Spare a thought for Rishi Sunak. When he became the UK’s chancellor of the exchequer in Feb. 2020, he was knownto be a deficit hawk, keen to make sure that his government borrowed and spent with abundant caution.
Then the pandemic hit—an emergency so extreme that Sunak found himself having to do the opposite. Through last year, the government rolled out hundreds of billions of pounds in stimulus spending—offering loans to businesses, paying chunks of the wages of furloughed employees, funding the National Health Service. The Office of Budget Responsibility reckoned that the government would need to borrow nearly £400 billion ($554 billion) in this financial year—the highest such sum seen in peacetime.
On Mar. 3, Sunak will present his new budget—a chance for him to exercise his fiscal-conservative instincts. “I worry because, at various points, he’s indicated that he’s keen to wind down these stimulus support schemes very quickly,” said Carsten Jung, a senior economist at the Institute for Public Policy Research.
But Sunak is under pressure—from think-tanks, the opposition, and even his own party members—to spend and borrow more, and to keep taxes low. The UK may need an additional stimulus of as much as £190 billion, or 8.6% of the GDP to restart the economy and protect businesses and families, according to a new report co-authored by Jung. So far, the report pointed out, Sunak has officially only committed around 2%.
The tension over how long the coronavirus stimulus should run, and how much more the government should spend, isn’t limited to the UK. Every economy that has been hit by the pandemic is facing versions of this debate. Does Germany need another round of 2020-like stimulus? Does the US require a $1.9 trillion spending package? The question of how much the government ought to spend speaks to the purpose of the stimulus itself, and thus to what has to happen before the stimulus can end.
Should Sunak continue the fiscal stimulus?
Not every economic stimulus is the same. During the 2008 crisis, most of the government’s support went to the financial sector and to corporations. Back then, there was a moral argument for limiting this support: that the crisis was engendered by the malfeasances of financial firms, which therefore deserved no taxpayer bailouts. The pandemic is different—morally, because the coronavirus is no one’s fault, but also structurally, in terms of whom the economic shock has affected. “The breadth of it requires a broader response,” Jung said. “So you’d want something comprehensive, to protect jobs and businesses and public services.”
Sometimes the mission of government spending is to goose the economy—to provide incomes so that people will consume more. In the pandemic, though, the stimulus has really tried to stave off a counterfactual: people falling out of jobs, spending less, sending the economy into a negative spiral. The purpose is to contain the damage, not to be aggressively expansionary.
The UK’s Eat Out To Help Out scheme, implemented last August, provides an example. Three days a week, the government paid 50% of the tabs of diners—up to £10 per person—at participating restaurants. The government spent £849 million on the program, which lasted four weeks. A new London School of Economics report shows that footfall in restaurants increased by 5-6% on those three days, and that the food sector posted 7-14% more recruitment listings. The scheme didn’t encourage people to go out for other purposes, and it didn’t show an increase in job postings for other industries related to the food sector. But even without a more dramatic economic improvement, jobs and businesses found some security; Sunak estimated that Eat Out To Help Out protected 1.8 million jobs in the hospitality sector.
Plenty of parts of the economy need similar support: furlough schemes, emergency funds for the National Health Service, local infrastructure, the education sector. But it’s an opportune time to borrow money to spend. “We have the capacity to go big for sure,” Ben Nabarro, Citibank’s UK economist, told Bloomberg. Interest rates are low, and may turn negative as the year progresses, Nabarro pointed out, making borrowing cheap.
As a result, taxes don’t need to be raised immediately to pay for this spending. “There is strong support for the ‘war bond’ type approach of parking the lockdown debt for the long term,” one unnamed Conservative Party MP told the Financial Times. It’s a winning policy, Jung said: “It’s like you get money for free, invest it in the economy, and get a positive return by increasing GDP.”
When should Sunak end the stimulus?
One cue for governments to start unwinding their stimulus programs is a decline in the rate of unemployment. Economists estimate that, even in an optimistic scenario, unemployment in the UK will touch 7.5% once furlough support ends, up from 4.5% before the pandemic. (The most recent statistics, released in November, pegged unemployment at 5%.) Another cue is the real interest rate. “If that goes up, that’s great—that’s a sign that the stimulus has played its role,” Jung said. If Sunak rolls out a couple of hundred billion pounds more in stimulus, Jung added, “it would bring unemployment close to the pre-crisis level by 2022.”
Ideally, Sunak would lay out the full heft of the stimulus in his budget, but it isn’t certain if he will; last year, the government preferred a piecemeal approach, launching new rounds of stimulus through the year. One comprehensive announcement would allow businesses to plan; it would give investment in public services time to get off the ground. “Adding clarity would be the optimum thing to do,” Jung said. “The more we do now, the less we need to do next year and the year after.”
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.
