Flames and smoke billow during Israeli strikes in Gaza on Monday. Markets have reacted since the Hamas attack on Israel, but the full extent of economic impact is not yet clear. (Mohammed Salem/Reuters)
The war between Israel and Hamas poses a whole new series of risks to an already fragile global economy, and economists are warning it could take some time for the fallout to be clear.
“The global economy is limping along, not sprinting,” said International Monetary Fund chief economist Pierre-Olivier Gourinchas said at a joint meeting of the IMF and the World Bank in Morocco this week.
The annual meeting and its forecasts were all overshadowed by the crisis unfolding in southern Israel and Gaza.
“It’s a humanitarian tragedy and it’s an economic shock we don’t need,” World Bank President Ajay Banga told Reuters.
Hamas militants swept across the border into Israel this weekend unleashing an unprecedented wave of attacks on villages near the Gaza border. More than 1,000 Israelis were killed, and more than 100 were dragged back into captivity in Gaza. Israeli warplanes have responded with days of airstrikes. Palestinian authorities say at least 900 people have been killed in Israeli airstrikes, and at least 4,500 have been wounded.
Drone video footage shows burned-out cars on the side of the road near an open-air music festival where Hamas gunmen fired on those attending. (South First Responders/Telegram/Reuters)
As the world watched those events in horror, the price of oil jumped by as much as five dollars per barrel, futures markets fell and the Israeli currency, the shekel, sunk to a seven-year low.
Since then, market reaction has been relatively subdued. But most experts believe that’s because no one really knows what will happen in the days ahead.
“Anything in the Middle East has always been high-risk of spreading,” said Paul Samson, the president of the Centre for International Governance Innovation in Waterloo, Ont.
Risk of conflict widening
On Monday, Israeli Prime Minister Benjamin Netanyahu said Hamas had made a mistake “of historic proportions.”
“We will exact a price that will be remembered by them and Israel’s other enemies for decades to come,” he said in a prepared statement.
Israel has called up 300,000 reservists and mobilized tanks along the border. The U.S. is moving an aircraft carrier strike group into the region as a show of support for its ally Israel.
Experts say all that raises the stakes that the conflict could widen.
“If this expands and brings in other parties, then the outlook is for even a weaker global economy, even more inflationary pressures. And the markets are going to be finding it hard to deal with that,” renowned economist Mohamed El-Erian told the financial news channel CNBC.
Right now, oil traders seem to be watching along with the rest of the world unsure of what comes next.
Rory Johnston, the founder and publisher of the newsletter Commodity Context, says the conflict has a very real risk of drawing in two of the region’s biggest oil suppliers: Saudi Arabia and Iran.
“Everyone knows that Iran supports Hamas,” said Johnston. “What we don’t know is the extent of culpability in the explicit planning and green-lighting of this attack.”
Iran’s top authority, Ayatollah Ali Khamenei, denied any involvement, but heralded the attack as a success.
Johnston says the Saudi deal reportedly involved boosting oil production, which would cut the cost of gasoline for global consumers. But now, he says, it’s unclear what will happen with the Saudi deal adding yet another layer of complexity to the oil market’s reaction.
“So, we have the two countries [Iran and Saudi Arabia] that have had the most variable oil production over the past year are now explicitly being implicated and pulled into the conflict and how it evolves from here,” he said.
What this could mean for inflation
The price of oil is directly related to the cost-of-living crisis throughout the Western world. If crude oil prices rise, that means consumers pay more at the pumps.
Saudi Arabia was reportedly considering boosting oil production if it could close a trade deal with Israel. (AP Photo/Hasan Jamali, File) (Hasan Jamali/The Associated Press)
“We were hoping inflation was going down,” said Mark Manger, a professor of political economy at the Munk School of Global Affairs & Public Policy.
Beyond the price of oil, he says the price of bonds has ticked up since the weekend as investors seek out safe havens like U.S. treasuries and German bonds.
And, he says uncertainty and war weigh heavily on global trade as people quickly try to avoid risk.
“Fair to say, all of this is inflationary,” he said.
Samson says consumers, investors and policymakers alike need to brace for the very real chance that however this plays out, it will take a long time to resolve.
“I can’t imagine that the dust is settled within a year,” he told CBC News. “That doesn’t mean a conflict going on, but you know, there is a lot of dust to settle here.”
OTTAWA – Statistics Canada says wholesale sales, excluding petroleum, petroleum products, and other hydrocarbons and excluding oilseed and grain, rose 0.4 per cent to $82.7 billion in July.
