You can kiss your pension and the economy goodbye, unless we fix climate change | Canada News Media
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You can kiss your pension and the economy goodbye, unless we fix climate change

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A firefighter battles a flame in a forest on the slopes of the Troodos mountain chain in Cyprus on July 3, 2021.GEORGIOS LEFKOU PAPAPETROU/AFP/Getty Images

John Rapley is a political economist at the University of Cambridge and managing director of Seaford Macro.

Out of sight, out of mind. That’s how many of us have shrugged off climate change. Sure, we get it’s a thing, but we reckon it won’t affect us too much since we’ll be long gone when it really hits.

But that complacency could start to tilt the calculus. Last week’s blanketing of Eastern Canada by an apocalyptic smoke cloud served as a reminder (the kind we’re getting more often), that climate change may soon be coming to a neighbourhood near us. That, in turn, may begin to hit us in our pocketbooks, in novel and unexpected ways: affecting the performance of the funds that manage your pension, for example.

Hitherto, we’ve regarded events such as floods, wildfires as unpleasant but not, in the end, particularly economically harmful. A big part of that was due to the distorting effect of central bank policies in stimulating economies, but the broader market signals also suggested we had little to fear.

That’s because of the traditional way that climate events get factored into economic models. It inadvertently mutes their effects. Most forecasts of their economic costs spread them over time, locate them disproportionately in the developing world, and expect them to be mildly incremental for years to come. So even though a changing environment may eventually force us to profoundly reshape our economies and lives, outside of specific subsectors where we can measure future costs fairly easily – say, energy companies dependent on fossil fuels that could become stranded assets, or real-estate owners in flood plains – asset markets have not really priced in climate change.

But in the same way few of us gave much thought to the rising incidence of extreme weather or zoonotic pandemics until they hit us in the face, there’s a good chance investors may soon start taking more notice.

It’s true that the daily prices on stock and bond markets are determined by very short-term considerations, such as earnings statements or central bank announcements. Nevertheless over the long term, their underlying value will tend to follow the average performance of the economy. And on that front, the prognosis gets more sobering by the day.

Most models expect that if we don’t arrest climate change, future economic growth rates will slow. Since markets are discounting mechanisms that determine prices according to anticipated future incomes, analysts will probably start taking these models more seriously. Indeed, driving through smoke clouds on the way to work may hasten that awareness.

Who might such long-term investors be? Pension funds, for starters, along with insurance companies, since they set their premiums according to the likely scale of future payouts. Forecasting long-term returns is a fiendishly difficult task, but pension funds are already doing it, and we’re also now seeing how insurance companies are withdrawing products or raising premiums to cover their rising costs. That trend will probably only intensify: Of the 10 costliest years Canadian insurance companies have ever had to bear, nine have occurred since 2011.

Besides, markets hate volatility, and the increasing unpredictability of the weather will make it harder to anticipate where the next big hit will come from, or what its effects might be. Nobody in the market foresaw COVID-19. However, we’re being told to expect more such shocks. Central banks and generous governments won’t be able to rescue us every time. So that will reduce the incentive to extrapolate from past trends to predict future returns.

Take infrastructure. Because a toll road or railway provides a steady and predictable flow of income, infrastructure has become popular among Canadian pension funds, which need to maintain long-term incomes to their beneficiaries. But it also means they own illiquid investments that are sitting ducks should weather events suddenly threaten to destroy them.

That, in turn, points to the danger in inferring that because rich countries will be spared the worst consequences of climate change, they needn’t worry. It is true that the effects will fall most heavily on the people that didn’t cause them, with flooding and diseases such as malaria and cholera hitting developing countries the worst. But the economic costs of these events are falling most heavily on rich countries, simply because we have so much more infrastructure. The bigger you are, the harder you fall.

To top it all off, the future economy underpinning today’s pension funds will require a steady supply of workers. With research suggesting that climate anxiety and economic pessimism are causing young people to have fewer children, even the hardened few who like to mock Greta Thunberg may want to start taking climate change more seriously. Because if they don’t, they may see it surface next in their investment portfolios.

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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.

The Canadian Press. All rights reserved.

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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.

The Canadian Press. All rights reserved.

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