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Fact check: How does Canada's economic growth stack up with the rest of the G7? – Global News

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Andrew Scheer and Prime Minister Justin Trudeau tangled in Monday’s question period over the Liberals’ economic management.

“We look at our partners around the world and growth is higher in over half the G7 countries than it is here at home in Canada,” the Conservative leader said in the House of Commons.

Scheer said the Liberals’ deficit spending has run the domestic economy aground compared to other six countries in the G7 group of advanced economies. Trudeau said all that spending is helping the economy grow.


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“Mr. Speaker, the facts are exactly the opposite,” Scheer said.

“Mr. Speaker, the Conservatives consistently try to twist the truth,” Trudeau retorted.

Time for the Baloney Meter to count dollars and make sense.

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This claim earns a rating of “some baloney.” Here’s why.

The facts

The most common measure of economic growth is percentage increases in gross domestic product, which is a measure of the overall value of nation’s economy.

Scheer didn’t put a timeline on his charge of economic woe but his office did in response to a question from The Canadian Press. The Conservatives pointed to quarterly GDP growth figures for the third quarter of 2019 that put Canada behind the United States, the U.K. and Japan. The 0.3 per cent economic expansion recorded in that quarter was tied with France, and ahead of the 0.1 per cent for Italy and Germany.

Some countries have reported their economic growth rates for the last three months of 2019 but Canada hasn’t yet. That’s expected at the end of February.






1:14
Canada expected to have among ‘highest levels’ of economic growth of all G7 countries: Finance Minister


Canada expected to have among ‘highest levels’ of economic growth of all G7 countries: Finance Minister

But last month, the Bank of Canada said it expected to register a slowdown at the end of last year. It estimated annual growth to be 1.6 per cent in 2019 and 2020, and then two per cent in 2021.

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The International Monetary Fund tracks annual percentage increases in GDP. Based on those figures, Canada’s growth in 2016 — the first full year of the Trudeau Liberals’ government — was 1.1 per cent, according to the IMF, which was the same figure recorded in Italy and France and half a percentage point above Japan, which finished last in the G7 that year.

But since, Canada has either led G7 countries — once, in 2017 — or been second in annual growth behind the United States.

The experts

Quarterly numbers, generally, are more volatile than annual figures and can be subject to temporary changes in demand, energy prices, exchange rates or situations in other countries, among others, says Minjoon Lee, an assistant professor in Carleton University’s economics department.

The third-quarter numbers Scheer used as the foundation for his comment do put Canada below three other nations in the G7. But one quarter earlier, Canada’s growth was tops in the G7.

“The measure is very volatile, as it only captures what happened in the last quarter. This can be very sensitive to any external (and temporary) shocks that happened to the Canadian economy,” Lee says in an email.

READ MORE: Low interest rates likely to continue amid sluggish world economy: Poloz

Comparing quarterly numbers among countries can introduce bias because key national industries can operate on different cycles, says Troy Joseph, an instructor in Carleton’s economics department. For instance, auto sales decline in the fall and winter in Canada.

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“It isn’t uncommon to look at GDP quarterly measure, but to use that as an annual growth rate is a little misleading because we can see there is a big difference,” Joseph says.

The verdict

Scheer’s use of the OECD numbers are accurate on the surface. But a digging deeper into the figures reveals that his comment was a tad simple for a more complex scenario. For those reasons, his statement has “some baloney” because important details are missing.

The ratings

The Baloney Meter is a project of The Canadian Press that examines the level of accuracy in statements made by politicians. Each claim is researched and assigned a rating based on the following scale:

Baloney Scale Chart
No baloney — the statement is completely accurate

A little baloney — the statement is mostly accurate but more information is required

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Some baloney — the statement is partly accurate but important details are missing

A lot of baloney — the statement is mostly inaccurate but contains elements of truth

Full of baloney — the statement is completely inaccurate

© 2020 The Canadian Press

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Japan's Economy Recovers Pre-Pandemic Size on Consumption Gain – Financial Post

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The world’s third largest economy recovered to its pre-pandemic size in the second quarter, as consumer spending picked up following the end of coronavirus curbs on businesses.

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(Bloomberg) — The world’s third largest economy recovered to its pre-pandemic size in the second quarter, as consumer spending picked up following the end of coronavirus curbs on businesses. 

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Gross domestic product grew at an annualized pace of 2.2% in the second quarter of this year, coming in below the median estimate of 2.6%, Cabinet Office data showed Monday. That lifted the size of the economy to 542.1 trillion yen ($4.1 trillion), above what it was at the end of 2019. First quarter GDP was revised to an expansion from a prior contraction.

“The economy managed to return to its pre-pandemic size, but its recovery pace has been slower than other nations,” said economist Takeshi Minami at Norinchukin Research Institute. “I expect growth to continue in the third quarter too, but it will likely be losing momentum down the road.”

