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Economy recovers almost half of lost ground

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Canada’s economy has made up almost half of its historic contraction since the height of the pandemic, Statistics Canada reported Friday.

Gross domestic product expanded 4.5 per cent in May, the agency said in its first full release for the month. June was even stronger, with the statistics agency reporting a flash estimate of another five per cent increase. Cumulatively, GDP has increased about 10 per cent in the two months, after falling more than 18 per cent in March and April.

The report confirms Canada’s economy has experienced a sharp recovery since emerging from nationwide lockdowns. At issue is whether the rebound will be sustained. Bank of Canada policy makers have already warned the initial resurgence will probably taper off in the second half.

Based on the flash estimate, economic activity in June was about 90 per cent of output levels recorded in February. At the nadir of the recession in April, output levels were about 82% of pre-pandemic levels.

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That’s “still a big gap by any historical comparison, but this also marks a quick rebound,” Brett House, deputy chief economist at Bank of Nova Scotia, said by email.

Even with the May-June increase, the second quarter will go into the books as probably the worst since the Great Depression for Canada’s economy. Based on June flash estimate, economic activity in the quarter was down 12 per cent from the first three months of the year.

U.S. Comparison

That’s about 40 per cent at an annualized pace, according to Bloomberg calculations, which is roughly in line with economists’ projections. South of the border, the U.S. posted a 33 per cent contraction in GDP for the second quarter annualized, the most on record.

“While such a decline was expected, it was worse than what was seen earlier in the week in the U.S. for the same quarter, as Canada enacted restrictions earlier and eased them less aggressively,” Royce Mendes, an economist at Canadian Imperial Bank of Commerce, said in a note to investors. “The good news is that the cautiousness has kept virus cases under control north of the border, suggesting Canada’s economy is in a position to outperform that of the US in Q3.”

Output was up in almost all sub-sectors in May, with double-digit monthly gains by retailers that coincided with the reopening of many stores across the country. Construction, too, recorded a strong rebound, with activity up 18 per cent in the sector.

Oil and gas, and entertainment-related industries continued to shrink.

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How will a shrinking population affect the global economy? – Al Jazeera English

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Falling fertility rates could bring about a transformational demographic shift over the next 25 years.

It has been described as a demographic catastrophe.

The Lancet medical journal warns that a majority of countries do not have a high enough fertility rate to sustain their population size by the end of the century.

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The rate of the decline is uneven, with some developing nations seeing a baby boom.

The shift could have far-reaching social and economic impacts.

Enormous population growth since the industrial revolution has put enormous pressure on the planet’s limited resources.

So, how does the drop in births affect the economy?

And regulators in the United States and the European Union crack down on tech monopolies.

The gender gap in tech narrows.

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John Ivison: Canada's economy desperately needs shock treatment after this Liberal government – National Post

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Lack of business investment is the main culprit. Canadians are digging holes with shovels while our competitors are buying excavators

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It speaks to the seriousness of the situation that the Bank of Canada is not so much taking the gloves off as slipping lead into them.

Senior deputy governor, Carolyn Rogers, came as close to wading into the political arena as any senior deputy governor of the central bank probably should in her speech in Halifax this week.

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But she was right to sound the alarm about a subject — Canada’s waning productivity — on which the federal government’s performance has been lacklustre at best.

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Productivity has fallen in six consecutive quarters and is now on a par with where it was seven years ago.

Lack of business investment is the main culprit.

In essence, Canadians are digging holes with shovels while many of our competitors are buying excavators.

“You’ve seen those signs that say, ‘in emergency, break glass.’ Well, it’s time to break the glass,” Rogers said.

She was explicit that government policy is partly to blame, pointing out that businesses need more certainty to invest with confidence. Government incentives and regulatory approaches that change year to year do not inspire confidence, she said.

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The government’s most recent contribution to the competitiveness file — Bill C-56, which made a number of competition-related changes — is a case in point. It was aimed at cracking down on “abusive practices” in the grocery industry that no one, including the bank in its own study, has been able to substantiate. Rather than encouraging investment, it added a political actor — the minister of industry — to the market review process. The Business Council of Canada called the move “capricious,” which was Rogers’s point.

