The world’s major economies are showing growing recessionary trends under the impact of the disruption caused by governments’ “let it rip” policies on COVID-19, rising inflation and the higher interest rate regime being imposed by central banks aimed at crushing workers’ wage demands.
Amid concerns of the spread of COVID-19, a shopper wears a mask as she looks over meat products at a grocery store in Dallas, April 29, 2020. (AP Photo/LM Otero, File)
The US, the world’s largest economy, has experienced two successive quarters of negative growth, with indications of further contraction to come as consumer spending is hit by rising prices in basic items.
The impact of COVID is reflected in the employment and labour market data. The US labour force is 600,000 smaller than at the start of the pandemic in 2020. But as the Wall Street Journal noted in a recent article “it is several million smaller if you adjust for the increase in population.” The number of workers has fallen by 400,000 since March.
The labour force participation—the proportion of the population over the age of 16 in work or seeking work—is continuing to fall. It was 62.1 percent in July, down from 62.4 percent in March. Before the onset of the pandemic, it was 63.4 percent.
The hit to the US economy is also reflected in economic output data. According to projections by the Congressional Budget Office, gross domestic product in the second quarter was 2 percent below where it had expected to be in January 2020. Employment is also 2 percent lower than predicted—a loss of around 3 million jobs.
At the same time, inflation is now running at between 8 percent and 9 percent, with essential grocery items up more than 13 percent over the past year. While wages have risen, they have fallen behind the inflation rate, meaning in real terms that there has been a fall of 3.6 percent in the wage of the average worker. This means there is downward pressure on consumption spending which accounts for up to 70 percent of US GDP.
China, the world’s second largest economy, is experiencing a significant downturn in growth. The economy grew by only 0.4 percent in the second quarter, barely escaping an outright contraction, and the outlook appears to be worsening.
On Tuesday, Chinese Premier Li Keqiang held a meeting with local officials from six key provinces, accounting for 40 percent of its economy, calling on them to undertake measures to boost growth after July data on consumption and industrial production came in below expectations.
The worsening outlook for the Chinese economy is the result of the global pandemic, which the Chinese government, in contrast to all others, is battling to control, and the sharp decline in the property market.
Li’s appeal to local authorities to do more and promises that the central government would take measures to promote growth, came in the wake of a decision by the central bank to reduce medium-term interest rates to try to stimulate the economy.
The real estate sector, which accounts for more than a quarter of China’s economy once flow-on effects are considered, continues to worsen. The amount of “residential floor space,” on which construction began in the period from April to June this year, was down by nearly a half compared to last year.
Local government finances are being severely affected with revenue from land sales so far this year down by 31 percent, compared to the first six months of last year.
Consumption spending is only marginally higher than the first half of last year in real terms and running at 10 percent below the trend prior to the pandemic.
Germany, the world’s fourth largest economy, is on the brink of recession, if not already in one. Data released earlier this week showed that retail sales fell at the fastest annual rate since records began to be collected in 1994, down 8.8 percent compared to a year ago. This followed data which showed that German economic growth was stagnant in the second quarter.
The German economy is being battered by the effects of the ongoing NATO proxy war against Russia in Ukraine as gas prices spiral and supplies are cut, with effects hitting the entire eurozone economy.
The chief business economist at S&P Global Market Intelligence, Chris Williamson, told the Financial Times that manufacturing activity in Germany and elsewhere was “sinking into an increasingly deep downturn, adding to region’s recession risks.”
Last week, Clemens Fuest, head of the German economic think tank Ifo, said the concern was the “broad-based” nature of the weakness in the economy. In previous downturns, he said, when services suffered, industry recovered, and vice versa. “But now we’re seeing weakness across the board.”
Britain, the world’s fifth largest economy, continues to be hit by worsening economic events. Yesterday, it was reported that the official UK inflation rate for July, itself an understatement of the impact on working-class families, had reached 10 percent. It is set to rise even further with the Bank of England forecasting it will reach 13 percent by the end of the year.
The Bank of England has already predicted that the UK economy will move into recession with a contraction of at least 2 percent from peak to trough.
The contraction is now likely to be much higher with the central bank set to escalate its interest rate tightening policy, which is intended to drive the economy into recession to suppress the mounting wage demands throughout the British working class.
It is now expected that the central bank will carry out multiple increases of 50 basis points in its base interest rate for the rest of the year. Real wages are continuing to fall with the latest data showing they have fallen by 4.1 percent, the largest decline since record began in 2001.
Falling wages will bring cuts in consumption spending, accelerating the drive into recession.
The only “bright spot,” if it can be called that, in this worsening situation across the world’s major economies, is Japan, the world’s third largest economy.
Its economy grew at annualised rate of 2.2 percent in the second quarter, boosted by a rise in consumption spending as the government lifted COVID restrictions. But the rise is likely to be a one-off. In the first quarter GDP rose by only 0.1 percent and in its latest economic update in July the International Monetary Fund revised down its estimate of Japanese economic growth for 2022, from 2.4 percent in April to just 1.7 percent.
This week Bloomberg carried a significant report on the decline in orders for computer chips, which was sending “shudders through North Asia’s high-tech exporters, which historically serve as a bellwether for the international economy,”
It reported that South Korean chip companies, Samsung and SK Hynix, had signalled plans to cut back on investment while the Taiwan Semiconductor Manufacturing Company, the world’s largest producer, was going in the same direction.
South Korea’s technology exports fell in July for the first time in two years and “semiconductor inventories piled up in June at the fastest pace in more than six years.”
Bloomberg noted that exports from Korea, the world’s 12th largest economy, “have long correlated with global trade, meaning their decline will add to signs of trouble for a world economy facing headwinds from geopolitical risks to higher borrowing costs.”
The marked downward shift in the major economies is not the result of a conjunctural shift in the business cycle to be followed by an upturn.
It is one aspect of the general breakdown of the global capitalist economy, manifested in the ongoing COVID crisis, record levels of private and government debt, the economic effects of climate change, as can be seen in the fall in water levels in the Rhine hitting the movement of goods via barges in Germany, and the highest inflation in four decades, accelerated by the war against Russia and the increasing bellicosity against China.
And it is the outcome of the class war being waged by global finance capital against the international working class. The ruling classes, having handed out trillions of dollars to corporations and the financial markets in the form of direct government money and the provision of ultra-cheap funds by the central banks, are determined to make the working class pay in what amounts to a social counter-revolution.
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.
