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One Vaccine Side Effect: Global Economic Inequality – The New York Times

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LONDON — The end of the pandemic is finally in view. So is rescue from the most traumatic global economic catastrophe since the Great Depression. As Covid vaccines enter the bloodstream, recovery has become reality.

But the benefits will be far from equally apportioned. Wealthy nations in Europe and North America have secured the bulk of limited stocks of vaccines, positioning themselves for starkly improved economic fortunes. Developing countries — home to most of humanity — are left to secure their own doses.

The lopsided distribution of vaccines appears certain to worsen a defining economic reality: The world that emerges from this terrifying chapter in history will be more unequal than ever. Poor countries will continue to be ravaged by the pandemic, forcing them to expend meager resources that are already stretched by growing debts to lenders in the United States, Europe and China.

The global economy has long been cleaved by profound disparities in wealth, education and access to vital elements like clean water, electricity and the internet. The pandemic has trained its death and destruction of livelihood on ethnic minorities, women and lower-income households. The ending is likely to add another division that could shape economic life for years, separating countries with access to vaccines from those without.

“It’s clear that developing countries, and especially poorer developing countries, are going to be excluded for some time,” said Richard Kozul-Wright, director of the division of globalization and development strategies at the United Nations Conference on Trade and Development in Geneva. “Despite the understanding that vaccines need to be seen as a global good, the provision remains largely under control of large pharmaceutical companies in the advanced economies.”

International aid organizations, philanthropists and wealthy nations have coalesced around a promise to ensure that all countries gain the tools needed to fight the pandemic, like protective gear for medical teams as well as tests, therapeutics and vaccines. But they have failed to back their assurances with enough money.

The leading initiative, the Act-Accelerator Partnership — an undertaking of the World Health Organization and the Bill and Melinda Gates Foundation among others — has secured less than $5 billion of a targeted $38 billion.

In the wealthy nations that have secured access to vaccines, relief from the economic disaster brought on by the public health emergency is underway.
Michael A. McCoy for The New York Times

A group of developing countries led by India and South Africa sought to increase the supply of vaccines by manufacturing their own, ideally in partnership with the pharmaceutical companies that have produced the leading versions. In a bid to secure leverage, the group has proposed that the World Trade Organization waive traditional protections on intellectual property, allowing poor countries to make affordable versions of the vaccines.

The W.TO. operates on consensus. The proposal has been blocked by the United States, Britain and the European Union, where pharmaceutical companies wield political influence. The industry argues that patent protections and the profits they derive are a requirement for the innovation that yields lifesaving medicines.

Proponents of suspending patents note that many blockbuster drugs are brought to market via government-financed research, arguing that this creates an imperative to place social good at the heart of policy.

“The question is really, ‘Is this a time to profit?’” said Mustaqeem De Gama, councilor at the South African mission to the W.T.O. in Geneva. “We have seen governments closing down economies, limiting freedoms, yet intellectual property is seen to be so sacrosanct that this cannot be touched.”

Francis Mascarenhas/Reuters

In the wealthy nations that have secured access to vaccines, relief from the economic disaster brought on by the public health emergency is underway. The restrictions that have shut down businesses could be lifted, bringing meaningful economic benefits as soon as March or April.

For the moment, the picture is bleak. The United States, the world’s largest economy, has suffered death tolls equivalent to a 9/11 every day, making a return to normalcy appear distant. Major economies like Britain, France and Germany are under fresh lockdowns as the virus maintains momentum.

But after contracting 4.2 percent this year, the global economy appears set to expand by 5.2 percent next year, according to Oxford Economics. That forecast assumes annual growth of 4.2 percent in the United States and a 7.8 percent expansion in China, the world’s second-largest economy, where government action has controlled the virus.

Europe will remain a laggard, given the prevalence of the virus, according to IHS Markit, with the continent’s economy not returning to its precrisis size for two years. But a trade deal struck between Britain and the European Union preserving much of their trading relationship after Brexit has eased the worst fears about a slowdown in regional commerce.

But by 2025, the long-term economic damage from the pandemic will be twice as severe in so-called emerging markets compared with wealthy countries, according to Oxford Economics.

Such forecasts are notoriously inexact. A year ago, no one was predicting a calamitous pandemic. The variables now confronting the global economy are especially enormous.

