The threat of a no-deal Brexit is back — and with it the risk that the U.K. economy’s shaky recovery from the coronavirus pandemic will be hobbled.
As British and European Union negotiators head into the last round of talks scheduled before a key summit this month, chances are growing that the U.K. will end the post-Brexit transition period on Dec. 31 without a free trade agreement in place — spelling turmoil for businesses.
Instead of postponing its final parting with the bloc because of the coronavirus, the U.K. government has so far ruled out any delay. That may be, critics say, because Brexiters calculate the cost of leaving without a deal will be obscured by the far more extensive damage wreaked by the virus.
To Sanjay Raja, an economist at Deutsche Bank AG, a no-deal Brexit would halve the pace of growth next year to 1.5 per cent. The U.K. in a Changing Europe, a research group, estimates gross domestic product could be crimped by eight per cent over 10 years as trade barriers and a reduction in productivity hit output.
“It may be less politically costly for the U.K. to do no deal in the midst of a pandemic, but economically I’m not sure about that at all,” said Jonathan Springford, deputy director of the Centre for European Reform. “It might be that they’re able to get away with it — but I don’t think it changes the view that no deal would impose quite sizable economic costs.”
Citigroup Inc. says the size of the shock could even force the Bank of England to take the controversial move of cutting interest rates below zero because fiscal policy and other tools may not be enough.
Companies now have to think of how to prepare for Brexit while dealing with the fallout from coronavirus. Many are shuttered, indebted and struggling to pull through the lockdown.
The additional debt firms are carrying will make adjusting to Brexit more difficult, according to Alan Winters, director of the U.K. Trade Policy Observatory at the University of Sussex.
The re-introduction of trade barriers with the EU and changes to trading relationships with other countries will require a major re-orientation of exports, he wrote late in May. Heavily indebted firms are less likely to invest in developing new export markets.
“It’s a tense conversation at the moment,” said Allie Renison, head of Europe and trade policy at the Institute of Directors. “Companies are struggling with their survival, and there’s not a narrative yet from government saying to prepare, but they are saying the transition is ending.”
While both the U.K. and the EU insist a deal is still their preferred outcome, the deadlocked talks and the limited time left available mean risk no agreement will be reached is rising: analysts at Eurasia Group now put the odds of that outcome at 55%. EU Trade Commissioner Phil Hogan told RTE last month that the U.K. “can effectively blame Covid for everything.”
If the sides can’t strike a deal by the year-end, the U.K. will default to trading with the bloc on terms set by the World Trade Organization. That means British manufacturers of goods such as cars, pharmaceuticals, plastics, and precision tools could face new costs and significant disruptions to their just-in-time supply chains in Europe.
For Patrick Minford, chair of the pro-Brexit group Economists for Free Trade, leaving on anything but WTO terms would mean Britain would “lose the gains of free trade with the rest of the world.” It’s also better that the U.K. stays out of the EU’s expensive coronavirus recovery plan, he said. “When you add them both up, it’s pretty serious, really, and we’re much better off leaving.”
The fracturing of supply chains due to the coronavirus is one wake-up call to the upheaval that could be on the way. More than 80% of small and medium-sized manufacturers say the pandemic has affected their supply chains, and while some say contingency plans for Brexit have proved useful in preparing for the situation, others are facing shortages.
The pandemic has also led to discussion of bringing supply chains closer to home, particularly as the U.K. struggled to fly in emergency supplies while factories were closed and most workers stayed away.
U.K. Cabinet Office minister Michael Gove last week touted the “phenomenon of re-shoring” and said “we’re seeing how countries can increase resilience.”
But moves to shorten supply chains further could likely lead to goods becoming more expensive, according to Springford of Centre for European Reform. What is more, the U.K.’s geographical proximity to the EU means it’s likely to stay an important trade partner.
Philip Hammond, a former U.K. finance minister who campaigned to stay in the bloc, said last week that the government should at least seek a temporary trade deal to protect jobs.
Since the U.K. is such an open economy, “we will be more exposed than most developed economies to any headwinds in international trade during the recovery,” he said. “We really can’t afford to layer on top of that, during a very difficult recovery period, a sort of self-inflicted shock.”
Ontario Expanding Access to the Modern Digital Economy – Government of Ontario News
Application intake for broadband and cellular program opens today
The Ontario government is expanding access to reliable broadband and cellular service in underserved and unserved parts of the province. The application intake for the $150 million Improving Connectivity for Ontario program (ICON) opens today. This funding will help drive economic investment and job creation across the province, while allowing more people to work from home more efficiently, engage in online learning, and connect with family and friends.
