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IMF foresees lingering shock even as economy recovers from pandemic – CBC.ca

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With Friday’s jobs data expected to indicate a pandemic employment shortage extending into a second year, new research shows that a protracted dearth of work will create lifelong pain for many of its victims. Not only that, the report suggests it will have a wider social impact.

The adverse effect of recessions on the careers of new graduates and on their lifetime earnings has been well documented, including by Statistics Canada.

But a recent report published by the International Monetary Fund, titled The Long Shadow of an Unlucky Start, insists that failure to launch can lead to even worse outcomes, including increased criminal behaviour, an unhappy family life, depression and early death.

The impact of COVID-19 on the workforce is expected to have a lingering effect on the economy long after the virus has been conquered. And it has led to calls for strategies to mitigate the damage.

On the bright side, Doris Chu, a senior economist at the Conference Board of Canada, is optimistic about the recovery of the Canadian job market. The board foresees a strong economic resurgence leading to an unemployment rate of six per cent by the end of 2021.

Miraculous recovery halted

But what had seemed like a miraculous recovery in employment, after jobs crashed by nearly three million in March and April last year has hit a new snag. A consensus of 14 leading economists polled by Bloomberg indicates the second wave of the pandemic will lead to a loss of about 66,000 Canadian jobs in January.

“We’re still heavy into the recession,” Chu said, “so it’s going to be a slower road to recovery, up until we have a vaccine pretty much widely distributed to Canadians.”

The number of jobs for new entrants to the employment market varies with skills, with the advantage going to software and other hard skills as businesses push to expand remote services, Chu said. Other workers where demand remains strong include lab technicians, medical professionals and teachers.

Health-care workers, at Toronto’s Pearson International Airport on Monday as they prepare to test arriving passengers for COVID-19, are among those professions still in demand. But a long recession means many graduating students have poorer chances of finding the job they want. (Carlos Osorio/Reuters)

But for careers hit hard by the pandemic — such as in the arts, physical retail and travel, to name just a few — demand for workers has plummeted. For all other jobs not at those two extremes, the deepest recession in decades means companies have rolled back new hires.

“It’s a fact: Recessions hit young people and others with less-developed skillsets especially hard,” said a 2019 report by RBC looking back at the impact of the previous recession. “Persistent unemployment or underemployment can allow specialized skills earned in university to atrophy, increasing potential wage losses.”

In the current recession, those who failed to find a good job during nearly two years of reduced hiring will find themselves going head to head with fresher graduates once the market opens up again.

The Royal Bank report looked at career progress and at earning potential, which declined by about five per cent during the first 10 years of those entering the workforce during an employment recession. But the IMF’s detailed analysis goes much further, suggesting that the negative effects of failing to launch a career can be dire and last a lifetime.

Worse wages, more deaths

“We find that the negative earnings effects from entering the labour market [during a recession] never fully disappear,” said the report’s authors, based on analysis of research following the 2008 Great Recession. “Even more dramatically, we find that mortality rates of recession entrants start to rise in their early 40s compared with those in luckier groups.”

This list of gloomy findings is long and dispiriting. As well as shorter lifespans, recession entrants had lower self-esteem, committed more crimes and tended to distrust governments — a possible clue to a growing insurrectionist mood in the United States and elsewhere.

Poverty rates are higher in the group, and those who pair up tend to do so with a partner in a similar financial situation. Family incomes and likelihood of owning a home are reduced.

Montreal police dismantle a homeless camp in December. Workers with the lowest skills are most affected by the downturn in the economy and are more likely to end up in poverty. (Christinne Muschi/Reuters)

Extrapolating from the previous recession, the IMF report shows a one percentage-point decline in lifetime income for every one per cent increase in the unemployment rate on entering the workforce.

The conclusion is that the deep employment recession of 2020 means that by the time they are 40, recession entrants will be earning seven per cent less at the same stage than those who entered the workforce in 2019.

