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Europe's economy grapples with an acute energy shock – The Economist

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For the best part of a decade, rock-bottom interest rates seemed like a fact of life in the euro zone—as did low inflation. Now consumer prices are rising at an annual rate exceeding 8%, well above the European Central Bank’s target of 2%. Members of the bank’s governing council have begun signalling their intent to raise rates soon, a message they are likely to reaffirm at a monetary-policy meeting on June 9th. But the ecb finds itself in a tricky position: of contending not only with surging prices, which might warrant rapid rate rises, but also gloomier growth prospects, which might warrant patience.

The root cause of both developments is a severe energy-price shock. Prices of oil and natural gas had already been rising before Russia’s invasion of Ukraine; the war sent prices soaring higher still. Those rising commodity prices have played a much bigger role in pushing up consumer-price inflation in Europe than in America, where generous stimulus has also been a culprit. According to Goldman Sachs, a bank, energy prices in the euro area—which rose at an annual rate of a whopping 39% in May—are contributing about four percentage points to headline inflation, compared with two points in America.

The effects are beginning to spill over to other consumer prices. “Core” inflation, which excludes food and energy prices, rose more quickly in the euro zone in May than economists had expected. German producer prices rose at a record clip of 33.5% in April, compared with last year, driven not just by energy, but also energy-intensive intermediate goods, such as metals, concrete and chemicals. The result of all this is a big hit to businesses’ costs and households’ purchasing power. In how much danger does it put the euro area’s economy?

One consequence of the energy shock is lower household incomes in real terms. Wage growth has been picking up modestly across the zone, but still trails behind inflation. Some employers have made one-off payments to workers, to compensate them for surging prices without incurring higher recurring wage costs. Even then, however, annual pay growth in the Netherlands, for instance, stood at just 2.8% in May, notwithstanding strong business sentiment and a tight labour market. In one sense, this is good news for the ecb, because it reduces the risk of a wage-price spiral. But it may feed into lower consumption, weakening the rest of the economy in turn.

A moderation in demand only adds to a heap of woes for the manufacturing sector, where confidence is already in steep decline. Renewed supply disruptions as a result of China’s recent lockdowns and high energy prices are hurting businesses, with Germany and eastern Europe looking most vulnerable to an industrial slowdown. New orders for the zone’s manufacturers in May fell for the first time since June 2020, indicating weaker demand. Export orders declined at their fastest pace in two years.

Economists are therefore pencilling in slower growth over the rest of the year. But few expect an outright recession just yet. That is because some parts of the economy confront the energy shock from a position of strength, rather than weakness. Many services firms are still reaping the rewards from reopening and the end of Omicron-related lockdowns. Southern countries are benefiting the most, given their reliance on tourism. In Spain arrivals of sun-seeking northerners almost reached pre-pandemic levels in April. Overall, business sentiment in services remains strong, with many firms reporting a growing backlog of work.

Jobs are still plentiful, too. Across the bloc there were three vacancies for every 100 jobs in the first quarter of 2022, a high level by historical standards. Businesses’ hiring expectations have remained solid, albeit slightly weaker since the start of the war in Ukraine. More than one in four businesses in Europe say that a lack of staff is preventing them from producing more.

A hoard of savings built up during lockdowns should also provide consumers with some cushion against the energy shock. According to our calculations, such “excess” savings in France and Germany amounted to around a tenth of households’ disposable incomes in the first quarter of 2022.

These buffers will blunt the impact of the energy shock. But they will not offset it altogether. Excess savings, for a start, are not evenly distributed. Poorer people in rich countries, and most households in poorer countries, have precious little left. In Slovakia, for example, the savings rate never increased much during the pandemic, and is now well below its long-term average. “Consumption weakness will come from lower-income households,” says Jens Eisenschmidt of Morgan Stanley, another bank. Indeed, retail sales, in real terms, have moved sideways for months.

Many governments have put together sizeable spending programmes to shield households from high energy prices. According to Bruegel, a think-tank, Germany, France and Italy and others are spending between 1% and 2% of gdp. Not all of that is well-targeted, however. Much of it is going on relief for better-off households that do not need it; other measures have involved meddling with prices, with some of the benefit going to energy suppliers.

Even if the euro area is spared a recession, then, the energy shock will be a drag on growth. The ecb faces an unenviable dilemma. With every increase in inflation on the back of food and energy prices, the European economy is getting weaker.

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Ontario premier Ford vows to rebuild economy, unveils new Cabinet – Reuters.com

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OTTAWA, June 24 (Reuters) – Doug Ford took the oath of office for a second term as the premier of Canada’s most populous province on Friday with a promise to build highways and homes, and rebuild Ontario’s economy.

Ford’s right-leaning Progressive Conservatives returned to power with a sweeping victory in a provincial election on June 2, winning 83 seats in the 124-seat legislature.

He unveiled a larger 30-member Cabinet, moving former solicitor general Sylvia Jones to role of minister of health and deputy premier, while keeping Peter Bethlenfalvy in post as the debt-laden province’s finance minister.

Ford said he had an “ambitious plan” for his second stint, as his government faced challenges posed by inflation rates hitting a nearly 40-year high in Canada.

“That plan starts with rebuilding Ontario’s economy,” Ford said at his swearing-in ceremony.

He reiterated pledges made in the lead-up to the election, including new spending on highways, transit and the auto sector.

