As the rail blockades arising from the Coastal GasLink protests drag on, there’s no doubt that they will have an impact on the economy. Economists spent this week whittling down their first-quarter growth forecasts, citing severe snarls in supply shipments have hampered business activity and exports. But the economy will bounce back once the blockades are inevitably cleared, and this will appear as only a minor blip in the economic record.
What will linger is the lasting image, both within Canada and without, that we are a country that, five years after the collapse of its oil market, is wrestling harder than ever with how to transition to an economy more driven by its knowledge than its geography. The economy is still struggling to establish a clear path amid the decline of oil and the rise of the climate debate. Oil and gas will be a source of jobs and activity for many years to come, but there’s a large hole to fill in investment in the next phase of growth, and filling it will be an ongoing challenge of the new decade.
In the five years since prices for oil and other commodities crashed – something that looks increasingly to be a long-term decline, especially for oil – the Canadian economy has drifted away from energy investment, in part due to weakened returns for investors and in part due to the federal government’s climate agenda. Statistics Canada estimates that capital spending in oil and gas extraction last year was less than half of what it was at its peak in 2014 – a loss of nearly $40-billion in annual investment.
That story has largely overshadowed the signs that investment in non-resource sectors has begun to fill the void. Capital spending in the real-estate services, rental and leasing sector is up nearly 60 per cent since 2012. Investment in education infrastructure is up 33 per cent. Investment in telecommunications technology has more than doubled. Spending on public transit and rail transportation has also doubled.
In fact, even with the dramatic decline in capital investment in the oil and gas sector since the oil crash of 2014-2015, Canada’s total capital spending is up 31 per cent in the past decade.
On the surface, then, it does look like investment has been quite successfully rotating from oil-economy resources to new-economy services and the knowledge economy – a success story amid the resources tumult.
But consider those sources of investment growth, and what they indicate. Statscan’s gross domestic product (GDP) data show that the country’s capital spending growth in the past several years has not come from business, but rather from government (particularly Ottawa’s dramatically increased infrastructure program) and, to a lesser extent, residential real estate. Non-residential business gross fixed capital formation –indicative of what the private sector is investing – has recovered little after its oil-shock slump, and remains nearly 20 per cent below its pre-oil-shock peak.
“There really isn’t anything else picking up the slack” for the loss of oil and gas investment, said Bill Robson, president and CEO of the C.D. Howe Institute, a Toronto-based economic think tank. Mr. Robson noted that in past cycles, slowdowns in the oil and gas sector were typically accompanied by pick-ups in manufacturing investment, as the benefits of cheaper energy costs made that sector more attractive. But that traditional investment rotation has been largely absent this time around.
“It is striking that the adjustment has been as painful and incomplete as it has been. … There really just hasn’t been that kind of shift of [business] resources into other productive uses,” Mr. Robson said.
“It does speak to the idea that there’s something else going on that has prevented us from switching over.”
It hasn’t helped that all of this has come during an extended period of weak business investment globally, amid tepid growth, rising trade protectionism and geopolitical uncertainties. In Canada, the three-year drama surrounding the North American trade pact had a serious chilling effect on investment commitments, weighing particularly hard on the export-intensive manufacturing sector.
But Canada’s business investment problem may go deeper than that – a weakness that for years was masked by the lure of booming energy prices. In a study published by C.D. Howe last August, Mr. Robson reported that on a per-worker basis, Canadian business invests nearly 30 per cent less than the average among Organization for Economic Co-operation and Development (OECD) countries.
Critics say the boom of the oil and gas sector masked Canada’s competitive weaknesses in attracting investment in general, because the returns for investors were so glaringly apparent in the oil patch. With that advantage in the rear-view mirror, the country is going to need to rethink some things – in areas like regulatory red tape, corporate tax structure, innovation policy – to attract new kinds of investors.
“You have to compete to get those investment dollars,” said economist Paul Boothe, deputy director of the Trillium Network for Advanced Manufacturing, an Ontario-based non-profit. “What governments need to turn their minds to is, what’s the next big thing?”
Patterns in foreign direct investing into Canada may already provide some direction to that. While foreign direct investment (FDI) in Canada’s oil and gas industry has been essentially flat since the oil crash, total FDI excluding the oil and gas extraction sector grew a healthy 14 per cent from 2015 to 2018. Sectors that have seen strong FDI growth include chemicals manufacturing, transportation equipment, communication technology and key service industries such as scientific and technical services and management consulting.