According to Katherine Scott, a senior researcher with the Canadian Centre for Policy Alternatives, when economists focus on the challenges for skilled youth entering the workforce, more disadvantaged new entrants frequently remain off the radar.

“There are particular groups — whether it is Indigenous young people, people with disabilities, youth aging out of care — that are hugely at risk and have been really neglected in the context of the pandemic,” Scott said.

The authors of the IMF report, which was released in December, found that people with lower skill levels trying to enter the workforce do even worse than the better educated — a lifetime decline in wages more like 15 per cent for high school dropouts — and have more trouble catching up.

That is why one of their solutions is to encourage young people to increase their skill levels, which might also delay graduation until the job climate improves. Other suggestions include help with job searches, government temporary job creation and employment incentives — all ideas supported by Scott.

Katherine Scott, a senior researcher with the Canadian Centre for Policy Alternatives, says when economists focus on the challenges for skilled youth entering the workforce, more disadvantaged new entrants frequently remain off the radar. (Jennifer La Grassa/CBC)

For those compelled to enter the workforce now, the research is merely statistical, not an inevitability. Better skilled people can catch up by changing jobs after the market improves and by recognizing the reason for the disadvantages they will face.

“Knowing that their challenges probably don’t reflect a lack of skills or personal failure can motivate those in less productive jobs to keep seeking opportunities and move to better jobs as the economy recovers,” said the report’s authors.

Follow Don Pittis on Twitter: @don_pittis

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China's Economy Contracts Sharply as Covid Zero Cuts Output – BNN

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(Bloomberg) — China’s economy contracted in April, with Covid outbreaks and lockdowns dragging the industrial and consumer sectors down to the weakest levels since early 2020 as millions of residents were confined to their homes and factories were forced to halt production. 

Industrial output fell 2.9% in April from a year ago, worse than the median estimate of a 0.5% increase in a Bloomberg survey of economists. Retail sales contracted 11.1% in the period, weaker than a projected 6.6% drop. The unemployment rate climbed to 6.1%, higher than the forecast of 6%.

China’s economy has taken an enormous toll from the government’s stringent efforts to keep the virus at bay. Beijing has insisted on sticking with its Covid Zero strategy to curb infections, even though the high transmissibility of omicron puts cities at greater risk of repeatedly locking down and reopening compared to earlier strains. 

“Covid outbreaks in April had a big impact on the economy, but the impact is short-term,” the National Bureau of Statistics said in a statement. “With progress in Covid controls and policies to stabilize the economy taking effect, the economy is likely to recover gradually.”

China’s benchmark CSI 300 stock index was down 0.3% as of 10:04 am local time. The onshore yuan was little changed at 6.7917 per dollar. The yield on the 10-year government bonds rose 1 basis point to 2.83%.

Fixed-asset investment increased 6.8% in the first four months of the year, largely in line with projected growth of 7%, likely supported by the government’s push to expand infrastructure spending.

The economic shocks from the zero-tolerance policy have pushed China’s ambitious full-year growth target of around 5.5% further out of reach, and is weighing on the global growth outlook. 

Beijing has signaled that policy makers will step up support for the economy, with Premier Li Keqiang recently urging officials to ensure stability through fiscal and monetary policy.

The People’s Bank of China took steps on Sunday to ease a housing crunch by reducing mortgage rates for first-time homebuyers. It left the interest rate on one-year policy loans unchanged on Monday, as inflation pressure and worries about capital outflows reduce the scope for more easing.  

Monetary stimulus is proving less effective because of the stringent virus restrictions, with data on Friday showing businesses and consumers had little appetite to borrow in April. Credit growth weakened sharply last month, with new yuan loans sinking to the lowest level since December 2017.

(Updates with comment from statistics office)

©2022 Bloomberg L.P.

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Potential of Seaweed on Economy Being Explored in Upcoming Webinar – VOCM

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A webinar on the potential of seaweed as an economic driver is coming later this month.

