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Opinion: Canadian export industry at risk in shift to low-carbon economy – The Globe and Mail

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Jock Finlayson is senior policy adviser at the Business Council of British Columbia. David Williams is the council’s vice-president of policy.

In its new report Transforming Canada’s economy for a low-carbon future, the Canadian Institute for Climate Choices provides a sober assessment of where the country stands. Among other things, the report notes the heavy weighting of energy and energy-intensive industries in Canada’s economy.

If anything, the institute underplays the challenges confronting Canada on the journey to a low-carbon future. Examining the composition of exports suggests it will be difficult to significantly reduce greenhouse gas emissions across the country’s industrial base – especially within such a brief time frame as five to 10 years.

Pre-COVID, natural-resource industries and transportation-equipment manufacturing together accounted for roughly 70 per cent of Canada’s merchandise exports – and for more than half of total exports of goods and services combined. Natural-resource products alone make up more than half of merchandise exports.

Factoring in other energy-intensive manufacturing industries, such as aluminum, pulp and paper, chemicals and petrochemicals, fertilizers and iron and steel, further underscores the country’s dependence on a handful of traded-goods industries for export earnings. Most of these industries emit significant quantities of greenhouse gases and/or rely on fossil-fuel energy inputs for the manufacturing and shipment of the goods they produce.

For a trade-dependent economy, the health of export industries warrants policy makers’ close attention. Export patterns hold vital information about where Canada possesses comparative advantages. Many of the industries in which Canada has long been globally competitive serve the world’s energy consumers or are energy- and raw materials-intensive. The Canadian economy therefore faces major risks as the world tackles climate change and our own governments make it harder to extract, process and add value to our abundant natural resources by implementing costly new regulatory and fiscal measures.

Politicians often opine about the business opportunities that come with addressing carbon emissions. Such opportunities do exist and are growing. But a sense of perspective is needed. Natural-resource production is Canada’s highest productivity industry – by far. The sector contributes $330 of value-added output for every hour worked, on average, and $1,300 in the case of unconventional oil and gas. It is a fantasy to believe Canada, within the span of a decade or even two, can replace its highest-productivity industries with other business activities that contribute only $30 to $90 of value-added an hour, such as many service sectors, and not experience a step-down in living standards in the process.

Tracking trends in Canada’s merchandise trade balance is a useful way to see the role of natural-resource industries in our economy and to gauge how living standards may be affected if these industries wither because of shifts in global markets and/or domestic policy.

According to Scotiabank Economics’ latest commodity price report, all major categories of internationally traded natural resources saw sizable price increases through the first three quarters of 2021. Canada’s merchandise trade balance has moved into surplus on the back of rising exports of oil, gas, coal, metals, non-metallic minerals and forest products. Canada’s improving merchandise trade balance is set to make a sorely needed contribution to GDP growth in 2021 and likely in 2022 – with developments in natural-resource markets being the principal reason.

Too often, the centrality of natural-resource industries in Canada’s economic base is breezily dismissed. The high value-added and unmatched export earnings generated in these sectors cascade through the rest of the economy, helping to underpin domestic demand for non-traded goods and services and to pay for both imports and public services.

Canada needs thoughtful regulatory, tax and carbon-mitigation policies to encourage the transition to a less carbon-intensive economy. At the same time, policy makers must avoid undermining Canada’s role as a trusted supplier of energy, minerals/metals, foodstuffs and other raw materials. The world consumes these products and will keep buying them – hopefully from us. Yes, it’s a complex balancing act. But Canadian living standards depend on getting it right.

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How will the coronavirus omicron variant affect the economy? – Marketplace.org

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Scientists are racing to figure out omicron, the new coronavirus “variant of concern,” and governments are scrambling to devise strategies for dealing with it. Several have rushed to enact new travel bans and dust off mask requirements.

On Friday, the United States announced that it would ban visitors from South Africa and seven other countries in the region. And on Monday, President Joe Biden said he expects no additional travel bans and doesn’t think new shutdowns are necessary.

So what might omicron have in store for the U.S. economy?

