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Opinion: A harsh truth: The world economy never recovered from the COVID-19 pandemic

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7 months ago

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Epidemic control workers wear PPE to prevent the spread of COVID-19 as they guard an area with communities in lockdown on Dec. 1, 2022, in Beijing.Kevin Frayer/Getty Images

John Rapley is an author and academic who divides his time among London, Johannesburg and Ottawa. His books include Why Empires Fall (Yale University Press, 2023) and Twilight of the Money Gods (Simon and Schuster, 2017).

Britain sank into recession this week. So did Japan, with its decline so bad that it lost its spot as the world’s No. 3 economy.

It is increasingly apparent that the world economy is showing some of the chronic weakness we associate with long COVID. It appears the pandemic left some deep wounds in the economy – something few economists saw coming.

On the contrary, back in the early months of the pandemic, some of them were growing breathless with excitement that when the lockdowns were lifted, a new Roaring Twenties would erupt. Central banks were pumping trillions of dollars into the financial system and governments were handing their citizens trillions more in support. With little for them to spend it on while economies were closed, it stood to reason that on reopening there would be a storm of spending, putting the economy on steroids.

But that didn’t happen. Yes, there was the inevitable rebound once lockdowns were lifted. However, a repeat of the 1920s was never on the cards, since the world had changed so much in the intervening century. Instead, we got a big bump in 2022 followed by a reversion to the mean last year, the average for the decade. Even more surprising is that the mean seems to have fallen. If the world economy is back on track, it’s apparently a slower track.

Last month the World Bank released its updated report on Global Economic Prospects. It drew a gloomy picture of slowing growth, marking what it calls a “wretched milestone” – a world economy that is expected to grow at its slowest rate in three decades: 2.4 per cent this year, with perhaps a slight improvement next year. As to all that money sitting on the sidelines, it’s still sitting there. Investment is expected to rise at 3.7 per cent a year, barely half the average of the last decade, potentially making slow growth a permanent feature of the postpandemic world.

Soon afterward the IMF issued its own projections. Although a little more upbeat on growth than the World Bank’s, the fund echoed its partner’s assessment. The basic problem is that of the three big engines of the world economy, namely Europe, China and the United States, only the last is doing as well as hoped.

China is struggling, as I wrote recently, but Europe is doing even worse. Outside of Eastern Europe the continent’s economy barely budged last year, and European manufacturing is now in recession. By the IMF’s reckoning, six of the world’s 10 worst-performing economies last year were to be found there. Canada is keeping good company.

Only the U.S. presents a bright spot in the developed world, with the World Bank predicting 1.6 per cent growth this year after last year’s 2.5 per cent. But even that performance needs to have an asterisk placed next to it, since it’s been fuelled by a massive run-up in debt. Subtract the money borrowed in the past couple of years from the economy’s added output, and the U.S. would actually be going backward.

The mistake made by those who imagined we’d come roaring back to life was to assume the post-COVID economy would resemble the pre-COVID one, just with more money sloshing around. But the pandemic brought changes to global labour markets and supply chains whose impact has been inflationary, particularly in the aging societies of the West. Meanwhile although the huge run-up in debt staved off economic collapses and kept asset prices from tanking, it has also hobbled recoveries.

With Western governments having added an average of a quarter of GDP to their debts, most now are hesitant to borrow more to invest in fixing the problems they had let fester before the pandemic, whether a it’s lack of housing, decaying infrastructure or struggling health care systems. Moreover, a lot of the money pumped by central banks into the financial system ended up fuelling asset bubbles, from corporate bonds to crypto and real estate. These bubbles have now become obstacles to growth.

It’s therefore telling that the part of the world economy that has shaken off the pandemic and bounced back to full speed is the developing world. Having run up comparatively little debt during the pandemic, both governments and private sectors there have relatively more fiscal space to think big. Albeit with considerable variation, developing countries are on the whole doing reasonably well, with South Asia leading the pack at an expected growth rate of 5.6 per cent this year, and sub-Saharan Africa coming in next at 3.8 per cent.

Put it all together and the dynamism in the world economy is shifting away from its traditional growth poles. The old money may still be in the West and China, but the new money will increasingly be made in the South.

 

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Economy

B.C.’s debt and deficit forecast to rise as the provincial election nears

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2 days ago

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September 10, 2024

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VICTORIA – British Columbia is forecasting a record budget deficit and a rising debt of almost $129 billion less than two weeks before the start of a provincial election campaign where economic stability and future progress are expected to be major issues.

Finance Minister Katrine Conroy, who has announced her retirement and will not seek re-election in the Oct. 19 vote, said Tuesday her final budget update as minister predicts a deficit of $8.9 billion, up $1.1 billion from a forecast she made earlier this year.