The increase came as sales in the miscellaneous subsector gained three per cent to reach $10.5 billion in July, helped by strength in the agriculture supplies industry group, which rose 9.2 per cent.
The food, beverage and tobacco subsector added 1.7 per cent to total $15 billion in July.
The personal and household goods subsector fell 2.5 per cent to $12.1 billion.
In volume terms, overall wholesale sales rose 0.5 per cent in July.
Statistics Canada started including oilseed and grain as well as the petroleum and petroleum products subsector as part of wholesale trade last year, but is excluding the data from monthly analysis until there is enough historical data.
This report by The Canadian Press was first published Sept. 13, 2024.
VICTORIA – British Columbia is forecasting a record budget deficit and a rising debt of almost $129 billion less than two weeks before the start of a provincial election campaign where economic stability and future progress are expected to be major issues.
Finance Minister Katrine Conroy, who has announced her retirement and will not seek re-election in the Oct. 19 vote, said Tuesday her final budget update as minister predicts a deficit of $8.9 billion, up $1.1 billion from a forecast she made earlier this year.
Conroy said she acknowledges “challenges” facing B.C., including three consecutive deficit budgets, but expected improved economic growth where the province will start to “turn a corner.”
The $8.9 billion deficit forecast for 2024-2025 is followed by annual deficit projections of $6.7 billion and $6.1 billion in 2026-2027, Conroy said at a news conference outlining the government’s first quarterly financial update.
Conroy said lower corporate income tax and natural resource revenues and the increased cost of fighting wildfires have had some of the largest impacts on the budget.
“I want to acknowledge the economic uncertainties,” she said. “While global inflation is showing signs of easing and we’ve seen cuts to the Bank of Canada interest rates, we know that the challenges are not over.”
Conroy said wildfire response costs are expected to total $886 million this year, more than $650 million higher than originally forecast.
Corporate income tax revenue is forecast to be $638 million lower as a result of federal government updates and natural resource revenues are down $299 million due to lower prices for natural gas, lumber and electricity, she said.
Debt-servicing costs are also forecast to be $344 million higher due to the larger debt balance, the current interest rate and accelerated borrowing to ensure services and capital projects are maintained through the province’s election period, said Conroy.
B.C.’s economic growth is expected to strengthen over the next three years, but the timing of a return to a balanced budget will fall to another minister, said Conroy, who was addressing what likely would be her last news conference as Minister of Finance.
The election is expected to be called on Sept. 21, with the vote set for Oct. 19.
“While we are a strong province, people are facing challenges,” she said. “We have never shied away from taking those challenges head on, because we want to keep British Columbians secure and help them build good lives now and for the long term. With the investments we’re making and the actions we’re taking to support people and build a stronger economy, we’ve started to turn a corner.”
Premier David Eby said before the fiscal forecast was released Tuesday that the New Democrat government remains committed to providing services and supports for people in British Columbia and cuts are not on his agenda.
Eby said people have been hurt by high interest costs and the province is facing budget pressures connected to low resource prices, high wildfire costs and struggling global economies.
The premier said that now is not the time to reduce supports and services for people.
Last month’s year-end report for the 2023-2024 budget saw the province post a budget deficit of $5.035 billion, down from the previous forecast of $5.9 billion.
Eby said he expects government financial priorities to become a major issue during the upcoming election, with the NDP pledging to continue to fund services and the B.C. Conservatives looking to make cuts.
This report by The Canadian Press was first published Sept. 10, 2024.
Note to readers: This is a corrected story. A previous version said the debt would be going up to more than $129 billion. In fact, it will be almost $129 billion.
NANAIMO, B.C. – Former Bank of Canada governor Mark Carney says he’ll be advising the Liberal party to flip some the challenges posed by an increasingly divided and dangerous world into an economic opportunity for Canada.
But he won’t say what his specific advice will be on economic issues that are politically divisive in Canada, like the carbon tax.
He presented his vision for the Liberals’ economic policy at the party’s caucus retreat in Nanaimo, B.C. today, after he agreed to help the party prepare for the next election as chair of a Liberal task force on economic growth.
Carney has been touted as a possible leadership contender to replace Justin Trudeau, who has said he has tried to coax Carney into politics for years.
Carney says if the prime minister asks him to do something he will do it to the best of his ability, but won’t elaborate on whether the new adviser role could lead to him adding his name to a ballot in the next election.
Finance Minister Chrystia Freeland says she has been taking advice from Carney for years, and that his new position won’t infringe on her role.
This report by The Canadian Press was first published Sept. 10, 2024.
