The guardians of the global economy will gather this week, one year into the pandemic, to assess the damage and chart a path forward.
The International Monetary Fund and World Bank spring meetings will take place virtually for a second year starting on Monday. The IMF will release its updated World Economic Outlook on Tuesday, with Managing Director Kristalina Georgieva already indicating that it will include an upgrade to January’s forecast for 5.5% global economic growth for 2021.
What Bloomberg Economics Says:
“A shrinking virus threat, expanding U.S. stimulus boost, and trillions of dollars in pent-up savings ready to be spent mean the world economy is poised for the fastest expansion on record back to the 1960s.”
–Tom Orlik, chief economist. For full analysis, click here
Beyond the much-watched economic report, attention will focus on a Group of 20 finance ministers’ meeting on Wednesday, where officials may decide to extend the Debt Service Suspension Initiative, set to expire in June, through the end of this year. The program has provided $5 billion in debt relief for low-income nations since it began last May, according to World Bank data.
Another focus of conversation will be the IMF’s proposed $650 billion issuance of reserve assets known as special drawing rights. While the official proposal won’t come until June, Georgieva last month touted broad support for the idea among IMF members.
The plan would help send more than $20 billion to poor countries. U.S. Treasury Secretary Janet Yellen last week told U.S. Congress that President Joe Biden’s administration intends to support the idea, starting a countdown of at least 90 days before a formal vote in favor at the IMF.
Elsewhere, minutes of the latest Federal Reserve and European Central Bank meetings will shed insight on policy makers’ thinking and central banks in India, Australia and Poland are predicted to keep policy unchanged.
Click here for what happened last week and below is our wrap of what is coming up in the global economy.
U.S. and Canada
Investors will be watching out for the latest data on services activity, job openings and producer prices for signs of the economy’s progress and developing inflationary pressures.
On Wednesday, Fed watchers will also have minutes of the central bank’s last meeting to pour through and Fed Chair Jerome Powell is scheduled to speak at an event Thursday in time with the IMF’s meeting.
Asia
Japan releases household and wage data on Tuesday that will offer more insight into the hit to the economy from a second state of emergency amid signs it was less brutal than first feared.
Australia has an interest rate meeting on Tuesday and India on Wednesday. With neither central bank expected to move their main policy tools, the focus will be on their outlooks.
China releases data on Friday that’s likely to show consumer price inflation climbed back into positive territory while factory costs are starting to swell.
Europe, Middle East, Africa
The health of Europe’s manufacturing base as it weathers the coronavirus crisis will focus economists’ attention in the coming week as they gauge the underlying strength of growth drivers during the quarter that just finished.
German factory orders and industrial production data for February are among the more significant reports, and both are anticipated to show output increases during the month.
A shorter week than usual in much of the region because of the Easter holiday on Monday features fewer scheduled remarks by ECB officials to guide investors on the state of policy.
But the institution’s account of its decision on March 11 will pique interest, perhaps signaling a spectrum of opinion among governors on the risks to economic growth at a meeting when they ratified new quarterly forecasts.
Poland may announce a new fiscal stimulus program, largely paid for by EU funds. Meanwhile, the country’s central bank is set to keep policy unchanged.
Turkey may report that inflation rose to above 16% in March, when the firing of Naci Agbal and appointment of Sahap Kavcioglu as central bank governor sent the lira plunging by more than 10% as foreign investors sold Turkish assets at the fastest pace in 15 years.
Russia is expected to report that inflation accelerated to the highest since 2016 at 5.8% in March, when the central bank raised interest rates to try and combat the effects of ruble weakness and rising food prices.
Latin America
Reports on Mexico’s industrial output and manufacturing this week should point to the negative output gap of early 2021. On Thursday, the consumer price reports and the central bank minutes may boil down to this: Inflation’s above target, but the data-dependent Banxico is ready to wait, expecting it to slow in line with their forecasts. Bear in mind that the most recent GDP forecasts from Banxico and the Finance Ministry are quite upbeat too.
In contrast, gloom pervades the region’s biggest economy. One of the country’s largest hedge fund managers says Brazil may be nearing a “perfect inflationary storm.” Data out Friday may show consumer prices are well over the 5.25% target range ceiling and consistent with the more dire central bank scenarios.
Among the Andean nations, inflation in Chile should come in right around 3% whereas analysts see Colombia’s setting a record-low of 1.45%. Rounding out the week, look for Peru’s central bank to keep the key rate at a record-low 0.25% for a 12th straight meeting.