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While blatant price-fixing is rare, the lack of investment is a product of the paucity of competition in many sectors, where Canadian companies protected from foreign competition are sitting on fat profit margins and don’t feel compelled to invest to make their operations more efficient. “Competition can make the whole economy more productive,” said Rogers.

The Conservatives now look set to make this an election issue. Ontario MP Ryan Williams has just released a slick 13-minute video that makes clear his party intends to act in this area.

Using the Monopoly board game as a prop, Williams, the party’s critic for pan-Canadian trade and competition, claims that in every sector, monopolies and oligopolies reign supreme, resulting in lower investment, lower productivity, higher prices, worse service, lower wages and more wealth inequality.

(As an aside, it was a marked improvement on last year’s “Justinflation” rap video.)

Williams said that Canadians pay among the highest cell phone prices in the world and that Rogers, Telus and Bell are the priciest carriers, bar none. The claim has some foundation: in a recent Cable.co.uk global league table that compared the average price of one gigabyte, Canada was ranked 216th of 237 countries at US$5.37 (noticeably, the U.S. was ranked even more expensive at US$6).

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Williams noted that two airlines control 80 per cent of the market, even though Air Canada was ranked dead last of all North American airlines for timeliness.

He pointed out that six banks control 87 per cent of Canada’s mortgage market, while five grocery stores — Sobeys, Metro, Loblaw, Walmart and Costco — command a similar dominance of the grocery market.

“Competition is dying in Canada,” Williams said. “The federal government has made things worse by over-regulating airlines, banks and telecoms to actually protect monopolies and keep new players out.”

So far, so good.

The Conservatives will “bring back home a capitalist economy” — a market that does not protect monopolies and creates more competition, in the form of Canadian companies that will provide new supply and better prices.

That sounds great. But at the same time, the Conservative formula for fixing things appears to involve more government intervention, not less.

Williams pointed out the Conservatives opposed RBC buying HSBC’s Canadian operations, WestJet buying Sunwing and Rogers buying Shaw. The party would oppose monopolies from buying up the competition, he said.

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The real solution is to let the market do its work to bring prices down. But that is a more complicated process than Williams lets on.

Back in 2007, when Research in Motion was Canada’s most valuable company, the Harper government appointed a panel of experts, led by former Nortel chair Lynton “Red” Wilson, to address concerns that the corporate sector was being “hollowed out” by foreign takeovers, following the sale of giants Alcan, Dofasco and Inco.

The “Compete to Win” report that came out in June 2008 found that the number of foreign-owned firms had remained relatively unchanged, but recommended 65 changes to make Canada more competitive.

The Harper government acted on the least-contentious suggestions: lowering corporate taxes, harmonizing sales taxes with a number of provinces and making immigration more responsive to labour markets.

But it did not end up liberalizing the banking, broadcasting, aviation or telecom markets, as the report suggested (ironically, it was a Liberal transport minister, Marc Garneau, who raised foreign ownership levels of air carriers to 49 per cent from 25 per cent in 2018).

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The point is, Canada has a competition problem but solving it requires taking on vested interests. Conservative Leader Pierre Poilievre has indicated he is willing to do that, calling corporate lobbyists “utterly useless” and saying he will focus on Canadian workers, not corporate interests.

“My daily obsession will be about what is good for the working-class people in this country,” he said in Vancouver earlier this month.

Even opening up sectors to foreign competition is no guarantee that investors will come. There are no foreign ownership restrictions in the grocery market (in addition to the five supermarkets listed above, there is Amazon-owned Whole Foods). When the Competition Bureau concluded last year that there was a “modest but meaningful” increase in food prices, it recommended Ottawa encourage a foreign-owned player to enter the Canadian market. It was a recommendation adopted by Industry Minister Francois-Philippe Champagne, to no avail thus far.

But it is clear from the Bank’s warning that the Canadian economy requires some shock treatment.

Robert Scrivener, the chairman of Bell and Northern Telecom in the 1970s, called Canada a nation of overprotected underachievers. That is even more true now than it was back then.

