A woman walks past a currency exchange office in St. Petersburg that stopped exchange operations with the Euro.The Associated Press
As Russian PresidentVladimir Putin’s invasion of Ukraine approaches its third deadly week, a financial counteroffensive unleashed by Western governments across multiple fronts has already sunk his country’s economy into a crisis that it may not recover from for years, if ever.
Evidence of Russia’s economic implosion mounts by the day. On Tuesday Fitch Ratings downgraded Russia’s credit rating to junk status and said a default on Russia’s foreign debt obligations is “imminent.”
The rating change came after U.S. President Joe Biden imposed a ban on imports of Russian oil and gas, a move he said targeted “the main artery of Russia’s economy,” which relies heavily on energy exports to fill its coffers.
Meanwhile, more Western companies pulled out of Russia, part of a widening corporate boycott against the invasion. McDonald’s Corp., Coca-Cola Co.and Starbucks Corp. closed their Russian locations Tuesday. A day later, Canadian e-commerce company Shopify Inc. suspended operations in Russia and Belarus.
All told, more than 300 companies had pulled out of Russia as of Wednesday, according to a running list compiled by Yale School of Management professor Jeffrey Sonnenfeld.
The sanctions imposed on the Russian government, officials, individuals, companies and the country’s central bank have been swift and unprecedented. “While there’s robust debate about whether these sanctions will achieve their political goals and convince Mr.Putin to change his behaviour, their economic impact is far more clear cut,” Neil Shearing, chief economist at Capital Economics, wrote in a note this week.
In short order, Russia has become the world’s most sanctioned country, leapfrogging past Iran for the top spot, with more than 5,500 outstanding sanction actions against it.
Last week, French Finance Minister Bruno Le Maire said the goal of the sanctions was to “cause the collapse of the Russian economy.” While Mr. Le Maire later backtracked his comments as “inappropriate,” that stated goal has only moved closer to reality since then.
Mr. Putin calls the sanctions an “act of war.” In response to them, Russia compiled and released a running tally this week of what it deems “unfriendly” countries, including Ukraine, the United States, Britain, all EU countries, Canada, Norway, South Korea, Taiwan and Micronesia, to name a few.
The problem for Mr. Putin is those “unfriendly” countries and regions make up the largest share of Russia’s exports and itsimports, an analysis of International Monetary Fund trade flow data by The Globe and Mail shows.
The onslaught of actions taken against Moscow has left forecasters scrambling to revise their growth forecasts for the Russian economy, an almost impossible task when most of the country’s financial and trade links to the rest of the world have been temporarily – and in some cases permanently – severed.
In a new analysis to be released Thursday, the Institute of International Finance, the trade association for the global financial services industry, predicts the sanctions have triggered a severe recession in Russia that will seeits economy shrink by 15 per cent in 2022. If that forecast comes to pass, it would be a collapse worse than the 2008-09 Great Recession and Russia’s 1998 debt default crisis combined.
Russia’s currency has been caught in the downdraft. The ruble has lost more than half its value since the invasion began, as Western investors havedumped Russian assets and several Russian banks have been banned from using the SWIFT international payments system.
At the same time, Western governments have targeted Russia’s central bank with sanctions that have cut it off from accessing half the country’s US$643-billion in foreign exchange reserves, which are held in Europe and North America.
The ruble’s collapse is worsening the cost-of-living crisis ordinary Russians were already facing, by making everyday imported goods more expensive – assuming those goods can even be found amid empty store shelves. Even before the invasion, the annual inflation rate in Russia was running at around 8.5 per cent.
“If it were sustained in the coming weeks and months, [this rate] could see the Russian annual inflation rate almost double in the coming months,” Michael Metcalfe, global head of macro strategy at State Street Global Markets, wrote in a research note.
The official gauge of Russia’s inflation rate is already showing immediate evidence of the impact of the sanctions and currency rout. In the span of just one week between Feb. 26 and March 4, consumer prices climbed 2.2 per cent, according to figures released Wednesday by Russia’s statistics service, Rosstat.
Bloomberg saidprices for imported cars and TVs alone climbed 15 per cent during that period.
However, some analysts argue the inflation rate in Russia is already far higher than what official numbers show. Steve Hanke, a professor at Johns Hopkins University, calculates theoretical inflation rates for troubled currencies using a formula that relies on the purchasing power of local currencies. His implied annual inflation rate for Russia stands at 135 per cent.
With no access to half of Russia’s foreign exchange reserves, and faced with surging inflation, the central bank signalled its desperation to save the ruble by doubling Russia’s policy interest rate to 20 per cent last week.
It also shut down the country’s stock market to ease turmoil, though Russian companies that continued trading for several days on U.S. and British exchanges went into freefall, wiping out most of their value.
So far, the central bank’s moves have failed to stabilize Russia’s teetering financial system.
The bright spot for Russia’s economy throughout the attack on Ukraine – if the relief can be called that – has been the massive daily inflow of euros Russiareceives in exchange for gas being pumped to European countries. Europe depends on Russia for 40 per cent of its gas imports and one-quarter of its oil imports, and Western sanctions have largely avoided disrupting that flow.
Analysis by Bruegel, a Belgian think tank, estimates the daily value of natural gas imports from Russia to be nearly £800-million ($1.1-billion).
But there are signs that influx of cash is also in jeopardy. On the same day the U.S. imposed its import ban on Russian oil, the European Union presented a plan that would see it reduce its dependence on Russian gas by two-thirds by the end of the year.
Even if the war in Ukraine were to end tomorrow, few analysts expect Western companies and investors, who have seen billions of dollars wiped out as a result of Mr. Putin’s aggressive actions, to rush back into Russia.
Of the 10 most active countries for foreign direct investment in Russia in 2020, according to GlobalData, a London-based consulting firm, all but China have severed some economic ties to the country.
That will leave Russia’s weak and isolated economy starved of investment when the country eventually tries to revive its shattered fortunes.
As Robin Brooks, chief economist at the Institute of International Finance, tweeted Wednesday: “Russia is on course for unprecedented impoverishment.”
With files from Reuters
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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 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.
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.
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