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IMF outlook worsens for ‘limping’ world economy, Mideast war poses new uncertainty

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The world economy has lost momentum from the impact of higher interest rates, the invasion of Ukraine and widening geopolitical rifts, and it now faces new uncertainty from the war between Israel and Hamas militants, International Monetary Fund warned Tuesday.

The IMF said it expects global economic growth to slow to 2.9% in 2024 from an expected 3% this year. The forecast for next year is down a notch from the 3% it predicted back in July.

The deceleration comes at a time when the world has yet to fully mend from a devastating but short-lived COVID-19 recession in 2020 and now could see fallout from the Middle East conflict — particularly to oil prices.

A series of previous shocks, including the pandemic and Russia’s war in Ukraine, has slashed worldwide economic output by about $3.7 trillion over the past three years compared with pre-COVID trends.

“The global economy is limping along, not sprinting,” IMF chief economist Pierre-Olivier Gourinchas said at a news conference during the organization’s annual meeting in Marrakech, Morocco.

The IMF expectation of 3% growth this year is down from 3.5% in 2022 but unchanged from its July projections.

It’s “too early” to assess the impact on global economic growth from the days-old war between Israel and the militant Palestinian group Hamas in Gaza, Gourinchas said. He said the IMF was “monitoring the situation closely” and noted that oil prices have risen by about 4% in the past several days.

“We’ve seen that in previous crises and previous conflicts. And of course, this reflects the potential risk that there could be disruption either in production or transport of oil in the region,” he said.

If sustained, a 10% increase in oil prices would reduce global economic growth by 0.15% and increase global inflation by 0.4%, Gourinchas said.

“But again, I emphasize that it’s really too early to jump to any conclusion here,” he added.

So far, the increase in oil prices has been “fairly muted,” said Commerzbank commodities analyst Carsten Fritsch. He noted the absence of declarations of support for Hamas from key oil producers Saudi Arabia, the United Arab Emirates, Kuwait and Iraq, which would make it unlikely that they would restrict supply in response to the war.

So far, the world economy has displayed “remarkable resiliency,” Gourinchas said, at a time when the U.S. Federal Reserve and other central banks worldwide have aggressively raised interest rates to combat a resurgence in inflation.

The hikes have helped ease price pressures without putting many people out of work. That combination, he said, is “increasingly consistent” with a so-called soft landing — the idea that inflation can be contained without causing a recession.

The IMF sees global consumer price inflation dropping from 8.7% in 2022 to 6.9% this year and 5.8% in 2024.

The United States is a standout in the IMF’s latest World Economic Outlook, which was completed before the outbreak of war between Israel and Hamas. The IMF upgraded its forecast for U.S. growth this year to 2.1% (matching 2022) and 1.5% in 2024 (up sharply from the 1% it had predicted in July).

The U.S., an energy exporter, has not been hurt as much as countries in Europe and elsewhere by higher oil prices, which shot up after Russia invaded Ukraine last year and jumped more recently because of Saudi Arabia’s production cuts. And American consumers have been more willing than most to spend the savings they accumulated during the pandemic.

Things are gloomier in the 20 countries that share the euro currency and are more exposed to rising energy prices. The IMF downgraded eurozone growth to 0.7% this year and 1.2% in 2024. It actually expects the German economy to shrink by 0.5% this year before recovering to 0.9% growth next year.

That’s below even Russia’s economy, which the IMF predicts will expand 2.2% this year before dropping to 1.1% growth next year.

The Chinese economy, the world’s second biggest, is forecast to grow 5% this year and 4.2% in 2024 — both downgrades from what the IMF expected in July.

China’s economy was expected to bounce back this year after the communist government ended draconian “zero-COVID” lockdowns that had crippled growth in 2022. But the country is struggling with troubles in its overbuilt housing market.

The IMF again expressed concern that the countries of the world were breaking into geopolitical blocs that could limit international trade and economic growth globally.

The United States and its allies have imposed unprecedented sanctions on Russia for its invasion of Ukraine and have sought to become less reliant on Chinese imports as tensions with Beijing grow.

The IMF noted that last year countries imposed nearly 3,000 new restrictions on trade, up from fewer than 1,000 in 2019. It sees international trade growing just 0.9% this year and 3.5% in 2024, down sharply from the 2000-2019 annual average of 4.9%.

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Japan’s SoftBank returns to profit after gains at Vision Fund and other investments

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TOKYO (AP) — Japanese technology group SoftBank swung back to profitability in the July-September quarter, boosted by positive results in its Vision Fund investments.

Tokyo-based SoftBank Group Corp. reported Tuesday a fiscal second quarter profit of nearly 1.18 trillion yen ($7.7 billion), compared with a 931 billion yen loss in the year-earlier period.

Quarterly sales edged up about 6% to nearly 1.77 trillion yen ($11.5 billion).

SoftBank credited income from royalties and licensing related to its holdings in Arm, a computer chip-designing company, whose business spans smartphones, data centers, networking equipment, automotive, consumer electronic devices, and AI applications.

