Efforts to decimate Russia’s economy to punish Moscow for its invasion of Ukraine could have serious and unpredictable implications at home for the U.S. and its allies.
The Russian economy has begun to crumble after the U.S., United Kingdom, European Union and other partners imposed unprecedented sanctions with stunning speed.
The Russian government and major financial firms have been cut off from much of the global financial system, dozens of international companies have pulled out of the country, and the value of the ruble has plunged as the Russian central bank scrambles to prevent a deeper crisis.
“The United States and Europeans are explicitly stating that they’re engaging in economic warfare with Russia,” said Daniel Glaser, former Treasury assistant secretary for financial crimes, during a Thursday webinar hosted by compliance firm K2 Integrity.
“Normally when you hear the U.S. and Europeans talk about the application of sanctions, you hear a lot about how targeted they want it to be,” he continued. “I’m not saying that the U.S. and Europeans don’t care about collateral damage, but that’s not the talking point that they’re using. The talking point that they’re using is how much pain they’re trying to inflict on Russia, and it’s just jaw-dropping.”
The sanctions regime is designed to not only hinder the Russian economy but also limit Moscow’s ability to ease the economic pain. The U.S. and its allies blocked transactions with the Central Bank of Russia and froze about half of the $600 billion in Russia’s foreign reserves, which Moscow had parked in other countries. The moved locked up what experts called Putin’s sanctions war chest.
The threat of future penalties has also prompted a mass exodus of international companies from Russia. Dozens of companies that may be able to operate outside of sanctions are leaving Russia instead of risking blowback from the U.S. government and losing access to the American dollar.
“There are certain tools they can use to manage,” said Rachel Ziemba, founder of macroeconomic advisory firm Ziemba Insights, of the Russian government.
“They’re headed toward, yes, a recession but a much more internally focused economy that basically takes all the reforms over the last couple of decades and almost does the reverse,” she added.
Even so, mounting economic pain at home hasn’t curbed Putin’s military ambitions in Ukraine.
Russian forces claimed to take control of the Zaporizhzhia nuclear power plant overnight in Ukraine, prompting deep concern among U.S. officials. The attack on the plant, which sparked a fire overnight, drew widespread panic and fueled calls among U.S. lawmakers to take more aggressive action against Putin’s regime.
The U.S. is a net exporter of oil, but higher demand for American crude would push up energy prices globally as European allies scramble to replace Russian petroleum and natural gas.
While Biden has sought to prepare Americans for potential economic fallout at home, experts say the unprecedented nature of the penalties creates unpredictable risks for the U.S. economy.
Energy and food prices are the quickest way Americans could feel shockwaves from Russia’s decline, particularly if Biden takes action against Russian oil imports.
Crude oil prices are up roughly 20 percent over the past two weeks, enough to knock 0.2 percentage points from U.S. gross domestic product, according to economists at Goldman Sachs.
They also expect inflation as measured by the personal consumption expenditures price index to 0.2 percentage points thanks to “higher food prices, increased production costs due to rising commodity prices and increased transport costs due to shipping disruptions.”
Ziemba said a ban on Russian oil imports would largely be “symbolic” and simply send barrels to other markets.
“When we’re thinking of the cost-benefit analysis, it’s not clear to me that the pain here justifies the pain to Russia,” she said.
But Ziemba said lifting current exemptions for processing energy-related payments could strike a devastating blow to Russia’s energy industry. If U.S. firms and the U.S. dollar can no longer be used to buy Russian oil and gas, Ziemba said foreign firms would likely ditch Russia to protect their access to American markets.
“If there’s a situation where Russian entities can’t be paid for the oil and the gas they are producing, they’re not going to give the supplies away for free,” Ziemba said.
“As the price adjusts, it would be very painful,” she added.
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.
