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Opinion: Liz Truss's wager on the UK economy is already failing. Italy's Giorgia Meloni take note – The Globe and Mail

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Leader of Brothers of Italy Giorgia Meloni holds a sign at the party’s election night headquarters, in Rome, Italy on Sept. 26.GUGLIELMO MANGIAPANE/Reuters

In Italy, Giorgia Meloni’s compelling victory in Sunday’s election will be followed, inevitably, by a political honeymoon when she forms her government in October. Be careful, Ms. Meloni. The honeymoon enjoyed by another newbie conservative prime minister, Britain’s Liz Truss, lasted about five seconds.

Ms. Truss won the Conservative Party leadership election after Boris Johnson’s tumultuous premiership collapsed in July. She has officially been Prime Minister since Sept. 6.

The market reaction to her new economic policy – massive unfunded tax cuts coupled with massive spending, a reliable recipe for surging deficits and debts – has not been kind to her or her Chancellor of the Exchequer, Kwasi Kwarteng.

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On Monday, the pound hit a record low, plunging 5 per cent against the U.S. dollar as the government rolled out the biggest tax cut in half a century (on Tuesday, the currency rose a bit, and traded at about US$1.08).

Britain’s FTSE 100 stock index has been in rapid decline since mid-September and is not far above its 52-week low. Bond prices have fallen. Crippling energy prices and rising interest rates – which may now rise faster to protect the pound from further humiliation – seem destined to push the country into recession, if it is not there already.

Welcome to government, Ms. Truss, and the harsh realities of economic programs deemed unhealthy – or brain dead – by the financial markets. No wonder opposition Labour Party, led by Keir Starmer, has a 17-point lead over the Conservatives, according to the latest YouGov poll, published Monday.

Back in Italy, Ms. Meloni is about to start forming a coalition government with former prime minister Silvio Berlsuconi’s Forza Italia party and Matteo Salvini’s League party. The process will almost certainly make her the first woman prime minister since Italian unification in 1861, and the leader considered furthest to the right since the bloody demise of the country’s fascist era in 1945.

Tax cuts for families and business, including lowering energy taxes, were at the core of her election promises, and it is hard to see how she can reverse her stance even as Italy, too, barrels towards recession. One of her coalition’s programs is fiscal reform that would include a flat income tax that would be regressive in nature – that is, it would help the wealthy more than the poor.

The potential cost of lowering personal and business taxes is really just a guess at this stage. There are better numbers for the proposed subsidy extensions for energy. Under the technical government of Mario Draghi, former president of the European Central Bank, Rome has spent some €66-billion ($87-billion) protecting citizens from the outrageous price increases for natural gas and electricity since Russia invaded Ukraine in February. Reportedly, extending the existing breaks until December alone would cost almost €5-billion ($6.6-billion).

Mr. Draghi knew he had to subsidize energy costs to avoid a wave of bankruptcies, especially among energy-intensive companies. But he was always wary of launching a deficit-spending bonanza.

Ms. Meloni’s populist government may not have the same qualms about borrowing mountains of money to finance new spending, even though she said herself in her victory speech Monday, “This is the time for being responsible.” Mr. Salvini, her coalition partner, wants to widen the deficit.

Italy’s problem is that it has almost no financial wiggle room. Its has a debt-to-GDP ratio of 150 per cent, one of the highest in the world, and is running a hefty budget deficit. Italy’s per capita economic growth has been static for more than 20 years, and may remain that way now that Mr. Draghi, the credible author of a credible pro-growth agenda, has been pushed out of government.

Italian bond yields have been rising – the spread above German yields is almost 2.5 percentage points – and climbing interest rates will push up the cost of Italian debt. In other words, there seems very little capacity for more deficit spending, especially since a recession seems inevitable.

On Monday, ECB President Christine Lagarde said the central bank would not use its emergency bond-buying scheme to bail out countries that make “policy errors,” a clear warning to the incoming Italian government.

In London and in Rome, tax cuts of one form or another remain on the agenda even though the governments can’t afford them. And never mind that some of the cuts, such as Ms. Truss’s giveaway to Britain’s wealthiest households, barely benefit the poor and the middle class.

There is a solution, though one that seems taboo to conservative governments practically everywhere: Tax the rich.

Governments could impose higher levies on high earners and companies that have earned outsized profits since the war in Ukraine started. The extra revenue would fund the support for the families and companies suffering most from savage energy inflation. Even the ECB’s chief economist, Philip Lane, thinks higher taxes to the wealthy or companies that are “highly profitable despite the energy shock” are the answer, he said in an interview this week with Austria’s Der Standard newspaper.

Ms. Meloni and Ms. Truss will almost certainly ignore the tax-the-rich idea, meaning their extra spending will probably go unfunded. Ms. Truss is already paying the price for what investors deem a reckless new economic program. The question is whether Ms. Meloni will learn from Ms. Truss’s mistake.

