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

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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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Canada’s unemployment rate holds steady at 6.5% in October, economy adds 15,000 jobs

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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 Press. All rights reserved.

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Health-care spending expected to outpace economy and reach $372 billion in 2024: CIHI

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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.

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Trump’s victory sparks concerns over ripple effect on Canadian economy

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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.

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