The outlook for the world economy this year has dimmed in the face of chronically high inflation, rising interest rates and uncertainties resulting from the collapse of two big American banks.
That’s the view of the International Monetary Fund, which on Tuesday downgraded its outlook for global economic growth. The IMF now envisions growth this year of 2.8%, down from 3.4% in 2022 and from the 2.9% estimate for 2023 it made in its previous forecast in January.
The fund said the possibility of a “hard landing,” in which rising interest rates weaken growth so much as to cause a recession, has “risen sharply,” especially in the world’s wealthiest countries.
“Inflation is much stickier than anticipated even a few months ago,” Pierre-Olivier Gourinchas, the IMF’s chief economist, wrote in the fund’s latest World Economic Outlook.
The IMF, a 190-country lending organization, is forecasting 7% global inflation this year, down from 8.7% in 2022 but up from its January forecast of 6.6% for 2023.
Persistently high inflation will likely force the Federal Reserve and other central banks to keep raising rates and to keep them at or near a peak longer to combat surging prices. Those ever-higher borrowing costs are expected to weaken economic growth and potentially destabilize banks that had come to rely on historically low rates.
Already, Gourinchas warned, higher rates are “starting to have serious side effects for the financial sector.”
The fund foresees a 25% likelihood that global growth will fall below 2% for 2023. That has happened only five times since 1970, most recently when COVID-19 derailed global commerce in 2020.
The IMF also envisions a 15% possibility of a “severe downside scenario,” often associated with a global recession, in which worldwide economic output per person would shrink.
The global economy, the fund warned in Tuesday’s report, is “entering a perilous phase during which economic growth remains low by historical standards and financial risks have risen, yet inflation has not yet decisively turned the corner.”
The IMF issued modest upgrades to the economies of the United States and Europe, which have proved more resilient than expected even with much higher interest rates and the shock of Russia’s invasion of Ukraine.
The fund now expects the United States, the world’s biggest economy, to grow 1.6% this year, down from 2.1% in 2022 but up from the 1.4% expansion that the IMF had predicted in January. A robust U.S. job market has supported steady consumer spending despite higher borrowing rates for homes, cars and other major purchases.
For the 20 countries that share the euro currency, the IMF foresees lackluster growth of 0.8%. But that, too, marks a slight upgrade from its January forecast. Though Europe has suffered from the wartime cutoff of Russian natural gas, a surprisingly warm weather reduced demand for energy. And other countries, including the United States, were nimbler than expected in delivering natural gas to Europe to replace Russia’s.
China, the world’s second-biggest economy, is expected to grow 5.2% this year, unchanged from the IMF’s January forecast. China is rebounding from the end of a draconian zero-COVID policy that had kept people home and had hobbled economic activity.
In the United Kingdom, where double-digit inflation is straining household budgets, the economy is expected to contract 0.3% this year. But even that is an upgrade from the 0.6% drop that the IMF had predicted in January for the U.K.
In the developing world, the IMF downgraded growth prospects for India, Latin America, the Middle East, Sub-Saharan Africa and the less-developed countries of Europe. Ukraine’s war-ravaged economy is forecast to shrink by 3%.
The world economy has endured shock after shock in the past three years. First, COVID-19 brought global commerce to a near-standstill in 2020. Next came an unexpectedly strong recovery, fueled by vast government aid, especially in the United States. The surprisingly powerful rebound, however, triggered a resurgence of inflation, worsened after the Russian invasion of Ukraine drove up prices of energy and grain.
The Fed and other central banks responded by aggressively raising rates. Inflation has been easing, though it remains well above central banks’ targets. Inflation is especially intractable in services industries, where worker shortages are putting upward pressure on wages and prices.
Higher rates have caused problems for the financial system, which had grown used to extraordinarily low interest rates.
On March 10, Silicon Valley Bank failed after making a disastrous bet on falling rates and absorbing heavy losses in the bond market, news of which triggered a bank run. Two days later, regulators shut down New York-based Signature Bank. The failures were the second- and third-largest in U.S. history. In the wake of the troubles, U.S. banks are expected to cut back on lending, which could hurt economic growth.
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.