The results were also helped by the absence of losses related to SoftBank’s investment in office-space sharing venture WeWork, which hit the previous fiscal year.

WeWork, which filed for Chapter 11 bankruptcy protection in 2023, emerged from Chapter 11 in June.

SoftBank has benefitted in recent months from rising share prices in some investment, such as U.S.-based e-commerce company Coupang, Chinese mobility provider DiDi Global and Bytedance, the Chinese developer of TikTok.

SoftBank’s financial results tend to swing wildly, partly because of its sprawling investment portfolio that includes search engine Yahoo, Chinese retailer Alibaba, and artificial intelligence company Nvidia.

SoftBank makes investments in a variety of companies that it groups together in a series of Vision Funds.

The company’s founder, Masayoshi Son, is a pioneer in technology investment in Japan. SoftBank Group does not give earnings forecasts.

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Yuri Kageyama is on X:

The Canadian Press. All rights reserved.

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Trump campaign promises unlikely to harm entrepreneurship: Shopify CFO

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Shopify Inc. executives brushed off concerns that incoming U.S. President Donald Trump will be a major detriment to many of the company’s merchants.

“There’s nothing in what we’ve heard from Trump, nor would there have been anything from (Democratic candidate) Kamala (Harris), which we think impacts the overall state of new business formation and entrepreneurship,” Shopify’s chief financial officer Jeff Hoffmeister told analysts on a call Tuesday.

“We still feel really good about all the merchants out there, all the entrepreneurs that want to start new businesses and that’s obviously not going to change with the administration.”

Hoffmeister’s comments come a week after Trump, a Republican businessman, trounced Harris in an election that will soon return him to the Oval Office.

On the campaign trail, he threatened to impose tariffs of 60 per cent on imports from China and roughly 10 per cent to 20 per cent on goods from all other countries.

If the president-elect makes good on the promise, many worry the cost of operating will soar for companies, including customers of Shopify, which sells e-commerce software to small businesses but also brands as big as Kylie Cosmetics and Victoria’s Secret.

These merchants may feel they have no choice but to pass on the increases to customers, perhaps sparking more inflation.

If Trump’s tariffs do come to fruition, Shopify’s president Harley Finkelstein pointed out China is “not a huge area” for Shopify.

However, “we can’t anticipate what every presidential administration is going to do,” he cautioned.

He likened the uncertainty facing the business community to the COVID-19 pandemic where Shopify had to help companies migrate online.

“Our job is no matter what comes the way of our merchants, we provide them with tools and service and support for them to navigate it really well,” he said.

Finkelstein was questioned about the forthcoming U.S. leadership change on a call meant to delve into Shopify’s latest earnings, which sent shares soaring 27 per cent to $158.63 shortly after Tuesday’s market open.

The Ottawa-based company, which keeps its books in U.S. dollars, reported US$828 million in net income for its third quarter, up from US$718 million in the same quarter last year, as its revenue rose 26 per cent.

Revenue for the period ended Sept. 30 totalled US$2.16 billion, up from US$1.71 billion a year earlier.

Subscription solutions revenue reached US$610 million, up from US$486 million in the same quarter last year.

Merchant solutions revenue amounted to US$1.55 billion, up from US$1.23 billion.

Shopify’s net income excluding the impact of equity investments totalled US$344 million for the quarter, up from US$173 million in the same quarter last year.

Daniel Chan, a TD Cowen analyst, said the results show Shopify has a leadership position in the e-commerce world and “a continued ability to gain market share.”

In its outlook for its fourth quarter of 2024, the company said it expects revenue to grow at a mid-to-high-twenties percentage rate on a year-over-year basis.

“Q4 guidance suggests Shopify will finish the year strong, with better-than-expected revenue growth and operating margin,” Chan pointed out in a note to investors.

This report by The Canadian Press was first published Nov. 12, 2024.

Companies in this story: (TSX:SHOP)

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RioCan cuts nearly 10 per cent staff in efficiency push as condo market slows

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TORONTO – RioCan Real Estate Investment Trust says it has cut almost 10 per cent of its staff as it deals with a slowdown in the condo market and overall pushes for greater efficiency.

The company says the cuts, which amount to around 60 employees based on its last annual filing, will mean about $9 million in restructuring charges and should translate to about $8 million in annualized cash savings.

The job cuts come as RioCan and others scale back condo development plans as the market softens, but chief executive Jonathan Gitlin says the reductions were from a companywide efficiency effort.

RioCan says it doesn’t plan to start any new construction of mixed-use properties this year and well into 2025 as it adjusts to the shifting market demand.

The company reported a net income of $96.9 million in the third quarter, up from a loss of $73.5 million last year, as it saw a $159 million boost from a favourable change in the fair value of investment properties.

RioCan reported what it says is a record-breaking 97.8 per cent occupancy rate in the quarter including retail committed occupancy of 98.6 per cent.

This report by The Canadian Press was first published Nov. 12, 2024.

Companies in this story: (TSX:REI.UN)

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