— With assistance by Peggy Collins, Benjamin Harvey, Robert Jameson, Malcolm Scott, and Michael Winfrey
Britain’s economy entered a shallow recession last year, official figures confirmed on Thursday, leaving Prime Minister Rishi Sunak with a challenge to reassure voters that the economy is safe with him before an election expected later this year.
Gross domestic product shrank by 0.1 per cent in the third quarter and by 0.3 per cent in the fourth, unchanged from preliminary estimates, the Office for National Statistics (ONS) said on Thursday.
The figures will be disappointing for Mr. Sunak, who has been accused by the opposition Labour Party – far ahead in opinion polls – of overseeing “Rishi’s recession.”
“The weak starting point for GDP this year means calendar-year growth in 2024 is likely to be limited to less than 1 per cent,” said Martin Beck, chief economic adviser at EY ITEM Club.
“However, an acceleration in momentum this year remains on the cards.”
Britain’s economy has shown signs of starting 2024 on a stronger footing, with monthly GDP growth of 0.2 per cent in January, and unofficial surveys suggesting growth continued in February and March.
Tax cuts announced by finance minister Jeremy Hunt and expectations of interest-rate cuts are likely to help the economy in 2024.
However, Britain remains one of the slowest countries to recover from the effects of the COVID-19 pandemic. At the end of last year, its economy was just 1 per cent bigger than in late 2019, with only Germany faring worse among Group of Seven nations.
The economy grew just 0.1 per cent in all of 2023, its weakest performance since 2009, excluding the peak-pandemic year of 2020.
GDP per person, which has not grown since early 2022, fell by 0.6 per cent in the fourth quarter and 0.7 per cent across 2023.
Sterling was little changed against the dollar and the euro after the data release.
The Bank of England (BOE) has said inflation is moving toward the point where it can start cutting rates. It expects the economy to grow by just 0.25 per cent this year, although official budget forecasters expect a 0.8-per-cent expansion.
BOE policy maker Jonathan Haskel said in an interview reported in Thursday’s Financial Times that rate cuts were “a long way off,” despite dropping his advocacy of a rise at last week’s meeting.
Thursday’s figures from the ONS also showed 0.7 per cent growth in households’ real disposable income, flat in the previous quarter.
Thomas Pugh, an economist at consulting firm RSM, said the increase could prompt consumers to increase their spending and support the economy.
“Consumer confidence has been improving gradually over the last year … as the impact of rising real wages filters through into people’s pockets, even though consumers remain cautious overall,” Mr. Pugh said.
Britain’s current account deficit totalled £21.18-billion ($36.21-billion) in the fourth quarter, slightly narrower than a forecast of £21.4-billion ($36.6-billion) shortfall in a Reuters poll of economists, and equivalent to 3.1 per cent of GDP, up from 2.7 per cent in the third quarter.
The underlying current account deficit, which strips out volatile trade in precious metals, expanded to 3.9 per cent of GDP.
Falling fertility rates could bring about a transformational demographic shift over the next 25 years.
It has been described as a demographic catastrophe.
The Lancet medical journal warns that a majority of countries do not have a high enough fertility rate to sustain their population size by the end of the century.
The rate of the decline is uneven, with some developing nations seeing a baby boom.
The shift could have far-reaching social and economic impacts.
Enormous population growth since the industrial revolution has put enormous pressure on the planet’s limited resources.
So, how does the drop in births affect the economy?
And regulators in the United States and the European Union crack down on tech monopolies.
Lack of business investment is the main culprit. Canadians are digging holes with shovels while our competitors are buying excavators
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Published Mar 28, 2024 • 5 minute read
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It speaks to the seriousness of the situation that the Bank of Canada is not so much taking the gloves off as slipping lead into them.
Senior deputy governor, Carolyn Rogers, came as close to wading into the political arena as any senior deputy governor of the central bank probably should in her speech in Halifax this week.
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But she was right to sound the alarm about a subject — Canada’s waning productivity — on which the federal government’s performance has been lacklustre at best.
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Productivity has fallen in six consecutive quarters and is now on a par with where it was seven years ago.
Lack of business investment is the main culprit.
In essence, Canadians are digging holes with shovels while many of our competitors are buying excavators.
“You’ve seen those signs that say, ‘in emergency, break glass.’ Well, it’s time to break the glass,” Rogers said.
She was explicit that government policy is partly to blame, pointing out that businesses need more certainty to invest with confidence. Government incentives and regulatory approaches that change year to year do not inspire confidence, she said.