That suggests that foreign investors are already seeking out ways to tap into the parts of the economy that have been supplanting natural resources as sources of growth – something that predates the oil shock. Employment in resource sectors has been slowly declining as an overall share of Canada’s labour markets for decades. With the exception of the oil boom, resources’ share of GDP has also generally trended lower, as the services sector long ago supplanted goods as the largest part of the Canadian economy. Bank of Canada Governor Stephen Poloz pointed out in a recent public address that Canada’s fastest-growing source of both exports and employment today is the information technology (IT) services sector; it now makes up about 5 per cent of GDP – about the same as oil and gas extraction.
There is one critical area of the economy in which natural resources remain a dominant component: They account for nearly 40 per cent of Canada’s goods exports, on a value basis.
“The need for what it is that we are endowed with is determined by the stage of development of countries around the world. … We have to remind ourselves that 50 per cent of the world is still growing at a much faster pace than we developed economies are – and at that stage of development, they need a lot of resources,” said Peter Hall, chief economist at Export Development Canada, a federal export credit agency.
“It’s maybe not fashionable to talk about it in that way, but that’s exactly where we are at.”
While that suggests a continued role for resource extraction and exports even as the country’s knowledge-based economy continues its emergence, economist Mel Watkins worries that the country will continue to pursue policies focused on resource extraction at the expense of promoting investment elsewhere. It’s something he has been arguing about since he popularized the phrase “staples trap” to describe this Canadian phenomenon in 1963.
“A business class, a business culture, had been implanted that was satisfied with exporting resources as the leading sector of the economy,” Mr. Watkins said, arguing that the boom of the energy sector in the early part of this century re-entrenched this economic bias. “There was an insistence that resource export must be encouraged as the best way to create jobs.”
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Chile’s Economy Stagnates in Second Quarter as Demand Withers – BNN Bloomberg
(Bloomberg) — Chile’s economy is teetering on the brink of recession after unexpectedly flatlining in the second quarter amid soaring inflation and heightened political uncertainty over a new constitution.
Gross domestic product was unchanged in the April-June period from the previous three months, worse than all forecasts in a Bloomberg survey of analysts that had a 0.3% median estimate. It shrank in the first quarter. From a year prior, the economy expanded 5.4%, the central bank reported on Thursday.
Chile’s economy is running out of steam after last year’s boom as President Gabriel Boric’s administration weans the population off of stimulus and inflation hits the highest in almost three decades. Consumers are also getting pinched as the central bank extends aggressive interest rate hikes, while businesses are holding back on investments ahead of next month’s referendum on a new constitution.
Read more: Chile Inflation Tops 13% as Weak Peso Adds to Price Pressure
What Bloomberg Economics Says
“Chile GDP data for the second quarter showed a second straight drop in domestic demand — confirming the economy has reversed trend after the sharp rebound from the pandemic.”
–Felipe Hernandez, Latin America economist
Click here for full report
Domestic demand fell 0.9% during the second quarter compared to the first three months of the year as retail dropped by 1.2% and manufacturing declined 0.3%. On the other hand, mining increased 3.1%, according to the central bank. The nation’s current account deficit widened to $6.6 billion.
“All in all, the economic performance during the first half of the year was poor,” Andres Abadia, chief Latin America economist at Pantheon Macroeconomics, wrote in a report. “Looking ahead, conditions remain challenging. We expect GDP to fall by about 0.2% in both Q3 and Q4.”
Annual inflation has rocketed to a 28-year high on rising raw material costs and a recent currency plunge, prompting the central bank to extend a hiking cycle that’s added 925 basis points to borrowing costs in just over a year.
Boric has responded with limited aid including a new round of payouts to help the poorest face the surging cost of living without hurting public finances. It’s a turnaround from last year, when billions of dollars from early pension withdrawals and cash transfers were plowed into the economy.
On Sept. 4, voters will head to the polls for a referendum on a new charter that was written in response to social unrest in 2019-2020. Polls show the proposal will likely be rejected, though Boric has said he will back a new constitutional rewrite, a move that could prolong political uncertainty.
Read more: Latin America’s Market Darling Now More Risky Than Chaotic Peru
(Updates with Bloomberg Economics quote in fourth paragraph)
©2022 Bloomberg L.P.
Tourism shaping Osoyoos's economy in big way – Times Chronicle
By Madeline Baker, Times Chronicle
A report commissioned by Destination Osoyoos has taken a closer look at how tourism shapes Osoyoos’s economy and what improvements, changes and concerns should be considered going forward.
The study behind this report, which was released earlier this year by B.C.’s Larose Research and Strategy, took place in 2020, which was a year full of personal and professional upheaval for communities around the world, but still a busy enough year in the tourism sector to be reflective of larger ongoing trends.
