Economy
Historic economic contraction in Canada masks strong rebound – BNN
Canada’s economy suffered its worst contraction on record in the second quarter, official data is set to show on Friday, but the country appears to have rebounded strongly since the height of the pandemic.
Economists anticipate gross domestic product shrank by nearly 40 per cent on an annualized basis as businesses and companies cut spending sharply amid virus-related shutdowns. That adds to the 8.2 per cent contraction in the first quarter, which was also a record.
It adds up to a bigger first-half hit than in the U.S., though Canada is expected to see a stronger recovery, having avoided a new wave of cases similar to the one that continues to hamper the expansion south of the border. Monthly data, also to be released on Friday, will probably show Canada has already recouped more of its lost output than the U.S. has.
“The economic recovery has been a little quicker to occur than expected,” said Nathan Janzen, senior economist at Royal Bank of Canada.
The unprecedented contraction reflects stricter containment measures imposed on businesses between March and May to curb the pandemic, along with a steep drop in oil prices that represented a double hit for the energy producing nation.
But oil prices have recovered, Canada’s housing market is booming again amid historically low interest rates, and the federal government has pledged to keep the fiscal taps open into the recovery period — keeping disposable income elevated and consumers spending despite record high jobless numbers. Retail sales, for example, have already recovered to pre-pandemic levels.
Economists anticipate gross domestic product probably jumped 5.6% in June, after a 4.5% gain in May — both record monthly expansions after historic declines in March and April. Statistics Canada is also expected to release a preliminary estimate for July that will show an economy that has made up well over half of the pandemic losses.
U.S. GDP shrank by nearly a third last quarter on an annualized basis. The European Union’s economy contracted by 39 per cent and the U.K.’s by almost 60 per cent, also on an annualized basis.
Fewer Cases
Unlike the U.S., Canada has been able to keep its COVID-19 cases relatively low and hasn’t had to backtrack any reopening plans. Daily new cases have been averaging around 400 in Canada in recent weeks, compared to near 2,000 at the height of the pandemic.
Still, Canada’s economy isn’t expected to fully make up the pandemic losses until 2022 in what’s anticipated to be a long and uneven recovery. The economy is projected to contract by 6.5% for all of this year, before a rebound of 4.8 per cent in 2021, according to the latest survey of economists. That would leave real economic activity next year still about two per cent below 2019 levels.
Canada has also had much larger job losses than other major advanced economies — a hindrance to a full rebound in consumption, particularly once the initial bounce back in spending peters out. The federal government anticipates that 4.5 million people affected by the pandemic will continue receiving government support in coming months to compensate for lost work. High-frequency data is already showing a slowdown.
The resurgence of cases in the U.S. could also weigh on Canada’s recovery by slowing any rebound in exports — which probably recorded a historic drop in the second quarter. Economists anticipate an almost 60 per cent annualized decline in the sale of goods and services abroad in the period. The country sends about three-quarters of its exports to the U.S.
Economy
Climate Change Will Cost Global Economy $38 Trillion Every Year Within 25 Years, Scientists Warn – Forbes
Topline
Climate change is on track to cost the global economy $38 trillion a year in damages within the next 25 years, researchers warned on Wednesday, a baseline that underscores the mounting economic costs of climate change and continued inaction as nations bicker over who will pick up the tab.
Key Facts
Damages from climate change will set the global economy back an estimated $38 trillion a year by 2049, with a likely range of between $19 trillion and $59 trillion, warned a trio of researchers from Potsdam and Berlin in Germany in a peer reviewed study published in the journal Nature.
To obtain the figure, researchers analyzed data on how climate change impacted the economy in more than 1,600 regions around the world over the past 40 years, using this to build a model to project future damages compared to a baseline world economy where there are no damages from human-driven climate change.
The model primarily considers the climate damages stemming from changes in temperature and rainfall, the researchers said, with first author Maximilian Kotz, a researcher at the Potsdam Institute for Climate Impact Research, noting these can impact numerous areas relevant to economic growth like “agricultural yields, labor productivity or infrastructure.”
Importantly, as the model only factored in data from previous emissions, these costs can be considered something of a floor and the researchers noted the world economy is already “committed to an income reduction of 19% within the next 26 years,” regardless of what society now does to address the climate crisis.
Global costs are likely to rise even further once other costly extremes like weather disasters, storms and wildfires that are exacerbated by climate change are considered, Kotz said.
The researchers said their findings underscore the need for swift and drastic action to mitigate climate change and avoid even higher costs in the future, stressing that a failure to adapt could lead to average global economic losses as high as 60% by 2100.
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How Do The Costs Of Inaction Compare To Taking Action?