The government’s most recent contribution to the competitiveness file — Bill C-56, which made a number of competition-related changes — is a case in point. It was aimed at cracking down on “abusive practices” in the grocery industry that no one, including the bank in its own study, has been able to substantiate. Rather than encouraging investment, it added a political actor — the minister of industry — to the market review process. The Business Council of Canada called the move “capricious,” which was Rogers’s point.
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While blatant price-fixing is rare, the lack of investment is a product of the paucity of competition in many sectors, where Canadian companies protected from foreign competition are sitting on fat profit margins and don’t feel compelled to invest to make their operations more efficient. “Competition can make the whole economy more productive,” said Rogers.
Using the Monopoly board game as a prop, Williams, the party’s critic for pan-Canadian trade and competition, claims that in every sector, monopolies and oligopolies reign supreme, resulting in lower investment, lower productivity, higher prices, worse service, lower wages and more wealth inequality.
Williams said that Canadians pay among the highest cell phone prices in the world and that Rogers, Telus and Bell are the priciest carriers, bar none. The claim has some foundation: in a recent Cable.co.uk global league table that compared the average price of one gigabyte, Canada was ranked 216th of 237 countries at US$5.37 (noticeably, the U.S. was ranked even more expensive at US$6).
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Williams noted that two airlines control 80 per cent of the market, even though Air Canada was ranked dead last of all North American airlines for timeliness.
He pointed out that six banks control 87 per cent of Canada’s mortgage market, while five grocery stores — Sobeys, Metro, Loblaw, Walmart and Costco — command a similar dominance of the grocery market.
“Competition is dying in Canada,” Williams said. “The federal government has made things worse by over-regulating airlines, banks and telecoms to actually protect monopolies and keep new players out.”
So far, so good.
The Conservatives will “bring back home a capitalist economy” — a market that does not protect monopolies and creates more competition, in the form of Canadian companies that will provide new supply and better prices.
That sounds great. But at the same time, the Conservative formula for fixing things appears to involve more government intervention, not less.
Williams pointed out the Conservatives opposed RBC buying HSBC’s Canadian operations, WestJet buying Sunwing and Rogers buying Shaw. The party would oppose monopolies from buying up the competition, he said.
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The real solution is to let the market do its work to bring prices down. But that is a more complicated process than Williams lets on.
Back in 2007, when Research in Motion was Canada’s most valuable company, the Harper government appointed a panel of experts, led by former Nortel chair Lynton “Red” Wilson, to address concerns that the corporate sector was being “hollowed out” by foreign takeovers, following the sale of giants Alcan, Dofasco and Inco.
The “Compete to Win” report that came out in June 2008 found that the number of foreign-owned firms had remained relatively unchanged, but recommended 65 changes to make Canada more competitive.
The Harper government acted on the least-contentious suggestions: lowering corporate taxes, harmonizing sales taxes with a number of provinces and making immigration more responsive to labour markets.
But it did not end up liberalizing the banking, broadcasting, aviation or telecom markets, as the report suggested (ironically, it was a Liberal transport minister, Marc Garneau, who raised foreign ownership levels of air carriers to 49 per cent from 25 per cent in 2018).
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The point is, Canada has a competition problem but solving it requires taking on vested interests. Conservative Leader Pierre Poilievre has indicated he is willing to do that, calling corporate lobbyists “utterly useless” and saying he will focus on Canadian workers, not corporate interests.
“My daily obsession will be about what is good for the working-class people in this country,” he said in Vancouver earlier this month.
Even opening up sectors to foreign competition is no guarantee that investors will come. There are no foreign ownership restrictions in the grocery market (in addition to the five supermarkets listed above, there is Amazon-owned Whole Foods). When the Competition Bureau concluded last year that there was a “modest but meaningful” increase in food prices, it recommended Ottawa encourage a foreign-owned player to enter the Canadian market. It was a recommendation adopted by Industry Minister Francois-Philippe Champagne, to no avail thus far.
But it is clear from the Bank’s warning that the Canadian economy requires some shock treatment.
Robert Scrivener, the chairman of Bell and Northern Telecom in the 1970s, called Canada a nation of overprotected underachievers. That is even more true now than it was back then.
Get even more deep-dive National Post political coverage and analysis in your inbox with the Political Hack newsletter, where Ottawa bureau chief Stuart Thomson and political analyst Tasha Kheiriddin get at what’s really going on behind the scenes on Parliament Hill every Wednesday and Friday, exclusively for subscribers.Sign up here.
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