BUENOS AIRES (Reuters) – It took months of tough talks for Argentina to reach agreement on restructuring $65 billion in debt. Now, economists and policymakers say, the real work begins: reviving Latin America’s No. 3 economy from its currency and fiscal crises.
Though both government and creditors celebrated Tuesday’s deal that should help Argentina avert a messy default, it still faces a 10%-plus contraction this year, an over-valued peso, spiking poverty and a deep fiscal hole.
“This was the easy step,” Stephen Liston, senior director at the Council of the Americas, said of the debt deal.
How the once-wealthy grains producer does from now is the acid test for Peronist President Alberto Fernandez and his star Economy Minister Martin Guzman, fresh from taming Wall Street.
“This is an important step,” Guzman said of the agreement. “But this does not solve all the problems of the Argentine economy.”
Argentina’s peso has been propped up by tight capital controls, which has seen the value of the currency in black market trades veer dangerously away from the official rate, with the gap currently around 76%.
The government says it plans to ease controls, but only when the economy has been righted, leaving an artificially strong peso that businesses say hinders trade.
‘PRECARIOUS SITUATION’
“It’s a very precarious situation there where you’ve got an over-valued currency, but weakening it will only worsen the debt situation,” said Nikhil Sanghani of Capital Economics in London.
Inflation, the thorn in the side of Argentine policymakers for years, shows little sign of abating. Consumer prices have slowed during the pandemic, but remain at an annualized level above 40% and will likely revive as the economy recovers.
The central bank, looking to mop up liquidity, is facing a “snowball” of short-term debt, temporarily reining in prices but increasingly straining the institution, said economist Eduardo Levy Yeyati of Buenos Aires’ Universidad Torcuato Di Tella.
Getting out from under this would likely mean the bank has to raise interest rates to encourage savings in pesos, he added, otherwise it would risk unleashing a new wave of inflation.
Under the weight of public spending to combat the impact of the pandemic, the primary fiscal deficit soared to $3.53 billion in June and the government is expected to end the year with a large fiscal hole.
Guzman has pledged to return to fiscal balance and keep the deficit under control, but faces a politically tricky balancing act between that and growth-boosting policies.
“The fiscal deficit has blown out again and we think that the primary deficit will be something like 8% of GDP this year,” said Sanghani, adding it could force the government to adopt politically unpalatable measures even as millions face increased poverty.
“If they have to impose some sort of austerity going forward, it will only keep the economy quite weak and that will hinder its ability to pay off even these restructured debts.”
IMF TALKS
The government plans to turn attention to negotiating a new program with its biggest creditor, the International Monetary Fund (IMF), which floated a $57 billion line in 2018.
Argentina may seek to extend its payment schedule in return for lowering inflation, fixing the exchange rate and reeling in public spending, said Claudio Loser, a former director at the IMF’s Western Hemisphere department.
“That would help Argentina a lot in the next decade, if it can be done,” Loser said.
But despite a softer approach from the IMF, any deal would likely come with some tough fiscal demands.
“It’s feasible that the Fernandez government is hesitant on some of these terms,” Sanghani said. “There are still some hurdles to getting a renewed IMF deal, so it’s not a forgone conclusion by any stretch of the imagination.”
(Reporting by Cassandra Garrison and Eliana Raszewski; Editing by Andrew Cawthorne)
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.
