For two months it’s been impossible to get a table in the four Romain Fontell restaurants. The bustle has returned to Barcelona. After two stagnant years, cruise ships, big concerts and festivals have finally returned to the city, along with the throngs of tourists. Hotels are hanging no vacancy signs again and money pouring in at restaurants is filling cash registers. It’s the kickoff to a promising summer. “The numbers have already overtaken 2019 and the forecasts for the coming months are very good,” celebrates Fontell. His restaurants have survived the pandemic and he says they’ve learned to deal with inflation. But he doesn’t want to anticipate what might happen in the fall. “We’ve learned to live day by day,” he says. But by then, new threats will cloud the economic recovery again. Indeed, analysts are already seeing signs of recession.
Economic forecasting has become impossible, even in the short term. The backlash following of the global pandemic has been fading. A year ago, international organizations predicted a very strong growth in the eurozone, close to 4%. The European Central Bank (ECB) was the last institution to lower it, to 2.8%. In other times, any economist would think more than twice before uttering the word “recession”. That’s no longer the case. Headwinds are blowing towards Europe from all directions, especially from Russia. The prolongation of war in Ukraine and the adoption of new rounds of sanctions may sharpen the rise in prices and further damage growth in the eurozone. If Moscow decides to turn off the gas tap, Europe may even find itself facing a freezing winter.
Everything suggests that Europeans have decided to take a break during the summer. In Spain, with many still entitled to saving schemes and the improvement in the labor market —with more permanent contracts— means hotels and restaurants will be bustling. “We are seeing that consumers are willing to spend their savings, and leisure and tourism are included in this plan. Everything suggests it’s going to be a good season,” says Ángel Talavera, an analyst at Oxford Economics. From the command posts of the EU, summer in Spain, Italy or Greece is perceived as a balm to compensate for the setback that industry and construction in Germany might experience this quarter.
But among economists, expressions such as “black autumn” are beginning to spread. “Let’s cross our fingers,” is all that the Barcelona restaurateur, Fontell, can say. If nothing goes wrong, Europe —and Spain— will continue to grow. The influential German institute, Ifo, expects the European locomotive to grow by 2.5% this year and 3.7% the following. The director of Analysis, Timo Wollmershäuer, explains that the war in Ukraine, the energy crisis and the confinements in China have already forced forecasts for this year to be cut by 1.5 points compared to those made at the end of 2021. If all of thishad hit the German economy in normal times, we would have fallen into recession”, he comments.
The forecasts of all the organizations, however, are full of asterisks and footnotes. Risks connected with the pandemic are dissipating, but new geopolitical threats are emerging. “In Europe, the story could be even bleaker than in the United States because of the prospect of a Russian energy boycott,” warns Adam Tooze, a historian and professor at Columbia University.
The ECB has outlined an alternative scenario to its central forecasts in which it contemplates a total closure of the tap by Vladimir Putin. The Kremlin has already blocked supplies to several EU partners, such as the Netherlands and Finland, and has reduced shipments to Germany, France, and Italy. Europe fears, however, that Moscow will go further, with cuts that imply rationing and with prices that continue to skyrocket.
This hypothesis, according to the ECB, already suggests a much weaker growth for 2022, of 1.3%, and a contraction of 1.7% in 2023. Inflation would also become more persistent and would stand at an average of 8% this year and 6.4% the following. Higher prices would eat into household income and consumption would be depressed. In other words, the much-feared stagflation. Despite its limited exposure to Russia, it would be unusual if Spain were not swept up in this dynamic.
The pandemic has shown how quickly any crisis, health or economic, spreads across the planet. And Europe’s main trading partners are beginning to show signs of exhaustion. This week, in the United States, an overheating economy has already seen two phenomena that have not gone unnoticed by economists. First: Wall Street entered an unmistakably bearish path after accumulating losses of more than 20% since its historical peak on January 4. Second: the interest curve was inverted; that is, the two-year bonds yielded more than the ten-year debt, indicating short-term pessimism. In both cases, analysts see signs that a recession is on its way.
More alarming than these two signs is the consensus of economists and businessmen who already speak openly of a recession in 2023. Though they maintain it’ll be short-lived, 70% of economists surveyed in a Financial Times survey hold this view. “Inflation is above target and the Federal Reserve must reduce it by raising interest rates and slowing down demand and the economy,” says Jonathan Wright, professor of economics at Johns Hopkins University, who coordinated the survey.
The central bank, chaired by Jerome Powell, wants its aggressive interest rate policy to cause, at most, a soft landing for an economy that quickly recovered from the pandemic and with a very strong labor market. However, Wright considers this unlikely. “Given the inflation situation, it’s clear that the Fed needs to tighten financial conditions quickly – and it will – even if the cost is to cause a recession,” he says.
Adam Tooze, who highlights this “dramatic change” in expectations, says he is primarily concerned about the US housing market. “Mortgage rates have increased from 3% to 6% in just six months. By 2023, a price drop is predicted. The US real estate sector is the largest single form of wealth in the world economy,” he adds. On top of this this is the collapse of the cryptocurrency market, which had already become popular as an investment.
There is also no good news from China, the EU’s other major trading partner and at the same time its “systemic rival”, in the words of Brussels. Beijing’s covid-zero policy, based on lockdowns in the face of new outbreaks, continues to prevent the end of bottlenecks and the great global traffic jam, adding to surging inflation. The investment bank Nomura expects growth for the Asian giant of 3.3%, a modest figure in relation to the frenetic pace of expansion of the Chinese economy in recent years. And that figure may decrease, according to the company, if the brick bubble that began with the Evergrande real estate crisis ends up bursting.
However, these aren’t all the dangers. The world is also awaiting the resolution that the ECB gives to the dilemma between growth and inflation. Southern countries accept that rates should be raised, but with great care so that the recovery is not derailed. Those in the north think that Frankfurt is too late. “The ECB has yet to admit that it will have to raise interest rates well into positive territory, above 3% and possibly much higher. This will slow down the economy. The war in Ukraine increases the chances of recession. It is frustrating to see that the ECB is still dragging its feet,” says Charles Wyplosz, a professor at the Graduate Institute in Geneva.
However, the south of the euro zone, led by Italy, held its breath after witnessing a rise in risk premiums just from announcing the first rise in interest rates. The biggest fear: the debt crisis of 2010, which was also the euro crisis. Athanasios Orphanides, now a professor at the Massachusetts Institute of Technology business school, was then governor of the Central Bank of Cyprus and a member of the governing council of the ECB. He believes that the problems that hit the euro zone back then have not yet been resolved. “As the ECB tightens policy, we may see a more significant tightening of monetary conditions in Italy and Spain, for example. That could lead to catastrophic results in those Member States, but the whole euro area is going to suffer,” he says.
If all those risks materialize, the big question is how intense the backlash will be. Lorenzo Codogno, a former Italian treasury secretary and professor at the London School of Economics, believes that the recession should be short-lived and limited to just a few countries. Also, let’s not forget that this time Europe has an instrument whose deployment has only just begun to support investment: a recovery fund of up to 800,000 million.
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 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.
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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