Cost is a major sticking point when it comes to concrete action on climate change and money has become a key lever in making climate a “culture war” issue. The costs and logistics involved in transitioning towards a greener, more sustainable economy and moving to net zero are immense and there are significant vested interests such as the fossil fuel industry, which is keen to retain as much of the profitable status quo for as long as possible. The researchers acknowledged the sizable costs of adapting to climate change but said inaction comes with a cost as well. The damages estimated already dwarf the costs associated with the money needed to keep climate change in line with the limits set out in the 2015 Paris Climate Agreement, the researchers said, referencing the globally agreed upon goalpost set to minimize damage and slash emissions. The $38 trillion estimate for damages is already six times the $6 trillion thought needed to meet that threshold, the researchers said.
Crucial Quote
“We find damages almost everywhere, but countries in the tropics will suffer the most because they are already warmer,” said study author Anders Levermann. The researcher, also of the Potsdam Institute, explained there is a “considerable inequity of climate impacts” around the world and that “further temperature increases will therefore be most harmful” in tropical countries. “The countries least responsible for climate change” are expected to suffer greater losses, Levermann added, and they are “also the ones with the least resources to adapt to its impacts.”
What To Watch For
The fundamental inequality over who is impacted most by climate change and who has benefited most from the polluting practices responsible for the climate crisis—who also have more resources to mitigate future damages—has become one of the most difficult political sticking points when it comes to negotiating global action to reduce emissions. Less affluent countries bearing the brunt of climate change argue wealthy nations like the U.S. and Western Europe have already reaped the benefits from fossil fuels and should pay more to cover the losses and damages poorer countries face, as well as to help them with the costs of adapting to greener sources of energy. Other countries, notably big polluters India and China, stymie negotiations by arguing they should have longer to wean themselves off of fossil fuels as their emissions actually pale in comparison to those of more developed countries when considered in historical context and on a per capita basis. Climate financing is expected to be key to upcoming negotiations at the United Nations’s next climate summit in November. The COP29 summit will be held in Baku, the capital city of oil-rich Azerbaijan.
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Article content
Growth in gross domestic product (GDP), the total value of all goods and services produced in the economy annually, is one of the most frequently cited indicators of economic performance. To assess Canadian living standards and the current health of the economy, journalists, politicians and analysts often compare Canada’s GDP growth to growth in other countries or in Canada’s past. But GDP is misleading as a measure of living standards when population growth rates vary greatly across countries or over time.
Article content
Federal Finance Minister Chrystia Freeland recently boasted that Canada had experienced the “strongest economic growth in the G7” in 2022. In this she echoes then-prime minister Stephen Harper, who said in 2015 that Canada’s GDP growth was “head and shoulders above all our G7 partners over the long term.”
Article content
Unfortunately, such statements do more to obscure public understanding of Canada’s economic performance than enlighten it. Lately, our aggregate GDP growth has been driven primarily by population and labour force growth, not productivity improvements. It is not mainly the result of Canadians becoming better at producing goods and services and thus generating more real income for their families. Instead, it is a result of there simply being more people working. That increases the total amount of goods and services produced but doesn’t translate into increased living standards.
Let’s look at the numbers. From 2000 to 2023 Canada’s annual average growth in real (i.e., inflation-adjusted) GDP growth was the second highest in the G7 at 1.8 per cent, just behind the United States at 1.9 per cent. That sounds good — until you adjust for population. Then a completely different story emerges.
Article content
Over the same period, the growth rate of Canada’s real per person GDP (0.7 per cent) was meaningfully worse than the G7 average (1.0 per cent). The gap with the U.S. (1.2 per cent) was even larger. Only Italy performed worse than Canada.
Why the inversion of results from good to bad? Because Canada has had by far the fastest population growth rate in the G7, an average of 1.1 per cent per year — more than twice the 0.5 per cent experienced in the G7 as a whole. In aggregate, Canada’s population increased by 29.8 per cent during this period, compared to just 11.5 per cent in the entire G7.
Starting in 2016, sharply higher rates of immigration have led to a pronounced increase in Canada’s population growth. This increase has obscured historically weak economic growth per person over the same period. From 2015 to 2023, under the Trudeau government, real per person economic growth averaged just 0.3 per cent. That compares with 0.8 per cent annually under Brian Mulroney, 2.4 per cent under Jean Chrétien and 2.0 per cent under Paul Martin.
Recommended from Editorial
Canada is neither leading the G7 nor doing well in historical terms when it comes to economic growth measures that make simple adjustments for our rapidly growing population. In reality, we’ve become a growth laggard and our living standards have largely stagnated for the better part of a decade.
Ben Eisen, Milagros Palacios and Lawrence Schembri are analysts at the Fraser Institute.
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