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Surprise Growth Makes South Africa’s Economy Bigger Than Before Pandemic Struck – BNN Bloomberg

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(Bloomberg) — South Africa’s economy is bigger than before the coronavirus pandemic struck, after growing faster-than-expected in the third quarter on increased farm output.

Gross domestic product expanded 1.6% in the three months through September, compared with a contraction of 0.7% in the previous quarter, Statistics South Africa said Tuesday in a report released in the capital, Pretoria. The median of 12 economists’ estimates in a Bloomberg survey was for growth of 0.4%. The economy grew 4.1% from a year earlier.

Full-year growth may also surprise on the upside. The central bank forecasts an expansion of 1.8% and the National Treasury 1.9%. For the nine months through September, an early indicator of where full-year growth may land, GDP grew by 2.3% from last year.

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The 2.3% expansion in the first three quarters is a “reasonable indicator” of the annual number, said Joe de Beer, deputy director-general of economic statistics at the agency. “I can’t see it differing by more than” half a percentage point “from just a mathematics point of view,” he said.

“After taking into account the firmer-than-expected third-quarter figure, we expect growth to average closer to 2.5% in 2022, before slowing to just above 1% next year,” said Sanisha Packirisamy, an economist at Momentum Investments.

At an annualized 4.6 trillion rand ($265 billion) in the third quarter, GDP is about 53 billion rand bigger than the fourth quarter of 2019, before the pandemic struck. A contraction in the prior three months had reversed gains made in the first quarter that made it bigger.

The quarterly expansion comes even after Africa’s most-industrialized economy experienced record power cuts because state electricity utility Eskom Holdings SOC Ltd. couldn’t keep pace with demand from its old and poorly maintained plants. Industries behind the better-than-expected growth were agriculture and transport, which grew 19.2% and 3.7% quarter-on-quarter respectively.

Strong exports of mineral, vegetable and paper products also contributed.

Still, South Africa’s economy remains stuck in its longest downward phase since World War II and hasn’t grown by more than 5% annually in 15 years. The government’s National Development Plan, a 2012 economic blueprint co-authored by President Cyril Ramaphosa, says that level of expansion is needed for sustainable job creation in a nation where almost a third of the workforce is unemployed.

Slow structural reforms, political uncertainty and high levels of crime continue to weigh on fixed-investment spending in South Africa, with private companies wary of committing large sums of money to domestic projects. Gross fixed capital formation climbed 0.3% from the previous quarter.

Household spending, which comprises about two-thirds of GDP, declined 0.3% in the third quarter. It’s likely to come under further strain from high inflation and interest rates that are at a level last seen more than five years ago.

Weak growth is forecast for the final quarter because of continued rolling blackouts and a strike over wages that took place at Transnet SOC Ltd., South Africa’s state-owned logistics company that operates most of the harbors in the nation, in October. The central bank forecasts expansion of 0.1% this quarter.

Lackluster economic growth and mounting price pressures pose a threat to social stability in one of the world’s most unequal societies and may stymie efforts to reduce fiscal deficits and debt.

–With assistance from Simbarashe Gumbo and Rene Vollgraaff.

(Updates with economist comment in paragraph five. An earlier version corrected household spending figure in paragraph 11)

©2022 Bloomberg L.P.

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World Economy Heads for One of Its Worst Years in Three Decades – BNN Bloomberg

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(Bloomberg) — The world economy is facing one of its worst years in the three decades as the energy shocks unleashed by the war in Ukraine continue to reverberate, according to Bloomberg Economics.

In a new analysis, economist Scott Johnson forecasts growth of just 2.4% in 2023. That’s down from an estimated 3.2% this year and the lowest — excluding the crisis years of 2009 and 2020 — since 1993.

However, the headline figure is likely to mask diverging fortunes, with the euro area starting 2023 in recession and the US ending the year in one. By contrast, China is projected to expand more than 5%, boosted by a faster-than-expected end to its zero-tolerance Covid strategy and support for its crisis-hit property market.  

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Differences will also be on display when it comes to monetary policy after a year in which central banks “dashed toward restrictive territory in a pack,” Johnson wrote.

“In the US, with wage gains set to keep inflation above target, we think the Fed is headed toward a terminal rate of 5%, and will stay there till 1Q24. In the euro area, meanwhile, a more rapid decline in inflation will mean a lower terminal rate and the possibility of cuts at the end of 2023.”

In China, where authorities are torn between a desire to support the recovery and concern about the weakness of the currency, “limited” rate cuts are on the cards.

Read more: Global Growth Set to Slow From 3.2% in 2022 to 2.4% in 2023

©2022 Bloomberg L.P.