The production of vaccines is fraught with challenges that could limit supply, while their endurance and effectiveness are not fully understood. The economic recovery will be shaped by questions of psychology. Following the most profound shock in memory, how will societies exercise their freedom to move about once the virus is tamed? Will people liberated from lockdowns pack together in movie theaters and on airplanes?

Wu Hong/EPA, via Shutterstock

Any lingering disinclination toward human congregation is likely to limit growth in the leisure and hospitality industries, which are major employers.

The pandemic has accelerated the advance of e-commerce, leaving traditional brick-and-mortar retailers in an especially weakened state. If an enduring sense of anxiety prompts shoppers to avoid malls, that could limit job growth. Online retailers like Amazon have aggressively embraced automation, meaning that an increase in business does not necessarily translate into quality jobs.

Many economists assume that as the vaccines ease fear, people will surge toward experiences that have been off limits, thronging restaurants, sporting events and holiday destinations. Households have saved up as they have canceled vacations and entertained themselves at home.

“If people’s spirits are eased, and some of the restrictions are lifted, you could see a spending splurge,” said Ben May, a global economist at Oxford Economics in London. “A lot of this will be about the speed and degree to which people go back to more normal behaviors. That’s very hard to know.”

Laetitia Vancon for The New York Times

But many developing countries will find themselves effectively inhabiting a different planet.

The United States has secured claims on as many as 1.5 billion doses of vaccine, while the European Union has locked up nearly two billion doses — enough to vaccinate all of their citizens and then some. Many poor countries could be left waiting until 2024 to fully vaccinate their populations.

High debt burdens limit the ability of many poor countries to pay for vaccines. Private creditors have declined to take part in a debt suspension initiative championed by the Group of 20.

Promised aid from the World Bank and the International Monetary Fund has proved disappointing. At the I.M.F., the Trump administration has opposed an expansion of so-called special drawing rights — the basic currency of the institution — depriving poor countries of additional resources.

“The international response to the pandemic has essentially been pitiful,” said Mr. Kozul-Wright at the U.N. trade body. “We are worried that as we move into the distribution of the vaccines, we are going to see the same again.”

Bradley Secker for The New York Times

One element of the Act-Accelerator partnership known as Covax is meant to allow poor countries to buy vaccines at affordable prices, but it collides with the reality that production is both limited and controlled by profit-minded companies that are answerable to shareholders.

“Most people in the world live in countries where they rely on Covax for access to vaccines,” said Mark Eccleston-Turner, an expert on international law and infectious diseases at Keele University in England. “That is an extraordinary market failure. Access to vaccines is not based on need. It’s based on the ability to pay, and Covax doesn’t fix that problem.”

On Dec. 18, Covax leaders announced a deal with pharmaceutical companies aimed at providing low- and middle-income countries with nearly two billion doses of vaccines. The arrangement, which centers on vaccine candidates that have not yet gained approval, would provide enough doses to vaccinate one-fifth of the populations in 190 participating countries by the end of next year.

India is home to pharmaceutical manufacturers that are producing vaccines for multinational companies including AstraZeneca, but its population is unlikely to be fully vaccinated before 2024, according to TS Lombard, an investment research firm in London. Its economy is likely to remain vulnerable.

Even if masses of people in poor countries do not gain access to vaccines, their economies are likely to receive some spillover benefits from wealthier nations’ return to normal. In a world shaped by inequality, growth can coincide with inequity.

As consumer power resumes in North America, Europe and East Asia, that will drive demand for commodities, rejuvenating copper mines in Chile and Zambia, and lifting exports of soybeans harvested in Brazil and Argentina. Tourists will eventually return to Thailand, Indonesia and Turkey.

Fabian Cambero/Reuters

But some argue that the ravages of the pandemic in poor countries, largely unchecked by vaccines, could limit economic fortunes globally. If the poorest countries do not gain vaccines, the global economy would surrender $153 billion a year in output, according to a recent study from the RAND Corporation.

“You need to vaccinate health care workers globally so you can reopen global markets,” said Clare Wenham, a health policy expert at the London School of Economics. “If every country in the world can say, ‘We know all our vulnerable people are vaccinated,’ then we can return to the global capitalist trading system much quicker.”