In fact, Osoyoos saw approximately 300,000 visitors in 2020, which Destination Osoyoos’s Executive Director Kelley Glazer believes is likely to be higher than 2019. The majority of these visitors stayed in Osoyoos for over a week, filling hotels, resorts, B&Bs and private vacation rentals as well as campgrounds and RV parks.
Not only is that double the length of most stays in an average B.C. community, but over 25 per cent of those visitors had been to Osoyoos more than 10 times previously. With so many return visitors, it’s hardly surprising that 71 per cent of them would be likely to recommend the town to friends or colleagues as a holiday destination and only about three per cent would not.
All that positive word of mouth may explain why Osoyoos also stands out as a travel destination for people from Canada’s prairie and eastern provinces. B.C. communities typically see twice as many visitors from Alberta as from the rest of Canada combined but Osoyoos saw only 12 per cent from Alberta and 27 per cent from other parts of Canada.
When it comes to the economic impact of all these visitors, Osoyoos is also in a unique position among most other communities in B.C. Due in part to the number of overnight rather than same-day visitors, in part to the length of their stays, and in part to the draw of the Okanagan Valley’s wine industry, the average expenditure per visitor here is much higher.
However, a popular misconception of Osoyoos as a “playground for the rich” is not reflected in the data gathered by Larose. In fact, the report shows a diversity of household income that can be considered representative of the same diversity across B.C. and Canada, despite the large amounts of money spent during holidays here.
A total of $174 million was spent in Osoyoos in 2020, and almost entirely by tourists because of the mass switch by many professional sectors to working from home and a resulting lack of business travellers. Combined with tax revenue, that makes the entire impact $264 million for a single year.
Unsurprisingly, about one third of employment in Osoyoos was directly tied to the tourism sector, which also contributes to the economic profile of the town across all seasons. Larose polled a collection of residents for the report to learn their feelings about many aspects of living in a tourist town, including its employment prospects, with rather mixed results.
While Osoyoos residents generally recognized the economic opportunities created by tourism, there was also a strong belief that growth opportunities in the tourism sector are more limited than in others, and that tourism is inherently an unstable industry.
They had bigger worries than employment, though: some replies to the poll connected the lack of available, affordable rental properties in Osoyoos with its focus on tourism, while others felt that the crowds contributed to pollution and traffic congestion in the community to a concerning degree.
Pluses and minuses
The report closes with recommendations to maximize Osoyoos’s biggest draws for tourist traffic and mitigate its weaker points. By a large margin, visitors recommended the authentic Indigenous cultural experiences that can be found here as the best reason to make the trip, and the report identified this as Osoyoos’s most unique drawing point.
Glazer confirmed that she has seen the popularity of local Indigenous cultural centres among out-of-towners firsthand. “I had some relatives come from Europe, and besides coming here to see myself, the one thing they made time for was going to the cultural centre. It was much the same as it would be if we went to Europe and wanted to see the culture.”
She added that the Okanagan Indian Band’s “business development approach to tourism” has made them an excellent marketing partner for Destination Osoyoos. “They haven’t really needed a whole lot of assistance, but we do market all of their products and include them as part of our community offerings.”
Food and beverage services and nightlife activities were pinpointed as unsatisfying areas for visitors, as was the lack of parking and abundance of motor boats near beaches. “Improving the quality and availability of food and beverage is a big challenge,” said Glazer. “I don’t care where you travel in this world right now, dining out is probably not the best experience.”
Glazer does see a way forward with the issue of motor boat usage in the wrong areas, which she believes will require a stronger partnership with local law enforcement. “Presence is key. We have two RCMP officers who are actually qualified to run our RCMP boat, and that’s just not enough people to deal with that,” she said.
As for the report’s recommendation that Osoyoos “[enhance] resident awareness of, and involvement in tourism-related planning discussions,” Glazer had to admit that she was at a loss for new strategies.
“Invitations [to planning sessions] are sent out constantly, over and over again. We’ve phoned people and asked them to come, and then we get the usual turnout,” she said. “So I’m not quite sure what we will do there.”
The report will now be used “to ensure that the [tourism] sector maximizes benefits to visitors, tourism businesses, and residents, while improving local quality of life, respecting local culture and heritage, and preserving the region’s unique and sensitive ecosystems,” as said in its closing words.
It may also be shared with other resort municipalities that share similar strengths and concerns with Osoyoos.
What you need to know about the global economy this week – World Economic Forum
License and Republishing
The views expressed in this article are those of the author alone and not the World Economic Forum.
Chile’s Economy Stagnates in Second Quarter as Demand Withers – BNN Bloomberg
Tourism shaping Osoyoos's economy in big way – Times Chronicle
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