The end of pandemic restrictions on businesses in late March helped spur the economy. Consumer spending, which accounts for more than half of Japan’s economic output, led the growth, as did capital expenditure. The relaxing of Covid rules resulted in increased spending at restaurants and hotels, as well as on clothes, according to the Cabinet Office.

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Still, the gains were more limited than expected a few months ago, showing that pent-up demand among consumers has been moderate. 

What Bloomberg Economics Says…

“Going forward, we expect growth to slow in 3Q. Persistent cost-push inflation and a surge in new Covid-19 cases point to downside risks to the recovery. These will probably outweigh any boost from inventory rebuilding.”

— Yuki Masujima, economist

For the full report, click here.

While the economy regained its pre-pandemic size, economists expect the central bank to stick to its current easing policy, and the government to continue providing support for households hit by both the pandemic and rising prices. Other developed economies are doing the opposite by raising interest rates to cool demand and rampant inflation.  

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Japan’s milestone also comes behind the US’s, which recovered its pre-pandemic economy size a year ago, while much of Europe regained it at the end of 2021.

The report came out as downside risks mount at home and abroad. Japan has been reporting record Covid infection cases with daily numbers continuing to top 200,000 this month. The government has so far kept economic activity as normal as possible without bringing back restrictions. But high-frequency data suggest people’s mobility is falling. 

In Japan’s key trading partners, growth is slowing as the US and Europe fight inflation and China sticks to its zero-Covid policy. The war in Ukraine continues to disrupt food and energy supplies while the crisis in Taiwan is adding to geopolitical risks. 

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Inflation remains relatively moderate in Japan, but consumption may cool with prices rising faster than wages. After factoring in inflation, paychecks in Japan have been falling for three months in a row through June. 

Prime Minister Fumio Kishida reshuffled his cabinet last week but signaled that the core parts of his policies will remain the same. Kishida also suggested he’ll remain flexible on fiscal support, although he’ll focus on spending existing reserve funds first before reaching for additional debt issuance. 

Japan Kishida Orders Continued Wheat Prices Cap, More Grants (1)

Kishida ordered Monday another set of measures to contain inflation by early September, with a boost in funding for regional governments and a continued cap on imported wheat prices. He emphasized that wage gains need to be sustained, while saying that the additional support measures will concentrate on food, regional grants and energy. 

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For now, the measures will be supported by existing reserve funds, though Kishida said he’ll remain flexible in his approach.

“Inflation can cool consumption, although oil prices may stabilize with the global economy slowing down,” said Norinchukin’s Minami. “As downside risks mount in the world economy, there’s a risk that Japan’s economy could contract at some stage toward the end of the year.”

Bank of Japan Governor Haruhiko Kuroda has repeatedly said that the central bank must retain its easing program to support the economy until inflation becomes sustainable. He’s still seeking healthy wage gains, and price rises that go beyond a boom in commodities. 

So far, economists expect growth in Japan to remain moderate for the rest of the year, slowing as the months progress. For the third quarter, analysts expect annualized gains of 3.2%. 

(Updates with more details on additional price relief measures)

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China’s economy slows unexpectedly as Covid outbreaks and property crisis bite – The Guardian

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[unable to retrieve full-text content]

  1. China’s economy slows unexpectedly as Covid outbreaks and property crisis bite  The Guardian
  2. China’s economy slows unexpectedly as rebound sputters  MarketWatch
  3. China’s Economic Recovery Weakens Amid Fresh Covid Flareups  Bloomberg
  4. China unexpectedly cuts key rates as economic data disappoints  Reuters.com
  5. View Full coverage on Google News



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6 Questions About the Market & the Economy – A Wealth of Common Sense

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I did a radio interview this week.

I don’t do a lot of these things because it’s just easier and more comfortable to talk about stuff on my podcast but this one sent me a great list of questions ahead of time that I liked.

Here are 6 of the best questions with some thoughts on each:

(1) What is your reaction to the latest CPI report and your outlook on inflation?

Inflation was basically flat from June to July.1

This is the first good news we’ve gotten on the price front in a while. You can see the energy components finally softened in a big way (via the BLS):

Inflation of 8.5% over the past 12 months is still uncomfortably high but it’s going to take a while for that rate to subside, even if prices do continue to slow in the months ahead.

Obviously, one data point does not make a trend but it does seem like the Fed’s moves along with some easing of supply chains have helped stop the uninterrupted rise in prices.

Gas prices are down like 60 days in a row. Oil prices are down. Used car prices are finally falling.

We can build on this (I hope).

(2) Where does the Fed go from here?

It’s difficult to know exactly what the Fed will do without knowing what the inflation data will look like in the coming months.

Back in the summer of 2020, the Fed said they were comfortable letting inflation run hot for a while if it meant a more robust recovery for the labor market.

The labor market is certainly in a better place than it was in 2020 but inflation is running just a smidge higher than their 2% target.

