FRANKFURT, Germany (AP) — Europe’s economy has grown modestly after months of stagnation, but higher interest rates designed to fight inflation are casting a shadow as they make it more expensive for households and businesses to borrow, invest and spend.
The 20 countries that use the euro currency and their 346 million people saw 0.3% growth in the April-to-June period, compared with the first three months of the year, the EU statistics agency Eurostat reported Monday.
That’s an improvement over zero growth in the first quarter and a slight decline in fourth quarter of last year — but not by much. Plus, one-time factors and an outsized bump from Ireland made things look better than they really were.
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The eurozone got a boost by 0.5% growth in France and 0.4% in Spain, where lower inflation has helped lift consumer spending power.
Yet the French figure was increased by the delivery of one very large manufactured item — a cruise ship. That statistical quirk flattered French growth but does little to disguise weak demand for goods in the eurozone’s second-largest economy.
Ireland’s growth of 3.3%, largest in the eurozone, also distorted the overall picture. Its growth figures often show large swings due to major international companies housing their headquarters there, including tech giants like Meta, Google and Apple.
Without Ireland, euro-area growth would have been only 0.1%, said Franziska Palmas, senior Europe economist at Capital Economics.
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The overall figure “was driven by a few country idiosyncrasies and masks an underlying momentum that is likely much closer to stagnation,” said Marc de Muizon, senior European analyst at Deutsche Bank Research.
Europe’s largest economy, Germany, struggled in the second quarter, recording zero growth after two straight quarters of falling output as it grappled with high energy costs tied to Russia’s war in Ukraine. Italy, the No. 3 economy, shrank by 0.3%.
The eurozone growth figures for the first quarter were revised from a decline of 0.1%, statistically erasing what had been two straight quarters of contraction — one definition of recession.
Inflation in the eurozone, meanwhile, continued its gradual decline, falling to 5.3% in July from 5.5% in June.
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Europe is still struggling with the aftershocks of Russia’s invasion of Ukraine, including Moscow cutting off most of its natural gas to the continent that sharply raised prices for the fuel and the electricity it generates.
In Germany, Europe’s manufacturing powerhouse, Vice Chancellor and Economy Minister Robert Habeck has proposed capping energy prices for industry with government help.
The worst of the price spike is over, but costs are still higher than before the war began. Energy has faded as a main driver of inflation, but price rises are hitting Europeans when they shop for groceries, clothes and more, and the rebound for services companies _ such as hotels and restaurants that suffered during the COVID-19 pandemic — has mostly run its course.
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Food prices rose 10.8% in July from a year earlier, an improvement from June and previous months but still a pain point for households. Energy, meanwhile, kept dropping, falling 6.1%. Stripping out volatile food and energy prices, core inflation held steady at 5.5% — a key indicator that has not fallen as much as central bankers want.
In a bright spot for Europe, rebounding travel, especially in the Mediterranean countries that heavily rely on tourism, is expected to support growth in the upcoming third quarter as people flock to the beach for their summer holidays in Greece, Spain and Italy, despite recent heat waves and wildfires.
Other than that, prospects for the rest of the year are muted. Another drag on the economy is the rapid series of interest rate increases that the European Central Bank has unleashed to knock down inflation.
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The ECB made its ninth straight hike Thursday, bringing its key deposit rate from minus 0.5% to 3.75% in just one year, a record pace since the creation of the euro in 1999. The result has been higher mortgage rates and canceled construction plans due to expensive or unavailable credit.
The central bank’s lending survey shows the lowest level of business loans and credit lines since the statistics started in 2003.
Bank President Christine Lagarde left open whether the bank will keep hiking rates at its next meeting on Sept. 14, saying the decision will depend on incoming inflation data.
Since the rate hikes began, inflation has steadily fallen from a peak of 10.6% in October, but July’s figure of 5.3% is still well above the ECB’s 2% target.
Bank officials say tough action now will spare even more painful restriction of credit later if inflation gets completely out of control.
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 Press. All rights reserved.
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.
The Canadian Press. All rights reserved.
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.
The Canadian Press. All rights reserved.
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