It’s time to break the glass.

jivison@criffel.ca

Get even more deep-dive National Post political coverage and analysis in your inbox with the Political Hack newsletter, where Ottawa bureau chief Stuart Thomson and political analyst Tasha Kheiriddin get at what’s really going on behind the scenes on Parliament Hill every Wednesday and Friday, exclusively for subscribers. Sign up here.

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Beijing At A Loss On What To Do About Its Economic Challenges? – Forbes

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China’s annual “Two Sessions” conference has for decades revealed the party agenda to the faithful. This year’s meeting offered them little, a startling development given China’s huge economic and financial challenges – a property crisis, export shortfalls, demographic decline, a loss of confidence among consumers and private business owners, and growing hostility in foreign capitals. More than ever, China needs Beijing to act, to point the way to future action. The failure to address this need at the Two Sessions suggests that China’s leadership has run out of ideas.

Most telling was the absence of the traditional press conference. Every Two Sessions meeting has included a space for China’s leadership to interact with both domestic and foreign media. The senior men in government were not always forthcoming at these exchanges, but their evasive answers at least pointed out publicly what matters they considered touchy or awkward. When this year’s press conference was cancelled, one can only conclude that the good and the great in the Forbidden City worry about being embarrassed.

The authorities did announce a real growth target for 2024. They set it at “around 5 percent.” In one respect, this information can only be described as bland. It was expected and is very close to last year’s pace. In another respect, however, it confesses failure of a sort. It is, after all, barely over half the real growth rate China averaged up until 2019. And with all the problems, it is not clear that China can even make that rate. Last year the economy had a tailwind from pandemic recovery. None of that is in play in 2024. Meanwhile, the authorities never explained how they intended to achieve the growth.

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Infrastructure spending was mentioned, one trillion yuan ($132.9 billion) worth of it. Infrastructure is China’s default form of economic stimulus. But little was said about how China would finance such spending. Local governments, the usual source of infrastructure financing, face huge debt overhangs, some so severe that they cannot even meet the public service needs of their populations. True, Beijing said it was ready to take the unusual step of issuing central government debt to finance the spending. But even that raises questions. The government already faces record high budget deficits. The emphasis on “ultra-long bonds” may hint at how difficult financial matters have become. Long maturities will delay the need to repay the debt and show that Beijing does not expect an immediate return from its spending.

Little was said about the property crisis with all its adverse economic and financial ramifications. Despite the need for bold action on this front, all Beijing has mustered so far are the “white lists” in which local governments compile a list of failing real estate projects for financing that the state-owned banks would review before advancing the funds. The amounts discussed so far, however, are tiny compared with the need, barely over 5 percent of Evergrande’s initial failure two and half years ago. Some weeks back, talk emerged about a plan for the government to take over some 30 percent of the housing market. Although such an action would have brought China other severe problems, it would have been big enough to disguise the property crisis. Nothing as bold or substantive as that got a hearing at the Two Sessions.

On China’s deflation problem, the authorities did indicate a target of 3 percent inflation for the year but said nothing about how they planned to achieve it. To be sure, deflation is more a symptom than a cause of the country’s challenges, which in part lie with inadequate demand for consumption and capital spending by private business, but neither did China’s leadership say much about these problems either. The only concrete suggestion was a promise by the People’s Bank of China (PBOC) to cut interest rates more than the bank already has. Given the lack of an economic response to past rate cuts, this promise hardly seems an adequate answer. In any case, as soon as the conference ended, the PBOC at its own meeting decided against another interest rate cut.

Talk did center on new growth engines for the economy, what the conference referred to as “new productive sources.” There was little new here. Renewable energy, advanced technology, and electric vehicles led the list. Like so much else offered at the Two Sessions, the talk was all aspirational. No one suggested how China planned to promote these areas beyond what is already being done. Given the sorry state of China’s economy, that is not enough.

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If the Two Sessions is supposed to announce a guide to China’s future, this year’s meeting missed its mission, especially in the face of China’s many economic and financial problems. Perhaps more complete and substantive guidance will emerge at next month’s politburo meeting, but given how the Two Sessions went, that seems unlikely. China’s leadership seems to have run out of ideas.

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