“The outbreak of COVID-19 reinforced the need to improve access to reliable broadband and cellular service as more people work and learn from home in order to practice physical distancing,” said Laurie Scott, Minister of Infrastructure. “By making these investments we will help to ensure every region in the province can participate in the modern digital economy, and contribute to Ontario’s economic recovery.”
Any areas across Ontario that do not meet the national standards for broadband speeds would be eligible for provincial funding. Up to 12 per cent of households in the province – mostly in rural, remote or northern areas – don’t have adequate broadband service, according to the Canadian Radio-television and Telecommunications Commission.
Telecommunication service providers, municipalities, Indigenous communities and non-profits are invited to submit innovative proposals and lend their investment, expertise and experience to improve connectivity in communities across Ontario. The preliminary application deadline for the first intake of the ICON program is August 21, 2020.
The province’s investment of $150 million announced today is part of the $315 million Up to Speed: Ontario’s Broadband and Cellular Action Plan. This action plan has the potential to leverage up to $1 billion in partner funding for broadband infrastructure investments.
- On June 3, 2020, Ontario announced the ICON program, a multi-year plan which aims to support approved projects as early as 2021.
- National standards for adequate broadband service are defined by speeds known as 50/10 (50 megabits per second download, and 10 megabits for upload).
- Over the past several months, Ontario has partnered with the Eastern Ontario Regional Network (EORN) to leverage $213 million to improve cellular access in eastern Ontario.
- The Province is investing in the $190 million Southwestern Integrated Fibre Technology (SWIFT) project to bring high-speed broadband to 50,000 more homes and businesses across Southwestern Ontario.
- Ontario has invested in initiatives to improve connectivity in Northern Ontario, such as a project that will connect five remote Matawa First Nations communities, seven broadband projects that will support rural and Indigenous communities, and the Next Generation Network Program.
Stocks slump amid economy worries; gold remains strong – CP24 Toronto's Breaking News
Joe McDonald, The Associated Press
Published Thursday, July 9, 2020 5:56AM EDT
Last Updated Thursday, July 9, 2020 11:28AM EDT
NEW YORK – Stocks are slumping on Wall Street Thursday after a report suggested layoffs continue to ease up across the country, but also that the pace of improvements may be stalling.
The S&P 500 was 1.3% lower, as of 11 a.m. Eastern time, after erasing an earlier modest gain. Treasury yields fell, while the price of gold hung close to its highest level since 2011 in signs of continued caution in the market.
The Dow Jones Industrial Average was down 468 points, or 1.8%, at 25,598. Smaller stocks were dropping more than the rest of the market, which often happens when investors are downgrading their expectations for the economy. The Russell 2000 index of small-cap stocks lost 2.8%.
Tech stocks were holding up better than the rest of the market, as investors continue to bet they can keep growing almost regardless of the economy’s strength. They helped the Nasdaq composite limit its loss to 0.8%.
The number of layoffs sweeping the country is still astoundingly high, with a U.S. government report on Thursday morning showing 1.3 million workers filed for unemployment claims last week. But that’s down from 1.4 million the prior week and from a peak of nearly 6.9 million in late March.
The improvements back up investor optimism that the economy can recover as states and other governments relax restrictions put in place earlier this year to slow the coronavirus pandemic. Such optimism has helped the S&P 500 recently climb back to within roughly 7% of its record set in February, after earlier being down nearly 34%.
But economists point to a troubling slowdown in the pace of improvements. They’re also worried that worsening infection levels across swaths of the U.S. South and West, among other global hotpsots, could derail the budding recovery.
Investors have been watching infection and hospitalization rates in Florida and other big Sun Belt states in particular.
“At best, these numbers are deemed `less bad,’ but still seem to be indicating that we are travelling on a `slow boat’ to a recovery that looks nothing like the `V’ that so many had hoped it would be,” Kevin Giddis, chief fixed income strategist at Raymond James wrote in a report.
Such concerns helped the price of gold hold above $1,800 per ounce. Gold tends to rise when investors are worried about the economy, and on Wednesday it touched its highest price since September 2011, which was shortly after it set its record. Gold was flipping between small gains and losses in Thursday morning trading and was recently down 0.2% at $1,817.10 per ounce.
The yield on the 10-year Treasury, which tends to move with investors’ expectations for the economy and inflation, dropped to 0.62% from 0.65% late Wednesday.
In the stock market, the sharpest losses hit companies whose profits are closely tied to the strength of the economy, such as banks and energy producers.
Financial stocks lost 3.4% for the biggest loss among the 11 sectors that make up the index. Bank of America dropped 2.1%, Citigroup lost 2.6% and Capital One Financial fell 4.8%.
Walgreens Boots Alliance slumped 9.2% for one of the biggest losses in the S&P 500 after it said it lost $1.7 billion in the latest quarter as the pandemic kept its customers around the world at home.