The webinar, put together by The Laurentic Forum Consortium, will look at how coastal communities can use an abundance of seaweed to boost the economy, as seaweed is being used as fertilizer, diet supplements, bioplastics, animal feed, pharmaceutical products, and much more.

Webinar moderator and the executive director of the Canadian Centre for Fisheries Innovation, Keith Hutchings, says seaweed farming could provide opportunities in Newfoundland and Labrador.

He says if utilized correctly, communities and regions can add one more industry to help sustain them.

The webinar is taking place May 19.

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Charting the Global Economy: Growth Prospects Continue to Dim – BNN

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(Bloomberg) — Sign up for the New Economy Daily newsletter, follow us @economics and subscribe to our podcast.

Prospects for the world economy are growing bleaker as Russia’s war in Ukraine takes a toll on European businesses and consumers, China employs a heavy-handed approach toward Covid-19 and US financial conditions tighten, according to the Institute of International Finance.

Central banks around the world continue to boost interest rates to counter a surge in inflation. In the US, the closely watched consumer price index showed inflation remains well-elevated. The squeeze to household budgets is also being felt in the UK and France. 

Here are some of the charts that appeared on Bloomberg this week on the latest developments in the global economy:

World

The world economy will essentially flatline this year as Europe falls into recession, China slows sharply and US financial conditions tighten significantly, according to a new forecast from the IIF, which counts more than 450 financial-services firms as members. The group forecasts 2.2% global GDP growth this year, markedly lower than the International Monetary Fund estimate of 3.6% on a purchasing power parity basis.

The gasoline market is starting to run out of control — just like diesel before it. US buyers are already sucking in more supplies from Europe as the summer driving season — which increases demand — gets underway. Add to that a loss of so-called secondary feedstocks from Russia that are critical in the production of the road fuel.

US

Americans got little respite from inflation in April, as prices for a range of necessities and discretionary-spending categories continued to climb at some of the fastest-ever rates. While annual measures of consumer prices cooled slightly from March — signaling a peak that economists expected — the details painted a more troubling picture as monthly figures advanced more than forecast.

US homebuyers are increasingly turning to adjustable-rate mortgages as overall borrowing costs soar. ARMs — which carry variable interest rates that reset based on the market at predetermined times — accounted for 10.8% of total home-loan applications last week. That’s up from 3.1% of activity at the start of the year and is the largest share since 2008.

Europe

The French government pledged to increase social benefits and issue food vouchers to the poorest households as freshly re-elected President Emmanuel Macron seeks to avert panic over a cost-of-living crisis before legislative elections next month. 

The UK economy unexpectedly contracted in March as the cost of living squeeze forced consumers to cut back on spending, throwing doubt on the Bank of England’s ability to keep hiking interest rates and piling pressure on Prime Minister Boris Johnson’s government to respond.

For many of Sweden’s highly indebted consumers, the Riksbank’s sudden interest-rate increase at the end of April marks the start of a new squeeze that officials have long fretted about.  

Asia

China’s exports and imports struggled in April as worsening Covid outbreaks cut demand, undermined production and disrupted logistics in the world’s second-largest economy.

Japan’s household spending climbed in March for the first time in three months as virus restrictions were lifted across the nation, offering some support for private consumption at the end of a bruising quarter for the economy.

Emerging Markets

Malaysia’s central bank unexpectedly raised its benchmark interest rate in an effort to head off price pressures, while authorities in Argentina boosted borrowing costs for the fifth time this year.

Latin American central banks will likely extend their monetary tightening campaigns beyond what was originally expected after inflation surged past forecasts in April, with steep increases in food and fuel costs stinging policy makers.

South Africa is headed for a record year of power cuts if the rate of station breakdowns fails to improve, particularly at coal-fueled plants. Africa’s most industrialized nation was already on track to exceed the annual record for energy shed from controlled blackouts, a practice locally known as loadshedding that’s used to prevent the grid from a total collapse.

©2022 Bloomberg L.P.

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