We don’t need more lockdowns for the virus to damage the economy. It can do that via plain old fear. Gad Levanon, who heads the labor market institute at The Conference Board, said that if omicron turns out to be, say, a slightly worse delta, we might expect a similar economic result.

“Spending on leisure and hospitality would be impacted, spending by older people and families with young children that are not vaccinated — they will be spending less — and especially, I think, tourism will take a big hit,” he said.

The U.S. has ended up trying to manage the virus rather than stamp it out, but some other countries — countries with whom the U.S. trades — are inclined to take a stricter approach.

“China is still persisting with its zero-COVID policy, so if we saw more disruption and closures of factories, that would weigh on supply chain problems that have already been an issue,” said Paul Ashworth, chief U.S. economist at Capital Economics.

How omicron might affect inflation is another question that, for now, is unclear.

“In the near term, you’re going to have a sharp, sudden reduction in consumer demand,” said Ian Bremmer, president of Eurasia Group.

That would bring inflation down. But if omicron turns out to be particularly serious, supply chain problems might intensify in a month’s time, keeping prices up. “The effect is mixed but differs over time,” Bremmer said.

We don’t know yet what threat omicron poses to global health, but we do know that the virus controls the economy, and the information we get over the next few weeks will dictate the path our economy takes.

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How Much of a Threat Is the Omicron Variant to the Economy? – The New Yorker

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How Much of a Threat Is the Omicron Variant to the Economy?

President Joe Biden stands at a podium wearing a black suit and blue tie. There are holiday decorations and a painting...

Biden urged Americans to get fully vaccinated and wear masks indoors, adding, “The variant is a cause for concern, not a cause for panic.”Photograph by Anna Moneymaker / Getty

What a difference a few days makes. This time last week, retail analysts were looking forward to a bumper holiday-shopping season, the stock market was making new highs seemingly by the day, and economists were predicting that annualized G.D.P. growth could top eight per cent in the final quarter of the year. The Delta-variant surge in COVID-19 cases, which had been rapid during the summer, seemed to be behind us. Speaking at a White House event where President Joe Biden announced that he was nominating Jerome Powell for a second term as the chairman of the Federal Reserve, Powell said, “Today, the economy is expanding at its fastest pace in many years, carrying the promise of a return to maximum employment.”

Then came the news of the Omicron variant, which prompted the worst Black Friday sell-off on Wall Street since 1931 and a distinct change in tone from Powell. “The recent rise in COVID-19 cases and the emergence of the Omicron variant pose downside risks to employment and economic activity and increased uncertainty for inflation,” he said, in prepared congressional testimony that the Fed posted on its Web site on Monday afternoon. “Greater concerns about the virus could reduce people’s willingness to work in person, which would slow progress in the labor market and intensify supply-chain disruptions.”

Before the release of Powell’s testimony, the financial markets had rebounded somewhat from Friday’s drop. The Dow rose by more than two hundred points, and the S. & P. 500 also closed up. The price of U.S. Treasury bonds, which are widely regarded as a haven during times of market stress, fell back after posting big gains before the weekend. Crude oil, which on Friday plunged by about ten dollars a barrel, owing to worries of a slowing global economy, rose by about three dollars.

For once, the market reaction was reasonably rational. The discovery of a new variant, possibly a more contagious one, and the immediate imposition by many governments of new travel restrictions, created a lot of uncertainty about the global economy. Because investors had been pricing in a “new normal” in which COVID-19 didn’t go away but did become manageable, a wave of precautionary selling and profit-taking was inevitable. Similarly, given how little we really know about Omicron, Monday’s pause to assess things also made sense. There were reports from South Africa that some of the new cases are mild ones, but scientists warned that it’s too early to reach any judgment about the lethality of the new variant. Anthony Fauci, the President’s chief medical adviser, informed him at a meeting of the White House COVID-19 response team that it would take about two weeks to “have more definitive information on the transmissibility, severity, and other characteristics of the variant.” Afterward, Biden urged Americans to get fully vaccinated and wear masks indoors, but he said that further lockdowns were “off the table” for now. “The variant is a cause for concern, not a cause for panic,” he added.