Companies across the country are preparing to report their second-quarter results in upcoming weeks, and forecasts are uniformly dismal.
If the S&P 500 ends up lower for the day, it would be just its second loss in the last eight days. Trading has been erratic lately, though, with many gains coming only after the index bounced up and down repeatedly through the day.
The erratic trading mirrors the market’s movement’s over much of the last month, as investors struggle through massive amounts of uncertainty.
In European stock markets, Germany’s DAX returned 0.6%, while France’s CAC 40 fell 0.5%. The FTSE 100 in London slipped 1.2% after the Treasury chief warned about the depth of the recession there and more big retailers said they had to cut jobs.
In Asia, Chinese stocks continued their huge run. Stocks in Shanghai added another 1.4%, bringing its gain for July to 15.6% and further stoking worries that speculators are in charge of the market.
The Nikkei 225 in Tokyo added 0.4%, as did South Korea’s Kospi. The Hang Seng in Hong Kong gained 0.3%.
Benchmark U.S. crude dropped 3.8% to $39.36 per barrel. Brent crude, the international standard, slipped 2.4% to $42.25 per barrel.
Column: Municipal governments are making economy worse, not better – BOE Report
Alberta’s economy won’t start to fire on all cylinders unless municipal councillors are willing to start playing ball and cut taxes.
A key pillar of the province’s economic recovery plan is the reduction of the business tax to eight per cent. Premier Jason Kenney has also made it clear that raising taxes right now would be like shooting a hole in a rowboat then deciding to cross the Pacific.
“I cannot imagine a dumber thing to do in the midst of a time of economic fragility, an oil price collapse and a global recession than to add a multi-billion dollar tax on the Alberta economy and Alberta families,” Kenney said in response to calls for a provincial sales tax.
While Kenney is making Alberta’s business tax system one of the most competitive in North America, municipal councillors have been busy using their collective brain power scheming new ways to squeeze more tax dollars from struggling Albertans.
Even during a downturn that added thousands of workers to the ranks of the unemployed, Alberta’s biggest cities hiked taxes. The city of Edmonton approved a 2.5 per cent residential property tax increase this year. In Calgary, families are opening their mailboxes to a 7.5 per cent tax hike.
Alberta municipalities have ample fat to cut instead of raising taxes.
“In 2017/18, Alberta’s municipal per capita expenses were the second highest among provinces (behind Ontario where municipalities also deliver a range of social services),” explained the Blue Ribbon Panel on Alberta’s finances. “Per capita capital spending in Calgary and Edmonton is among the highest for comparable cities across Canada.”
The Canadian Taxpayers Federation’s Municipal Spending Report confirms that Alberta’s big cities are big spenders. Calgary and Edmonton spend more per person than major Western Canadian cities, such as Vancouver, Regina, Saskatoon and Winnipeg. If Calgary and Edmonton brought spending in line with these Western Canadian cities, their taxpayers would save $656 million and $566 million respectively per year.
Alberta’s municipal governments haven’t exactly been cash-strapped over the last decade.
“Municipalities have experienced significant revenue growth of 48 per cent per person, including 29 per cent per person for Edmonton and 41 per cent per person for Calgary, primarily driven by municipal property tax increases [between 2007 and 2017],” explained the Blue Ribbon Panel.
Instead of trying to make life a little easier, municipal governments are devising new ways to take more tax dollars.
The city of Lethbridge, which is one of Alberta’s biggest spending cities, is now pushing for a sales tax to pay for municipal spending. Fortunately for taxpayers, Kenney confirmed to the CTF that his government would never impose a sales tax without a referendum and it’s unlikely that the many jobless Albertans will favour forking over more money to keep their bloated city councils afloat.
But Lethbridge isn’t the only taxpayer nightmare. As if a 7.5 per cent tax hike during an economic crisis isn’t enough pain, the city of Calgary is searching for new taxes and fees to help extract every penny they can from Calgarians.
Fortunately, at least one councillor is still living on planet Earth.
“Calgarians need these new taxes like they need a hole in the head,” said Coun. Jeromy Farkas.
The cities of Edmonton and Red Deer are urging their municipal lobbying group to push Kenney for new “measures and tools” so they can continue to fund their high-cost budgets. Translation: councillors want Kenney to make it easier for them to put their grubby paws on our paycheques.
If councillors were half as creative at looking for savings as they are at looking for new ways to squeeze more money out of taxpayers, then many of Albertans’ economic challenges would have been solved by now. Kenney is moving the province in the right direction by lowering business taxes, but our economy won’t hit full stride until municipalities cut taxes for families and businesses.
Franco Terrazzano is the Alberta Director for the Canadian Taxpayers Federation
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