 Ireland 519.8 3.13%
10. 🇦🇹 Austria 468.0 2.82%
11. 🇩🇰 Denmark 386.7 2.33%
12. 🇷🇴 Romania 299.9 1.81%
13. 🇨🇿 Czechia 295.6 1.78%
14. 🇫🇮 Finland 281.4 1.69%
15. 🇵🇹 Portugal 255.9 1.54%
16. 🇬🇷 Greece 222.0 1.34%
17. 🇭🇺 Hungary 184.7 1.11%
18. 🇸🇰 Slovakia 112.4 0.68%
19. 🇧🇬 Bulgaria 85.0 0.51%
20. 🇱🇺 Luxembourg 82.2 0.49%
21. 🇭🇷 Croatia 69.4 0.42%
22. 🇱🇹 Lithuania 68.0 0.41%
23. 🇸🇮 Slovenia 62.2 0.37%
24. 🇱🇻 Latvia 40.6 0.24%
25. 🇪🇪 Estonia 39.1 0.24%
26. 🇨🇾 Cyprus 26.7 0.16%
27. 🇲🇹 Malta 17.2 0.10%
Total 16,613.1 100%

The top-heaviness continues. By adding Spain ($1.3 trillion) and the Netherlands ($990 billion), the top five make up nearly 70% of the EU’s GDP. That goes up to 85% when the top 10 countries are included.

That means less than half of the 27 member states make up $14 trillion of the $16 trillion EU economy.

Older Members, Larger Share

Aside from the most populous members having bigger economies, another pattern emerges, with the time the country has spent in the EU.

Five of the six founders of the EU—Germany, France, Italy, the Netherlands, Belgium—are in the top 10 biggest economies of the EU. Ireland and Denmark, the next entrants into the union (1973) are ranked 9th and 11th respectively. The bottom 10 countries all joined the EU post-2004.

The UK—which joined the bloc in 1973 and formally left in 2020—would have been the second-largest economy in the region at $3.4 trillion.

Sectoral Analysis of the EU

The EU has four primary sectors of economic output: services, industry, construction, and agriculture (including fishing and forestry.) Below is an analysis of some of these sectors and the countries which contribute the most to it. All figures are from Eurostat.

Services and Tourism

The EU economy relies heavily on the services sector, accounting for more than 70% of the value added to the economy in 2020. It also is the sector with the highest share of employment in the EU, at 73%.

In Luxembourg, which has a large financial services sector, 87% of the country’s gross domestic product came from the services sector.

Tourism economies like Malta and Cyprus also had an above 80% share of services in their GDP.

Industry

Meanwhile 20% of the EU’s gross domestic product came from industry, with Ireland’s economy having the most share (40%) in its GDP. Czechia, Slovenia and Poland also had a significant share of industry output.

Mining coal and lignite in the EU saw a brief rebound in output in 2021, though levels continued to be subdued.

Rank Sector % of the EU Economy
1. Services 72.4%
2. Industry 20.1%
3. Construction 5.6%
4. Agriculture, forestry and fishing 1.8%

Agriculture

Less than 2% of the EU’s economy relies on agriculture, forestry and fishing. Romania, Latvia, and Greece feature as contributors to this sector, however the share in total output in each country is less than 5%. Bulgaria has the highest employment (16%) in this sector compared to other EU members.

Energy

The EU imports nearly 60% of its energy requirements. Until the end of 2021, Russia was the biggest exporter of petroleum and natural gas to the region. After the war in Ukraine that share has steadily decreased from nearly 25% to 15% for petroleum liquids and from nearly 40% to 15% for natural gas, per Eurostat.

Headwinds, High Seas

The IMF has a gloomy outlook for Europe heading into 2023. War in Ukraine, spiraling energy costs, high inflation, and stagnant wage growth means that EU leaders are facing “severe trade-offs and tough policy decisions.”

Reforms—to relieve supply constraints in the labor and energy markets—are key to increasing growth and relieving price pressures, according to the international body. The IMF projects that the EU will grow 0.7% in 2023.

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Economy

UK to Be the Only G-7 Economy in Recession This Year, IMF Says – BNN Bloomberg

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(Bloomberg) — Britain faces the bleakest two years of any major industrial nation with a recession in 2023 and the slowest growth of peers in 2024, the International Monetary Fund predicts.

The UK will be the only Group of Seven member whose economy will shrink this year, with a contraction of 0.6%, the IMF said. The Washington-based institution downgraded its outlook by a massive 0.9 percentage point from October, saying higher interest rates and taxes along with government spending restraint will exacerbate a cost-of-living crisis.

The forecast highlights the challenges Prime Minister Rishi Sunak’s government faces in the leadup to the next election. Chancellor of the Exchequer Jeremy Hunt suggested the economy is likely to perform better than the IMF expects.

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“The governor of the Bank of England recently said that any UK recession this year is likely to be shallower than previously predicted,” Hunt said in a statement. “We are not immune to the pressures hitting nearly all advanced economies. Short-term challenges should not obscure our long-term prospects.”

In 2024, the economy will rebound only slowly, growing at 0.9% — matching Japan and Italy at the bottom of the G-7 league table for growth.

The forecast anticipates the first UK recession, excluding the pandemic, since the financial crisis in 2009. Across the two years leading up to the deadline for Prime Minister Rishi Sunak to call an election, the economy will effectively stagnate — expanding just 0.3%. 

The IMF did not downgrade any other G-7 economy this year as it raised its global growth forecast from 2.7% to a still sluggish 2.9%. An escalation of the war in Ukraine or a health crisis in China as Covid spreads could set back the world economy, it said in its World Economic Outlook update. However, “adverse risks have moderated since October.”

The downgrade to UK growth is striking because the IMF’s October forecast was prepared before the £45 billion ($55.7 billion) unfunded tax giveaway in the September budget during the short-lived Liz Truss premiership. At the time, the fund said the fiscal splurge would have boosted growth.

Since then financial conditions have tightened, rising borrowing costs for businesses and households. The Bank of England has raised rates from 2.25% to 3.5%, and markets now expect rates to settle around 4.5%. The IMF said it’s downgrade also reflected “tighter fiscal” policy but, according to Treasury figures, fiscal policy is looser this year than at the last forecast.

In October, the IMF attacked the UK’s massive spending spree — arguing that fiscal and monetary policy should not be working at cross purposes and that the government needed to bring the public finances under control.

IMF Chief Economist Pierre-Olivier Gourinchas repeated the warning. In a blog post alongside the forecast, he said many countries are being too generous with their energy support, which is “costly and increasingly unsustainable.”

Instead, countries should “adopt targeted measures that conserve fiscal space, allow high energy prices to reduce demand for energy, and avoid overly stimulating the economy,” Gourinchas said.

He also urged central banks, like the Bank of England, to press on with rate rises even if it means inflicting more misery on cash-strapped households. The BOE is expected to raise rates a half point to 4% on Thursday.

“Where inflation pressures remain too elevated, central banks need to raise real policy rates above the neutral rate and keep them there until underlying inflation is on a decisive declining path,” Gourinchas said. “Easing too early risks undoing all the gains achieved so far.” 

Read more:

  • UK Wage Inflation Points to Another Big Rate Hike This Week

–With assistance from Andrew Atkinson.

©2023 Bloomberg L.P.

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