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Securing good jobs, clean air, and a strong economy – Prime Minister of Canada

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Autoworkers have been a keystone of the Canadian economy for generations. By investing in the future of the auto industry, we are not only securing good middle-class jobs, we are fighting climate change, and building an economy that works for generations to come. 

Since January alone, Canada has secured several historic manufacturing deals for electric vehicles (EVs), hybrids, and batteries – deals that will create and secure thousands of good, middle-class jobs and provide the world with clean vehicles. Today, we are seeing the results of one of those deals start to roll off the line.

The Prime Minister, Justin Trudeau, was joined today by Premier of Ontario, Doug Ford, to open Canada’s first full-scale EV manufacturing plant, General Motors of Canada Company’s (GM) CAMI assembly plant in Ingersoll, Ontario. Starting today and going forward, the plant will build fully electric delivery vans – the BrightDrop Zevo 600 – which will help cut pollution and keep our communities healthy for our children and grandchildren.

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Thanks in part to a $259 million investment from the Government of Canada, GM’s CAMI assembly plant was able to retool its operations to build these electric vans. By 2025, the plant plans to manufacture 50,000 EVs per year. This investment has helped secure thousands of well-paying, high-quality jobs across GM facilities, and is helping advance the electrification of Canada’s automotive sector.

The Government of Canada will continue to work to attract investment from companies around the world as we build our EV supply chain – from mining critical minerals to manufacturing batteries, and vehicles. By taking action today, we are positioning Canada as a global leader in EVs, fighting climate change, securing good jobs, and building an economy that works for all Canadians – now and into the future.

Quotes

“When we invested in GM’s project to build Canada’s first full-scale electric vehicle manufacturing plant in Ingersoll, we knew it would deliver results. Today, as the first BrightDrop van rolls off the line, that’s exactly what we’re seeing. This plant has secured good jobs for workers, it is positioning Canada as a leader on EVs, and will help cut pollution. Good jobs, clean air, and a strong economy – together, that’s the future we can build.”

The Rt. Hon. Justin Trudeau, Prime Minister of Canada

“Today is proof that our historic investments in EV manufacturing are paying off. With the first BrightDrop vans coming off the assembly line, we’re seeing the skill of Canadian workers making a huge difference as the world moves to EVs. Our government, in partnership with GM, is cementing Canada’s leadership in the EV supply chain.”

The Hon. François-Philippe Champagne, Minister of Innovation, Science and Industry

“This milestone represents GM at our best – fast, flexible and first in the industry. The BrightDrop Zevo is a prime example of GM’s flexible Ultium EV architecture, which is allowing us to quickly launch a full range of electric vehicles for our customers. And, as of today, I am proud to call the CAMI EV Assembly team the first full-scale all-electric manufacturing team in Canada.”

Mark Reuss, President, General Motors

“This is a very exciting moment – a revolution in the way we transport people and goods. Today marks a huge day for BrightDrop, as we expand our footprint and begin producing the Zevo electric vans at scale, and a huge milestone for Canada on the road to a brighter future. Opening the CAMI plant is a major step in providing EVs at scale and delivering real results to the world’s biggest brands, like DHL Express, who will be our first Canadian customer.”

Travis Katz, President and CEO, BrightDrop

Quick Facts

  • The Government of Canada’s $259 million investment supports GM’s more than $2 billion project to reignite production at its Oshawa assembly plant, after operations stopped in 2019, and transform its CAMI assembly plant in Ingersoll.
  • The investment is being made through both the Strategic Innovation Fund and its Net Zero Accelerator Initiative.
  • The Government of Ontario made a matching contribution of up to $259 million toward the project.
  • Founded in 1918, General Motors of Canada Company (GM) is one of the largest automotive manufacturers worldwide. It is headquartered in Oshawa, Ontario, and is one of Canada’s largest automotive manufacturers.
  • GM is planning to introduce 30 new electric vehicles by 2025, eliminate tailpipe emissions from new light-duty vehicles by 2035, and become carbon neutral in its global products and operations by 2040.
  • The automotive sector contributes $16 billion to Canada’s gross domestic product and is one of the country’s largest export industries.
  • The automotive sector supports the employment of nearly 500,000 Canadians.
  • The 2030 Emissions Reductions Plan, released in March, puts Canada on track to achieving our goal of cutting emissions by 40 to 45 per cent below 2005 levels by 2030 while continuing to build a strong economy.
  • To make zero-emission vehicles more affordable and accessible, the Government of Canada offers incentives of up to $5,000 off the purchase or lease of a light-duty zero-emission vehicle through the Incentives for Zero-Emission Vehicles (iZEV) Program. Since May 2019, close to 176,000 Canadians have taken advantage of this program.
  • Since 2015, the Government of Canada has invested $400 million in building approximately 35,000 zero-emission vehicle charging stations across the country.

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