Fed officials say they’re not done hiking rates just yet and I tend to believe them (for now):

Minneapolis Federal Reserve Bank President Neel Kashkari on Wednesday said he is sticking to his view that the U.S. central bank will need to raise its policy rate another 1.5 percentage points this year and more in 2023, even if that causes a recession.

The Fed is “far, far away from declaring victory” on inflation, Kashkari said at the Aspen Ideas Conference, despite the “welcome” news in the consumer price index report earlier in the day that inflation may have begun to cool.

Kashkari said he hasn’t “seen anything that changes” the need to raise the Fed’s policy rate to 3.9% by year-end and to 4.4% by the end of 2023. The rate is currently in the 2.25%-2.5% range.

The Fed waited too long to act and they don’t want to look like idiots again.

They care more about inflation than the job market right now so they’ll likely keep raising rates until we get a number of lower inflation prints.

If they go too far that has to be a risk to both the stock market and the economy.

(3) What does a soft landing look like?

Let’s start with what a hard landing looks like and work backwards.

A couple of months ago I looked at what has happened to the unemployment rate during past recessions:

The average increase is more than a doubling off the lows. That would take us to more than 7% from the current 3.5% unemployment rate.

To me, a soft landing would see inflation below 4% or so without a commensurate rise in the unemployment rate. The lowest it’s ever increased to during past slowdowns is just over 6%.

I’d say anything 5% and under for the unemployment rate would be a win if we could get inflation back to 3% or so.

What’s the scenario that could make this happen?

The labor market is in a weird place right now since there are more jobs available than people who are looking for one:

Those openings have come down a bit from 11.7 million to 10.7 million. The dream soft landing scenario for the Fed would see these openings fall by 4-5 million but the unemployment rate doesn’t go much above 4-5%.

Is this actually possible?

History says no but employers have been dealing with a challenging hiring market since the start of the pandemic.

Sam Ro wrote a thought-provoking piece this week about the concept of labor hoarding that’s worth considering:

So what explains the current reluctance to shed workers?

Maybe recent experience has something to do with it.

Much of the ongoing economic recovery has come with persistent labor shortages. Employers haven’t been able to hire fast enough to keep up with the booming demand for their goods and services.

At least some of the employers seeing business slow right now remember how hard it was to recruit talent over the past two years and would rather just hang on to employees, even if it comes with carrying costs.

As a matter of convenience, of course it’s easier to just hang on to workers during a slowdown or recession if you expect the downturn to be brief and shallow.

Millions of people were either let go or put on the shelf in 2020 and that made it more difficult to re-staff once demand came back faster than companies are used to.

What if employers hold onto more employees than in past recessions if they assume the next one will be mild?

What if companies don’t want to go through the hiring process all over again following a recession?

That’s probably the best-case scenario for a soft landing if the Fed does cause a meaningful downturn in economic activity to get inflation under control.

(4) What is your general outlook on the markets and/or a recession?

I wish I had a good answer for this one. I don’t.

We could go into a recession while the stock market hits all-time highs.

Or we could see the stock market tank even if the economy improves from here.

Sometimes these things don’t make sense.

My macro outlook has never really helped my portfolio all that much.

Sometimes my thoughts on the economy/markets would have served me well. Other times my thoughts on the economy/markets would have destroyed my portfolio.

Here’s a little secret about investing the pros will never admit — you don’t have to predict the future to be successful in the markets.

Outlooks are more helpful for your ego than your performance in most cases as long as you have a reasonable investment plan in place.

(5) What can we learn from this downturn?

Since the start of 2020, the U.S. stock market has fallen 34%, risen 120%, declined 24% and now gained almost 17%.

In less than 3 years, it’s felt like we’ve lived through every cycle imaginable — 1918, 1929, 1999, the 1970s, maybe the 1960s and some other parallel I’m probably missing.

Everything in the markets is cyclical.

Stuff that has never happened before happens all the time.

The biggest risks are always the things you’re not thinking about or preparing for.

(6) Have we hit a bottom in the markets?

I took a stab at this one a couple of weeks ago and markets are up even more since then.

If inflation keeps improving and there isn’t some outside shock to the system it wouldn’t surprise me to see new highs by 2023 (maybe earlier?).

But the risk of a Fed policy error has probably never been higher so I wouldn’t be surprised to see more volatility in the months ahead either.

If that was the bottom, it will feel obvious once we know for sure.

If stocks roll over again, that will seem obvious too.

That’s the kind of market we’re in.

If stocks fall further that could present a good opportunity to rebalance into the pain.

If stocks keep rising you’ll just have to wait for the next correction to buy at lower prices.

Bottom or not, volatility is a feature of the stock market and it will return at some point.

Further Reading:
Every Time Out it’s a Guess

1Technically it was 0.02% lower but I’m not a fan of decimal points with economic data.

 

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