Economy
Japan's output, retail sales fall, signaling economic strains – Financial Post
TOKYO — Japan’s industrial output slipped for the second straight month in November, raising the likelihood the economy will contract in the fourth quarter due to slowing demand abroad and at home.
Japan’s economy has cooled in recent months due to a prolonged hit to exports from soft global demand and a slide in consumer spending following a nationwide tax hike.
Official data showed factory output fell 0.9% in November from the previous month, a slower decline than the 1.4% fall in a Reuters forecast.
That followed a downwardly revised 4.5% decline in the previous month, the largest month-on-month slump since the government started compiling the data in comparative form in January 2013.
“The overall economy including factory output is expected to contract sharply in the current quarter,” said Yoshiki Shinke, chief economist at Dai-ichi Life Research Institute.
“It is expected to rebound in January-March but the issue is how much it will recover.”
Production was pushed down by a decrease in output of production machinery and information equipment, which offset a bounce back in output of cars and car engines.
“There is still uncertainty for the economic outlook as the effects from the U.S.-China trade friction will likely remain but there are positive signals for a moderate pickup in factory output,” said Hiroaki Mutou, chief economist at Tokai Tokyo Research Institute.
Manufacturers surveyed by the Ministry of Economy, Trade and Industry expect output to gain 2.8% in December and rise 2.5% in January, the data showed.
Separate data released on Friday showed retail sales dropped a larger-than-expected 2.1% in November as consumer sentiment stayed depressed after October’s sales tax hike.
The weak readings could pressure the government to come up with new ways to boost growth and force the central bank to maintain its stimulus program.
“Economic sentiment has worsened overall,” said Shudai Hasegawa, a shopkeeper at a store selling rice, pickles and other foods in Tokyo’s Shinagawa area.
“There are fewer people in the shopping street here from the start of the year compared to the previous year, and also after the tax hike,” he said earlier this month.
Kota Watanabe, manager of a store selling pillows and futon mattresses, said demand from older consumers over 50 has been weak this year, partly due to warm weather.
“They say they are satisfied with cheap goods. There are also people saving money for their children instead of spending it themselves.”
UNDER PRESSURE
The broader economy is likely to stay under pressure as weak business and consumer confidence and a delayed pickup in global growth hurt demand.
The government last week cut its overall view on the economy for the fourth time this year due to a downgrade in its assessment of manufacturing output.
The Bank of Japan stood pat last week though it warned risks to the recovery remained high and offered a gloomier view on output.
Japan’s government last week approved a record budget for the coming fiscal year. Part of the planned spending will help finance a $122 billion fiscal package to shore up growth.
Meanwhile, Japan’s jobless rate fell in November, while the jobs-to-applicants ratio held steady, suggesting the nation’s tightest jobs market in decades is holding up.
The seasonally adjusted unemployment rate fell to 2.2% in November from 2.4% in the previous month, Ministry of Internal Affairs and Communications data showed.
The jobs-to-applicants ratio was unchanged at 1.57 in November from the previous month, health ministry data showed. (Reporting by Daniel Leussink; Additional reporting by Kaori Kaneko; Editing by Sam Holmes and Lincoln Feast.)
Economy
Biden's Hot Economy Stokes Currency Fears for the Rest of World – Bloomberg
As Joe Biden this week hailed America’s booming economy as the strongest in the world during a reelection campaign tour of battleground-state Pennsylvania, global finance chiefs convening in Washington had a different message: cool it.
The push-back from central bank governors and finance ministers gathering for the International Monetary Fund-World Bank spring meetings highlight how the sting from a surging US economy — manifested through high interest rates and a strong dollar — is ricocheting around the world by forcing other currencies lower and complicating plans to bring down borrowing costs.
Economy
Opinion: Higher capital gains taxes won't work as claimed, but will harm the economy – The Globe and Mail
Alex Whalen and Jake Fuss are analysts at the Fraser Institute.
Amid a federal budget riddled with red ink and tax hikes, the Trudeau government has increased capital gains taxes. The move will be disastrous for Canada’s growth prospects and its already-lagging investment climate, and to make matters worse, research suggests it won’t work as planned.
Currently, individuals and businesses who sell a capital asset in Canada incur capital gains taxes at a 50-per-cent inclusion rate, which means that 50 per cent of the gain in the asset’s value is subject to taxation at the individual or business’s marginal tax rate. The Trudeau government is raising this inclusion rate to 66.6 per cent for all businesses, trusts and individuals with capital gains over $250,000.
The problems with hiking capital gains taxes are numerous.
First, capital gains are taxed on a “realization” basis, which means the investor does not incur capital gains taxes until the asset is sold. According to empirical evidence, this creates a “lock-in” effect where investors have an incentive to keep their capital invested in a particular asset when they might otherwise sell.
For example, investors may delay selling capital assets because they anticipate a change in government and a reversal back to the previous inclusion rate. This means the Trudeau government is likely overestimating the potential revenue gains from its capital gains tax hike, given that individual investors will adjust the timing of their asset sales in response to the tax hike.
Second, the lock-in effect creates a drag on economic growth as it incentivizes investors to hold off selling their assets when they otherwise might, preventing capital from being deployed to its most productive use and therefore reducing growth.
Budget’s capital gains tax changes divide the small business community
And Canada’s growth prospects and investment climate have both been in decline. Canada currently faces the lowest growth prospects among all OECD countries in terms of GDP per person. Further, between 2014 and 2021, business investment (adjusted for inflation) in Canada declined by $43.7-billion. Hiking taxes on capital will make both pressing issues worse.
Contrary to the government’s framing – that this move only affects the wealthy – lagging business investment and slow growth affect all Canadians through lower incomes and living standards. Capital taxes are among the most economically damaging forms of taxation precisely because they reduce the incentive to innovate and invest. And while taxes on capital gains do raise revenue, the economic costs exceed the amount of tax collected.
Previous governments in Canada understood these facts. In the 2000 federal budget, then-finance minister Paul Martin said a “key factor contributing to the difficulty of raising capital by new startups is the fact that individuals who sell existing investments and reinvest in others must pay tax on any realized capital gains,” an explicit acknowledgment of the lock-in effect and costs of capital gains taxes. Further, that Liberal government reduced the capital gains inclusion rate, acknowledging the importance of a strong investment climate.
At a time when Canada badly needs to improve the incentives to invest, the Trudeau government’s 2024 budget has introduced a damaging tax hike. In delivering the budget, Finance Minister Chrystia Freeland said “Canada, a growing country, needs to make investments in our country and in Canadians right now.” Individuals and businesses across the country likely agree on the importance of investment. Hiking capital gains taxes will achieve the exact opposite effect.
Economy
Nigeria's Economy, Once Africa's Biggest, Slips to Fourth Place – Bloomberg
Nigeria’s economy, which ranked as Africa’s largest in 2022, is set to slip to fourth place this year and Egypt, which held the top position in 2023, is projected to fall to second behind South Africa after a series of currency devaluations, International Monetary Fund forecasts show.
The IMF’s World Economic Outlook estimates Nigeria’s gross domestic product at $253 billion based on current prices this year, lagging energy-rich Algeria at $267 billion, Egypt at $348 billion and South Africa at $373 billion.
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