Conroy said she acknowledges “challenges” facing B.C., including three consecutive deficit budgets, but expected improved economic growth where the province will start to “turn a corner.”

The $8.9 billion deficit forecast for 2024-2025 is followed by annual deficit projections of $6.7 billion and $6.1 billion in 2026-2027, Conroy said at a news conference outlining the government’s first quarterly financial update.

Conroy said lower corporate income tax and natural resource revenues and the increased cost of fighting wildfires have had some of the largest impacts on the budget.

“I want to acknowledge the economic uncertainties,” she said. “While global inflation is showing signs of easing and we’ve seen cuts to the Bank of Canada interest rates, we know that the challenges are not over.”

Conroy said wildfire response costs are expected to total $886 million this year, more than $650 million higher than originally forecast.

Corporate income tax revenue is forecast to be $638 million lower as a result of federal government updates and natural resource revenues are down $299 million due to lower prices for natural gas, lumber and electricity, she said.

Debt-servicing costs are also forecast to be $344 million higher due to the larger debt balance, the current interest rate and accelerated borrowing to ensure services and capital projects are maintained through the province’s election period, said Conroy.

B.C.’s economic growth is expected to strengthen over the next three years, but the timing of a return to a balanced budget will fall to another minister, said Conroy, who was addressing what likely would be her last news conference as Minister of Finance.

The election is expected to be called on Sept. 21, with the vote set for Oct. 19.

“While we are a strong province, people are facing challenges,” she said. “We have never shied away from taking those challenges head on, because we want to keep British Columbians secure and help them build good lives now and for the long term. With the investments we’re making and the actions we’re taking to support people and build a stronger economy, we’ve started to turn a corner.”

Premier David Eby said before the fiscal forecast was released Tuesday that the New Democrat government remains committed to providing services and supports for people in British Columbia and cuts are not on his agenda.

Eby said people have been hurt by high interest costs and the province is facing budget pressures connected to low resource prices, high wildfire costs and struggling global economies.

The premier said that now is not the time to reduce supports and services for people.

Last month’s year-end report for the 2023-2024 budget saw the province post a budget deficit of $5.035 billion, down from the previous forecast of $5.9 billion.

Eby said he expects government financial priorities to become a major issue during the upcoming election, with the NDP pledging to continue to fund services and the B.C. Conservatives looking to make cuts.

This report by The Canadian Press was first published Sept. 10, 2024.

Note to readers: This is a corrected story. A previous version said the debt would be going up to more than $129 billion. In fact, it will be almost $129 billion.

The Canadian Press. All rights reserved.

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Economy

Mark Carney mum on carbon-tax advice, future in politics at Liberal retreat

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2 days ago

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September 10, 2024

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NANAIMO, B.C. – Former Bank of Canada governor Mark Carney says he’ll be advising the Liberal party to flip some the challenges posed by an increasingly divided and dangerous world into an economic opportunity for Canada.

But he won’t say what his specific advice will be on economic issues that are politically divisive in Canada, like the carbon tax.

He presented his vision for the Liberals’ economic policy at the party’s caucus retreat in Nanaimo, B.C. today, after he agreed to help the party prepare for the next election as chair of a Liberal task force on economic growth.

Carney has been touted as a possible leadership contender to replace Justin Trudeau, who has said he has tried to coax Carney into politics for years.

Carney says if the prime minister asks him to do something he will do it to the best of his ability, but won’t elaborate on whether the new adviser role could lead to him adding his name to a ballot in the next election.

Finance Minister Chrystia Freeland says she has been taking advice from Carney for years, and that his new position won’t infringe on her role.

This report by The Canadian Press was first published Sept. 10, 2024.

The Canadian Press. All rights reserved.

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Economy

Nova Scotia bill would kick-start offshore wind industry without approval from Ottawa

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2 days ago

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September 10, 2024

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HALIFAX – The Nova Scotia government has introduced a bill that would kick-start the province’s offshore wind industry without federal approval.

Natural Resources Minister Tory Rushton says amendments within a new omnibus bill introduced today will help ensure Nova Scotia meets its goal of launching a first call for offshore wind bids next year.

The province wants to offer project licences by 2030 to develop a total of five gigawatts of power from offshore wind.

Rushton says normally the province would wait for the federal government to adopt legislation establishing a wind industry off Canada’s East Coast, but that process has been “progressing slowly.”

Federal legislation that would enable the development of offshore wind farms in Nova Scotia and Newfoundland and Labrador has passed through the first and second reading in the Senate, and is currently under consideration in committee.

Rushton says the Nova Scotia bill mirrors the federal legislation and would prevent the province’s offshore wind industry from being held up in Ottawa.

This report by The Canadian Press was first published Sept. 10, 2024.

The Canadian Press. All rights reserved.

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