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Economy

Canadian regulator lifts banks’ capital buffer to record, priming for post-pandemic world

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Banks in Canada

Canada‘s financial regulator raised the amount of capital the country’s biggest lenders must hold to guard against risks to a record 2.5% of risk-weighted assets, from 1% currently, in a surprise move that could pave the way for them to resume dividend increases and share buybacks.

The new measures, which take effect on Oct. 31, is a sign that the economic and market disruptions stemming from the coronavirus pandemic have abated and banks’ capital levels have been resilient, the Office of the Superintendent of Financial Institutions (OSFI) said in a statement.

But the regulator acknowledged that key vulnerabilities, including household and corporate debt levels, as well as asset imbalances caused by steep increase in home prices over the past year, remain.

In a sign of concern about the housing market, OSFI and the Canadian government raised the benchmark to determine the minimum qualifying rate for mortgages, starting June 1.

The increase in the Domestic Stability Buffer (DSB) to the highest possible level raises the Common Equity Tier 1 (CET1) capital – the core bank capital measure – to 10.5% of risk-weighted assets; a 4.5% base level, a “capital conservation buffer” of 2.5%, and a 1% surcharge for systemically important banks, plus the DSB.

The change “gives OSFI more leeway to loosen a restriction down the road, namely the freeze on buybacks and dividend increases,” National Bank Financial Analyst Gabriel Dechaine said.

OSFI felt it was “useful for the banks to understand what our minimal capital expectations are and to give them time to adjust to that… ahead of any lifting of the temporary capital distribution restrictions,” Assistant Superintendent Jamey Hubbs said on a media call.

Even with the higher requirement, Canada‘s six biggest banks would have excess capital of about C$51 billion, dropping from C$82 billion as of April 30, according to Reuters calculations.

That was driven in part by a moratorium on dividend increases and share buybacks imposed by OSFI in March 2020, although a pandemic-driven surge in loan losses has so far failed to materialize.

The Canadian banks index slipped 0.25% in morning trading in Toronto, while the Toronto stock benchmark fell 0.1%.

The increase is the first since the last one announced in December 2019, which did not come into effect as planned in April 2020, as OSFI made an out-of-schedule change https://www.reuters.com/article/canada-mortgages-regulation-idUSL1N2B636J that dropped the rate to 1% in March. It has maintained that level at its twice yearly reviews.

Prior to that, OSFI had raised the required level by 25 basis points at every twice yearly review since it was introduced at 1.5% in June 2018.

($1 = 1.2326 Canadian dollars)

 

(Reporting By Nichola Saminather; Editing by Marguerita Choy and Jonathan Oatis)

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Economy

Canada Economic Indicators

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The economic indicators used to gauge the performance of an economy and its outlook are the same across most nations. What differs is the relative importance of certain indicators to a specific economy at various points in time (for instance, housing indicators are closely watched when the housing market is booming or slumping), and the bodies or organizations compiling and disseminating these indicators in each nation.

Here are the 12 key economic indicators for Canada, the world’s 10th-largest economy:1

GDP Growth

Statistics Canada, a national agency, publishes growth statistics on the Canadian economy on monthly and quarterly bases. The report shows the real gross domestic product (GDP) for the overall economy and broken down by industry. It is an accurate monthly/quarterly status report on the Canadian economy and each industry within it.2

 

Employment Change and Unemployment

Key data on the Canadian employment market, such as the net change in employment, the unemployment rate, and participation rate, is contained in the monthly Labour Force Survey, released by Statistics Canada. The report contains a wealth of information about the Canadian job market, categorized by the demographic, class of worker (private sector employee, public sector employee, self-employed), industry, and province.3

Consumer Price Index

Statistics Canada releases a monthly report on the consumer price index (CPI) that measures inflation at the consumer level. The index is constructed by comparing changes over time in a fixed basket of goods and services purchased by consumers. The report shows the change in CPI monthly and over the past 12 months, on an overall and core (excluding food and energy prices) basis.4

International Merchandise Trade

This monthly report from Statistics Canada shows the nation’s imports and exports, as well as the net merchandise trade surplus or deficit. The report also compares the most current data with that for the preceding month. Exports and imports are shown by product category, and also for Canada’s top ten trading partners.5

