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INSIDE THE VILLAGE: The economy is teetering — how worried should you be? – Sudbury.com

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Welcome back to Inside the Village, a one-of-a-kind podcast where all news is local — and no topic is off-limits.

Nervous about the economy? You’re not alone. Inflation is raging, interest rates are rising, and home values are plummeting. 

What does it all mean? Is a recession imminent? Is a pink slip in your future? We ask David Macdonald, a senior economist at the Canadian Centre for Policy Alternatives. 

Also on the podcast: Queen Elizabeth II, municipal elections — and The Chicken Man of Halton Hills. Click Click for Cluck Cluck.

Launched in April, Inside the Village is a news and current affairs podcast that provides a weekly window into some of the best local journalism from across Village Media’s chain of Ontario newsrooms. The program also explores bigger-picture issues that impact people across the province.

Every episode is available on this news site /insidethevillage. If you prefer the audio version, it is available wherever you find your favourite podcasts.

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IMF chief issues gloomy assessment of global economy

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The global economy will feel like it is in recession next year, the head of the IMF warned on Thursday, as the fund prepared to downgrade its economic forecasts again.

Speaking ahead of the annual meetings of the fund and the World Bank, Kristalina Georgieva said a third of the world’s economy would suffer at least two quarters of economic contraction in 2023. Georgieva added that the combination of “shrinking real incomes and rising prices” would mean many other countries would feel like they were in recession even if they avoided outright declines in output.

The remarks signal that the IMF is set to downgrade its economic forecasts again next week, for the fourth consecutive quarter.

Blaming “multiple shocks”, including Russia’s invasion of Ukraine, high energy and food prices, and persistent inflationary pressures, she said growth in all of the world’s largest economies was slowing down, leaving “severe strains” in some places.

The situation was “more likely to get worse than to get better” in the short term, she said, partly because there are emerging financial stability risks in China’s property market, in sovereign debt and in illiquid assets. The near collapse of some UK pension funds last week following UK chancellor Kwasi Kwarteng’s announcement of £45bn worth of unfunded tax cuts has sparked concerns that low growth and higher borrowing costs will trigger market turmoil.

However, the IMF wants central banks to continue to tighten monetary policy at pace to deal with the persistence of inflationary pressures and to ensure that rising prices do not become ingrained in company attitudes to their charges and wages.

“Not tightening enough would cause inflation to become de-anchored and entrenched, which would require future interest rates to be much higher and more sustained, causing massive harm on growth and massive harm on people,” said Georgieva.

She acknowledged, however, that it would be very difficult for monetary policymakers to judge the impact of their policies when they were moving in sync with each other so quickly. Too many big rate rises could lead to a “prolonged recession”, but the risk of doing too little was at present greater, she said.

In an interview with CNBC later on Thursday, the IMF’s managing director said the task confronting the US central bank was particularly challenging and described the path chair Jay Powell has to navigate as “very narrow”.

“If he doesn’t tighten enough, inflation may de-anchor. If he tightens too much, there could be a recession,” she said, also noting the material impact that the Federal Reserve’s aggressive campaign to tighten monetary policy was having globally.

“The combination of a strong dollar and high interest rates is hitting emerging markets with weaker fundamentals and, practically across the board, low-income countries quite significantly,” Georgieva warned. That would “inevitably” cause defaults, as had already been the case for Sri Lanka and Zambia, she added.

“Both official creditors and the private sector, please come together. Face the music.”

Meanwhile, Janet Yellen, the US Treasury secretary, on Thursday implored central banks, whose “prime responsibility” is to restore price stability, to “recognise that macroeconomic tightening in advanced countries can have international spillovers”.

Without naming the UK or Germany, the managing director took a swipe at their recently announced measures to tackle high energy prices that insulated households and companies from much of the rise in prices.

The IMF has already publicly rebuked the UK government for its generous energy support and unfunded tax cuts. Georgieva’s speech showed the fund was in no mood to offer more nuanced advice ahead of the visits of finance ministers and central bankers to Washington next week.

Calling for temporary and targeted support for vulnerable families, she said that “controlling prices for an extended period of time is not affordable, nor is it effective”.

She highlighted the inflationary risks of pumping too much money into the economy to protect households at a time when central banks were raising interest rates to slow spending and return inflation to low levels.

“While monetary policy is hitting the brakes, you shouldn’t have a fiscal policy that is stepping on the accelerator. This would make for a very rough and dangerous ride,” said Georgieva.

High food prices were causing pain for households in emerging economies and unsustainable debt crisis in many countries, she added. For countries with an urgent need for food this winter, she offered a new “food shock” borrowing line, where countries could claim up to half of the money they have pledged to the IMF.

The pain in the global economy would not be permanent, she said, but a speedy resolution of the world’s economic problems would depend on co-operation, especially on food security, climate change and debt relief for the most vulnerable countries.

Also on Thursday, 140 civil society groups called on the IMF to issue at least $650bn in emergency aid through another allocation of its special drawing rights, a reserve asset.

“The great majority of the world’s countries are struggling amid multiple historic, overlapping, and generally worsening crises,” the organisations wrote in a joint letter to the multilateral lender. “The world’s wealthiest countries must act quickly to assist them.”

