A Saskatchewan economics professor doesn’t think there’s as much wind in the sails of Canada’s economy as is being perceived.
The federal government released its fiscal update Tuesday, projecting a $144.5-billion deficit for 2021-22 — about $11 billion less than its original projection.
But with government debt continuing to grow, Jason Childs points out Canada will need to borrow money, which comes with an interest rate that will also need to be paid back.
“One of the more interesting things going through this fiscal update was the use of much longer-term borrowing than has previously been the case,” the University of Regina economics professor told Gormley on Wednesday.
“A lot of it would normally be in two- or three-year bonds. This year, we’re looking at 10- and 30-year bonds being really prominent in the debt structure to finance these deficits. We’ve kicked the can down the road. We’ve locked in a relatively low interest rate for a reasonably long period of time but we still have a lot of debt.”
Childs said the unemployment rate in Canada is around the six per cent mark — a percentage economists view as the natural rate of unemployment in the country.
But while unemployment is around where it was pre-pandemic, Childs said Ottawa is still providing a lot of subsidies and stimulus programs.
“It has a real risk that the growth we’re seeing isn’t real or sustainable, it’s zombie corporations or corporations on government life support that is giving us this unemployment number and high economic growth,” Childs said.
“If we pull that back — which we’re going to have to do sooner or later — are we going to see a large decrease in employment, a large increase in unemployment and a pretty significant slowdown? I think that’s a very real risk.”
Childs said the government has a low inflation forecast, which could raise some eyebrows. Currently, the inflation rate in Canada is around 4.7 per cent after this past October. The U.S. has an inflation rate over six per cent.
“I think we’re going to be stuck with inflation running at four or five per cent for the foreseeable future and we’re going to see this around the world,” Childs said.
“Combine that with some of the trade restrictions I think we’re going to be seeing over the next couple years from the U.S. and other jurisdictions (and) I think we could be stuck in a bit of stagflation. To use an economics term, the misery index is going to be really high, which is unemployment plus inflation and that can make for some real hard times for people.”
Afghan women losing jobs fast as economy shrinks and rights curtailed – The Globe and Mail
In a small tailoring workshop in Kabul, 29-year-old Afghan entrepreneur Sohaila Noori looks on as her dramatically reduced work force of around 30 women sew scarves, dresses and baby clothes.
A few months ago, before the hard line Islamist Taliban movement seized power in August, she employed more than 80 people, mostly women, across three different textile workshops.
“In the past, we had so much work to do,” said Noori, who was determined to keep her business running in order to employ as many women as she could.
“We had different types of contracts, we could easily pay a salary to our master tailors and other workers, but currently we have no contracts.”
With Afghanistan’s economy deep in crisis – billions of dollars in aid and reserves have been cut off and ordinary people have little money even for basics – enterprises like Noori’s are struggling to stay afloat.
Making matters worse, the Taliban will only allow women to work subject to their interpretation of Islamic law, prompting some to leave jobs out of fear of punishment by a group that severely restricted their freedom the last time it ruled.
Hard-won gains in women’s rights over the last two decades have been quickly reversed, and reports from international rights experts and labour organizations this week painted a bleak picture for female employment and access to public space.
Though the economic crisis is hitting the entire country – some agencies predict it will leave almost the entire population in poverty in the coming months – the effect is disproportionately felt by women.
“The crisis in Afghanistan has made an already challenging situation for women workers even worse,” said Ramin Behzad, Senior Coordinator of the International Labour Organization (ILO) for Afghanistan.
“Work in key sectors has dried up while newly imposed restrictions on women’s participation in some economic areas are also hitting home.”
Afghan women’s employment levels fell by an estimated 16 per cent in the third quarter of 2021, according to an ILO report released on Wednesday, relative to 6 per cent for men.
Women’s employment was expected to be 21 per cent lower than it was before the Taliban takeover by mid-2022 if current conditions continued, according to the ILO.
For the workers at Noori’s workshop, the opportunity to make some money outweighed other worries.
“Mostly our families are worried about our safety. They repeatedly call us when we don’t reach home on time, but we all continue to work … because we have economic problems,” said Lailuma, who only gave one name out of fear for her safety.
Another worker, Saleha, now provides for her entire family.
“My monthly income is around 1,000 Afghanis [$10], and I’m the only person working in my family … Unfortunately, since the Taliban have come to power, there is [nearly] no income at all.”
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Venezuela Holds Rare Call With Bondholders as Economy Recovers – BNN
(Bloomberg) — Venezuela’s government is making a fresh attempt to open channels with international investors, presenting potential deals in the oil and tourism sectors and talking up new economic growth data.
Advisers, led by top economic aide Patricio Rivera, held an hour-long call on Wednesday with at least two dozen bondholders and fund managers from the U.S. and Europe, according to four people with direct knowledge of the conversation. The call was organized by the Venezuela Spain Chamber of Industry and Commerce.
Rivera, a former Ecuadorian Finance minister who is spearheading reforms aimed at liberalizing Venezuela’s economy, briefed the investors on policy shifts and the government’s commitment to become more market friendly, the people said. He also said the government was open for investments in several sectors, from oil and minerals to tourism, the people said.
Rivera did not respond to a request for comment.