Teranet – National Bank House Price Index

This composite index of house prices across Canada was developed by Teranet and the National Bank of Canada and represents average home prices in Canada’s six largest metropolitan areas. A monthly report shows the change in the index monthly and over the past 12 months, as well as monthly and 12-month changes in Canada’s six and 11 largest metropolitan areas.6

RBC Manufacturing Purchasing Managers’ Index – PMI

Released on the first business day of each month, this indicator of trends in the Canadian manufacturing sector was launched in June 2011 by Royal Bank of Canada, in association with Markit and the Purchasing Management Association of Canada. RBC PMI readings above 50 signal expansion as compared to the previous month, while readings below 50 signal contraction. The monthly survey also tracks other information pertinent to the manufacturing sector, such as changes in output, new orders, employment, inventories, prices, and supplier delivery times.7

The Conference Board’s Consumer Confidence Index

The Conference Board of Canada’s Index of Consumer Confidence measures consumers’ levels of optimism in the state of the economy. It is a crucial indicator of near-term sales for consumer product companies in Canada, as well as an indicator of the outlook for the broad economy since consumer demand comprises such a significant part of it. The index is constructed on the basis of responses to four questions by a random sampling of Canadian households. Survey participants are asked how they view their households’ current and expected financial positions, their short-term employment outlook, and whether now is a good time to make a major purchase.8

Ivey Purchasing Managers Index – PMI

 An index prepared by the Ivey Business School at Western University, the Ivey PMI measures the monthly variation in economic activity, as indicated by a panel of purchasing managers across Canada. It is based on responses by these purchasing managers to a single question: “Were your purchases last month in dollars higher, the same, or lower than in the previous month?” An index reading below 50 shows a decrease; a reading above 50 shows an increase. Panel members indicate changes in their organization’s activity over five broad categories: purchases, employment, inventories, supplier deliveries, and prices.9

Housing Starts

Canada Mortgage and Housing Corporation (CMHC) issues a monthly report on the sixth working day of every month, showing the previous month’s new residential construction activity. The data is presented by region, province, census metropolitan area, and dwelling type (single-detached or multiple-unit). The indicator is an important gauge of the state of the Canadian housing market.10

Home Sales

This key indicator of housing activity is compiled by the Canadian Real Estate Association (CREA) and is based on the number of home sales processed through the MLS (Multiple Listing Service) Systems of real estate boards and associations in Canada. The monthly report from the CREA shows the change in home sales across Canada, as well as for major markets, from month to month. The report also includes other important housing-related information, such as the change (as a percentage) in newly listed homes, the national sales-to-new listings ratio, months of housing inventory, the change in the MLS Home Price Index, and the national average price for homes sold within the month.11

Retail Sales

Statistics Canada releases a monthly report on retail sales activity across Canada, with changes shown on month-over-month and year-over-year bases. The headline number shows the percentage change in national retail sales on a dollar basis; the percentage change in volume terms is also shown. The retail sales figures are shown by industry and for each province or territory, and provide insights into Canadian consumer spending.12

Building Permits 

The building permits survey conducted monthly by Statistics Canada collects data on the value of permits issued by Canadian municipalities for residential and non-residential buildings, as well as the number of residential dwellings authorized. Since building permit issuance is one of the very first steps in the process of construction, the aggregate building permits data are very useful as a leading indicator for assessing the state of the construction industry.13

The Bottom Line

The 12 economic indicators briefly described above show the health of key aspects of Canada’s economy: consumer spending, housing, manufacturing, employment, inflation, external trade, and economic growth. Taken together, they provide a comprehensive picture of the state of the Canadian economy.

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Economy

Canada adds jobs for fourth straight month in May

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Canada added 101,600 jobs in May, the fourth consecutive month of gains, led by hiring in the education and health services sector as well as in professional and business services, a report from payroll services provider ADP showed on Thursday.

The April data was revised to show 101,300 jobs were gained, rather than an increase of 351,300. The report, which is derived from ADP’s payrolls data, measures the change in total nonfarm payroll employment each month on a seasonally-adjusted basis.

 

(Reporting by Fergal Smith; Editing by Alex Richardson)

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