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There Are 1.1 Million Fewer Jobs Available In The U.S

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Job openings have plummeted by more than 1.1 million, according to the United States Job Openings and Labor Turnover Survey (JOLTS). Ordinarily, this would be a sign of trouble for Americans. However, higher unemployment means everything is going as planned for Federal Reserve Bank Chair Jerome Powell during this high inflationary period.

The recent JOLTS report cites that job openings have plunged to 10.1 million. The decline in open job opportunities also ushered in a spike in the unemployment rate to 3.7% from 3.5% in July.

Wall Street applauded the news of fewer jobs. The accompanying rally in stocks is a sign to investors that the Fed is achieving its goal and may soon ease up on the interest rate hikes and other measures intended to mitigate the economy.

Less Spending, Fewer Workers

Runaway inflation is viewed as anathema to the economy. It diminishes wealth and the quality of life for families, as prices of goods and services skyrocket. To whip inflation, Powell’s policy is to depress the economy. One of the ways is to hike interest rates; another is to remove all the prior stimulus programs and substitute more austere measures.

Another part of the Fed’s program is to create job losses. The rationale behind this is that as people lose their jobs, they won’t spend as much and, at scale, the economy will contract.

The Salary-Wage Spiral

The U.S. has a tight job market with companies in great need of workers. With a high demand for employees, wages increase as companies compete against each other to find workers. This upward wage spiral enhances inflation, which is against the policy of the Fed. The JOLTS data suggests that businesses may start tapping the brakes on hiring and consider layoffs to cut costs in an unpredictable time.

Job-Market Fallacies

The U.S. Department of Labor reports that there are 1.7 job openings for every unemployed person, down from a couple of months ago. This metric is misleading to Americans. Just because plentiful jobs are available doesn’t mean those roles directly correlate with the skills and background of every unemployed person.

Many of these jobs are open because they’re unappealing to job seekers. These are positions in retail, the food industry, warehouses, fulfillment centers and other front-line roles. The jobs don’t pay well, especially with inflation eating into people’s earnings. Workers want to hold out for finding better, higher quality opportunities with future growth potential.

The data ignores that the Labor Department’s household survey shows that there is an increase in people juggling multiple jobs to stay afloat and put food on the table. It’s questionable if the multiple jobs are counted as one role or many, which can distort the real numbers. There is a noticeable drop in full-time permanent jobs and an increase in part-time roles.

Unintended Consequences

There is a concern that the Fed may create unintended consequences. The quantitative tightening could cause a recession—or something worse. Its policies could potentially cause things to break, as there have already been rumors of investment banks Credit Suisse and Deutsche Bank having difficulties. Global growth is already slowing.

The September Jobs Report

Friday will offer greater clarity and insights into the health of the U.S. job market and economy with the release of the September jobs report by the Bureau of Labor Statistics.

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Economic headwinds set in as inflation continues to bite – Consulting.ca

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The Bank of Canada’s efforts to curb inflation will cool the economy heading into next year, according to RSM Canada’s quarterly “The Real Economy” report.

The central bank has used one of its few policy levers – heightening interest rates – to try to tackle inflation, which has been elevated for over a year. Though there are some signs inflation could have peaked – with it easing to 7.6% in July from 8.1% in June – it will take some time for inflation to slow amid the continuing war in Ukraine and a tight labour market.

Tu Nguyen, an economist at RSM, expects the central bank to continue raising rates until the end of the year.

Raising rates cools the economy and inflation, but it also boosts unemployment. The central bank has decent wiggle room, however, with unemployment at a low 4.9% despite a modest decline in job numbers the last two months.Unemployment and employment rateThe Canadian economy lost 43,000 jobs in June and 30,000 in July, though the bulk of those numbers were workers leaving the labour force – and entirely within service-producing sectors such as education, healthcare, and social services.

There are still more than 1 million vacancies, however, mostly in food and services and healthcare. The RSM report notes that the long-term challenge is the worker shortage, and Canada relies on immigration rather than natural growth to expand its labour pool.

The government has dragged its heels on addressing factors depressing birth rates – including effective policies for parental leave, daycare, and affordable housing – preferring instead to import greater numbers of both skilled and unskilled labour to appease corporations and prop up the housing bubble.

The housing market cooling slightly in the past number of months – mostly because of interest rate hikes – has had the perverse impact of cancelling projects in a country already starved for housing stock. With immigration targets of 400,000 per year – mostly directed to real estate hotspots such as Toronto, Montreal, and Vancouver – homeowners will likely have to wait but a brief moment for the policy-driven bubble to resume its absurd march upward.

According to the RSM report, Canada needs to build hundreds of thousands of units to house its people.Real GDP growth

The “R” word, today or tomorrow?

According to Nguyen, Canada isn’t currently in a recession. One rule of thumb for identifying a recession is two consecutive quarters of contraction in GDP. Canada’s economy has grown every quarter since Q3 2021, including 6.6% in Q4 2021, 3.1% in Q1 2022, and 3.3% in Q2 2022.

But Nguyen notes that two quarters of contraction isn’t enough to identify a recession; indicators such as payroll employment, unemployment rate, real income and spending, and industrial production also need to considered. By those measures, the economy is in a downturn rather than a recession.

The RSM report expects the economy to stagnate – if not contract – heading into next year, as higher interest rates and a tightening cycle do their part. The Canadian economy could be pushed into a recession by a continuing and possibly expanded conflict between Russia and Ukraine, due to its hefty impact on food, energy, and mineral prices. Another risk factor is a potential debt or health crisis in China.

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