“We’re investing to connect every part of our auto supply chain … the cars of the future will be built right here, Ontario, from start to finish,” Ford said.

Ontario, home to just under 40% of Canada’s 38.2 million people, is Canada’s manufacturing heartland. It is also one of the world’s largest sub-sovereign borrowers, with publicly held debt in excess of C$400 billion ($309.6 billion).

Ford also pledged to address soaring home prices in the province by building more affordable housing.

Canada’s national housing agency projects Ontario to be one of the worst affected by a housing shortage over the next decade. Provincial capital Toronto is already one of the most expensive cities to live in globally.

“Too many families are frozen out of the housing market … we need to build more attainable homes,” Ford said.

($1 = 1.2921 Canadian dollars)

(This story was refiled to fix typo in headline)

Reporting by Ismail Shakil in Ottawa

Our Standards: The Thomson Reuters Trust Principles.

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Northern Shootout's return provides a big boost to Orillia's economy – CTV News Barrie

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The return of an annual slo-pitch softball event marks the unofficial start of summer in Orillia.

The Northern Shootout is back for its 13 edition after a pandemic-driven hiatus.

The tournament consists of 78 men’s, women’s and co-ed teams from Ontario and Quebec and promises a big boost to the economy in the city.

“Especially after two years of pandemic restrictions,” said Mike Ladouceur, City of Orillia. “This helps our tourism recover, puts heads in beds, hotels are filled, restaurants filled, this is really the big event that begins our summer of events.”

Organizer Mike Borrelli said the tournament has grown to become one of the biggest in Canada.

“We’re pretty much at capacity for participants. We can’t accommodate anymore,” he added. “We’re using the other diamonds, we got all the diamonds in Orillia, and we’re using the Rama diamond, so if we had more diamonds, we could accommodate more teams.”

The owners of Adovo Pizza in Orillia say the increase in tourism has done wonders for their business this year.

This being the first big event of the season, they’re excited to welcome so many people into the city.

“Everyone has just been waiting to get out,” said Adam Zimmerman, co-owner. “Especially for sporting events and vendors, have a cold beer. There’s nothing wrong with it.”

The tournament culminates with an annual home run derby, which organizers said typically draws 1,200 fans to watch.

Sixteen participants will compete to walk away with a championship belt.

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Toronto Mayor John Tory lays out vision for city's economy in speech – CP24 Toronto's Breaking News

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Toronto Mayor John Tory says he’s optimistic about the future of the city’s economy, but is acknowledging that continued recovery from the COVID-19 pandemic will take place in a “challenging” economic period.

In a speech to the Toronto Region Board of Trade Thursday, Tory said he sees the city’s economic recovery and future growth resting on five pillars; rebuilding and instilling confidence, attracting new business and expanding existing ones, supporting businesses with an emphasis on small business, supporting growth, and being ready for the future and possible “transformational change.”

Tory said there is “always a tomorrow” following a crisis, but making it brighter requires planning.

“That’s why I have been talking a lot about the city’s recovery from the pandemic, a recovery that will take place during challenging economic times,” the mayor said. “I am completely committed to making sure Toronto comes back stronger than ever and that will be my main focus in the weeks and months ahead.”

To that end, Tory said he will be assembling a volunteer panel of accomplished leaders to help provide “real-time advice” as the city continues to reopen following more than two years of COVID-19 restrictions.

“I believe the rapid pace of change and need to adapt will continue and I will rely on this group to help provide real-time advice and insight so we can remain nimble,” Tory said.

While the mayor did not go into detail about the city’s economic challenges, Toronto is facing a number of hurdles. The city is still facing a major budgetary shortfall as a result of shrunken revenues. While the TTC used to be jam-packed on a daily basis, ridership numbers have still not returned to normal and ridership patterns have become more unpredictable as many businesses have allowed their employees to work from home for at least part of the week. It is also not yet clear how rising interest rates and inflation will affect the local economy in the coming months.

“Successfully addressing the issues we face as a city will take everything we’ve got,” Tory said in his speech, acknowledging that the pandemic hurt people and businesses.

“I am committed to making sure those who have lost so much over the last two years get the support they need and can be confident in playing a full and satisfying role in a strong recovery,” he added.

He said the future of work remains a key question tied to the city’s recovery and said the panel will be examining that as one of its key issues.

“This is a very profound question with potentially very profound consequences depending on the answer so we must get the very best answer we can from our advisors and from you,” Tory told the board in his speech.

He said that for example, just having people work from home on Mondays and Fridays can hugely impact the TTC and its revenues.

“What that means is a huge revenue shortfall for the transit system, because the cost of running the system for Tuesday, Wednesday, Thursday, and for the people who do go to work Monday and Friday stays about the same, (even if) you can make some changes around the edges,” Tory said. “And that creates a huge problem for us. So that’s just one small example of the kinds of questions that we have to answer.”

Tory also touted the city’s success and highlighted recent investments by the film and pharmaceutical industries from companies such as Netflix and Sanofi Pasteur. He said he would like to see those successes replicated in other industries as well.

“The world has taken notice of the growth and success story that is Toronto,” Tory said. “It was a constant conversation in the halls of the Collision conference. But at the same time, Toronto and all cities are facing challenging times ahead.”

More details about what work the advisory panel will do and who will sit on it are expected to be announced in the coming weeks.

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