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Everyone guessing about coronavirus economic impacts

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BOSTON/WASHINGTON — The coronavirus that spread from a seafood market in Wuhan, China to infect tens of thousands has shuttered businesses, grounded flights and killed over 1,000 people so far, mostly in China.

As the world’s second-largest economy struggles to get back to work after an extended Lunar New Year holiday, analysts and bankers have been revisiting their estimates of the economic impact of the virus.

Most believe China faces a short but sharper economic shock than originally thought, one that will be felt around the world. Expectations of how harsh the impact will be vary widely, however. Health professionals and economists say opaque Chinese data and lack of precedent hinder clear estimates.

China’s gross domestic product growth in the first quarter could fall to as low as 4%, Nicholas R. Lardy, senior fellow at the Peterson Institute for International Economics, estimated on Tuesday. That compares to Chinese government estimates of 6% annual growth before the virus emerged.

However, if the number of confirmed new coronavirus cases continues to decline, then adverse effect on annual growth will be much smaller, he added.

Analysts from S&P, meanwhile, estimated Tuesday that the virus could lower China’s GDP growth to 5.0% this year, with a peak effect in the first quarter before a rebound begins in the third quarter.

“The numbers are very imperfect, and that’s the basic reason behind the wide range of estimates,” said Lardy. “Everyone is guessing.”

Many economists and analysts are looking closely at the historical precedent from the SARS virus spread in 2003. But when SARS struck, China’s contribution to global GDP was just 4%, compared with 15% in 2017, and Chinese companies were much less integrated into global supply chains.

Any forecasts are also complicated by the fact that Beijing has a history of closely managing China’s economy to hit specific targets, and there were already doubts whether China’s economy could reach 6% growth this year.

Further, much remains unknown about the coronavirus, including its exact incubation period and the effectiveness of China’s quarantine measures, Catherine Troisi, a University of Texas public health specialist, said Tuesday during a National Association for Business Economics call on the virus’s economic impact.

The authoritarian nature of China’s government could also hinder the response by making officials afraid to report problems, she said, adding the latest update of around 43,000 infections is likely an undercount.

“It’s a culture that shoots the messenger. Because of the bureaucracy, local officials are afraid to say anything,” she said.

Headwinds from the virus could knock 40 to 50 basis points off expected U.S. economic growth of up to 2.4% per quarter for 2020, said Constance Hunter, KPMG Chief Economist and president of NABE, also speaking during the call.

Hunter, however, cautioned that could change if infection and death rates spike up. The virus could shave a percentage point off China’s revised growth rate of 5% for the first half of the year, she said.

Jay Bryson, acting Chief Economist for Wells Fargo & Co, said on the call that while some U.S. industries including air travel and electronics could be affected by a Chinese economic slowdown stemming from the epidemic, trade with China still accounts for a small part of the overall economy.

“We wouldn’t say this is going to bring the U.S. economy to its knees,” he said. “Americans are pretty resilient when it comes to consumer spending,” especially on services.

Supply chain disruptions “would have to occur for a while to have a meaningful impact,” he said.

It is unclear whether the coronavirus will prove more or less deadly than other similar outbreaks, Troisi added. “I’m not a fortune teller,” she said.

(Reporting by Ross Kerber in Boston and Heather Timmons in Washington, Editing by Rosalba O’Brien)

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Canada’s unemployment rate holds steady at 6.5% in October, economy adds 15,000 jobs

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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.

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Health-care spending expected to outpace economy and reach $372 billion in 2024: CIHI

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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.

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Trump’s victory sparks concerns over ripple effect on Canadian economy

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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.

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