At this stage, that judgment applies to the economy as well as the public-health situation. In a circular to clients over the weekend, economists at Goldman Sachs outlined four ways in which this new variant could play out: a “false alarm” scenario, in which Omicron actually spreads less quickly than Delta and has little economic impact; a “downside” scenario, in which Omicron spreads more rapidly than Delta but isn’t significantly deadlier, and has only a modest economic impact; a “severe downside” scenario, in which Omicron turns out to be more contagious and deadly than Delta, prompting another wave of lockdowns and a significant economic downturn; and an “upside” scenario, in which Omicron spreads faster than Delta but proves much less deadly. In this upbeat outcome, a “net reduction in disease burden leaves global growth higher than in our baseline . . . the recovery in goods and labor supply accelerate.”

Even if that final scenario smacks of wishful thinking, it is true that the range of possible outcomes is broad. It is also important to note that the situation is very different from the start of the pandemic, when the original strain of the coronavirus had free rein. For an extremely bad economic outcome to materialize, there would have to be another wave of widespread and lengthy lockdowns—either compulsory ones imposed by governments or voluntary ones caused by people retreating to their homes out of fear. Such a set of events is conceivable, but it would likely have to be preceded by a big wave of hospitalizations and deaths in areas where Omicron is circulating, not merely more cases. As long as the vaccines continue to offer protection against the most serious illnesses, countries with high rates of vaccination will hopefully be able to escape such a tragedy. (As experts have long argued, to protect the residents of developing countries, which generally have lower rates of vaccination, it is imperative to make vaccines more widely available.)

For now, the Biden Administration and other governments are extremely reluctant to impose more lockdowns, which would be politically controversial and economically damaging. Their medical advisers are busy pointing out that the vaccines have provided significant protection against the previous variants. There is “reason to be optimistic,” Francis Collins, the director of the National Institutes of Health, told MSNBC on Monday. However, the World Health Organization released a technical note that described Omicron as “a highly divergent variant,” and it said that the over-all global risk from Omicron is “very high.”

Powell’s warning about downside economic risks means that an appearance he’ll make before the Senate Banking Committee on Tuesday will be closely watched. It comes as the Fed is set to decide whether to tighten monetary policy more rapidly to head off higher inflation. The emergence of Omicron further complicates this decision, because, as Powell indicated in his prepared testimony, it could affect the economy in several different ways. If a severe fourth wave does materialize, hiring could appreciably slow again, but short-term inflationary pressures could also conceivably increase as disruptions to the supply chain intensify. The year-end meeting of the Fed will be held in a couple weeks. Between now and then, Powell and his colleagues will be watching the news anxiously. Just like the rest of us.


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Bank of Canada to work with Indigenous groups on reconciliation

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The Bank of Canada will work with Indigenous groups to understand the wounds caused by decades of discrimination and determine how reconciliation can create a more inclusive and prosperous economy for all, Governor Tiff Macklem said on Monday.

Macklem, opening a symposium on Indigenous economies, said Canadians could work to correct some of the consequences of those “ugly periods.”

Ottawa forcibly removed thousands of Indigenous children from their communities and put them in residential schools in an effort to strip them of their language and culture, a practice that continues to scar families and individuals.

“The Bank of Canada will be working with a broad spectrum of Indigenous groups to set out what reconciliation means for what we do,” Macklem said.

“Together, we’ll define what reconciliation means for the work of the Bank of Canada — toward a more inclusive and prosperous economy for everyone,” he said.

Canada‘s Truth and Reconciliation Commission called the residential school system “cultural genocide” in 2015, as it set out 94 “calls to action” to try to restore Canada‘s relationship with its Indigenous people, including economic reconciliation.

“We can’t go back and change what’s happened. But we can try to correct some of the consequences,” said Macklem, adding that it is the central bank’s job to create conditions for opportunity for all Canadians.

“Taking concrete steps toward economic reconciliation is our responsibility too. And it’s incumbent upon us to take the time to do this well,” said Macklem.

 

(Reporting by Julie Gordon in Ottawa; Editing by Dan Grebler)

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