Venezuela has had limited contact with debt holders since it defaulted on bonds in 2017. It owes at least $60 billion plus interest on those defaulted notes. The call comes as the country breaks a seven-year recession, posting economic growth of 7.6% in the third quarter of 2021, according to preliminary data, and as it exits a four-year bout of hyperinflation.
Despite the new outreach, Venezuela remains under U.S. economic sanctions that pose an important roadblock to American bondholders.
©2022 Bloomberg L.P.
Xi resets policy priorities to boost economy – The Tribune India
China’s Central Economic Work Conference (CEWC), held at Beijing from December 8 to 10, 2021, decided that all stakeholders should work actively to maintain stability in the macro-economy in view of new challenges as the country holds the Winter Olympics from February 4 to 20, 2022, and the 20th Congress of the Communist Party of China (CPC) later this year. What made the economic planners to rethink the policy direction was the sharp dip in China’s GDP growth rate from 18.3% in Quarter 1 of 2021 to 7.9% in Q2, 4.9% in Q3 and 4% in Q4.
Structural changes ordered by President Xi Jinping such as reducing loans to the real estate sector, lower emission targets resulting in power cuts and the zero tolerance to Covid-19 had played an important role in decelerating the economic growth. Xi is personally involved in directing the real estate policies as he considers the unchecked growth of this sector as posing a threat to China’s economic stability.
New measures undertaken by the Xi regime included severe restrictions on giving bank loans, allow hugely indebted developers to default to rein in large unproductive expenditure and announcement of a property tax on a trial basis in certain provinces to discourage the purchase of multiple properties to curb speculation. Given that the real estate sector accounts for 29% of the Chinese economy, these measures, according to some economists, may reduce China’s GDP growth by about 0.5% in 2022 and thereafter. These restrictions have strained the local government’s finances, as selling land is an important source of revenue. Several local governments slashed the salaries of their staff, weakening the consumption.
In the last two years, China has undertaken several measures to reduce its greenhouse emissions, including controlling of its coal-fired power plants to meet its targets of peaking carbon dioxide emissions by 2030, lower the carbon dioxide emissions per unit of GDP by over 65% (from 2005 level) by 2030, increase the share of non-fossil fuels and forest stock. Decrease in power generation by coal-fired plants and rationing since September 2021 disrupted industrial production in many provinces as several industries were forced to cut production and reduce jobs. Recurrent outbreaks of Covid in some areas and China’s zero tolerance approach again forced several businesses to close and confined about 20 million people at home. The working of several companies in technology, education and gaming sectors was adversely impacted due to the regulatory actions, resulting in lower earnings and loss of jobs.
At the CEWC, it was felt that new external challenges had arisen as President Biden had not only continued the policies of his predecessor but also taken a harder line with his allies towards China. The Comprehensive Investment Agreement with the EU had remained frozen and China’s relations with Australia and Japan had deteriorated. These countries had become more vociferous in criticism of China’s human rights record and applied a number of sanctions against the Chinese companies and individuals for investments and exports. Several Chinese leaders appeared nervous about the slowing of economic growth in 2022 as Xi is expected to seek an unprecedented third term as President. They advised him that priority should shift to maintaining growth and stability so that the Chinese economy could convey a picture of strength.
Amid deterioration in China’s external environment, the conference identified securing supplies of primary products such as food, soybean, minerals and energy as a priority to prepare for the post-Covid world. “The Chinese people’s rice bowl must be firmly held in their own hands at all times,” Xi emphasised. He underlined the need to establish a strategic materials reserve to secure minimum needs at critical moments and work on a comprehensive conservation strategy. Other four priorities agreed were “common prosperity, capital regulation, defusing major financial risks and carbon neutrality. Concerns were expressed at the high level of unemployment among the migrants, the youth and possible outflow of foreign exchange as the US dollar strengthened following rise in the interest rates.
In view of these reasons, it was agreed that the government would have to give bigger policy support to the economy. China’s central bank had also conveyed dovish signals, cutting the reserve requirement ratio to the banks in a departure from central banks in the developed countries. Though the policymakers remained committed to structural reforms, it was agreed to slow down the regulatory crackdown and provide targeted support to SMEs, first time homebuyers, more funding for technology innovation and green investments.
China’s foreign trade made impressive gains in 2021, reaching $6.05 trillion as it functioned as a supply house to the rest of the Covid-stricken world. Trade with the US soared by 28.7% ($755.6 billion) and India by 43.3% (total $125.66 billion, Indian exports $28.14 billion, imports $97.52 billion). The increased global demand was chiefly responsible for 8.1% growth of China’s economy in 2021.
Chinese leaders are worried that external demand may not sustain as other major economies come out of Covid and start exporting this year. Consumption in China has not moved beyond 55% of the GDP (54.3% in 2020) in recent years due to the saving habits of the Chinese people for expenditure on health, education and old age. The government is, therefore, forced time and again to resort to big investments to drive up the growth rates.
It is now trying to increase investments in research and innovation (its R&D expenditure reached 2.4% of GDP in 2020), adoption of intelligent technologies and digital economy. While these technologies will yield efficiencies and mitigate to some extent the adverse impact of declining workforce, these will not lessen the latter’s adverse impact on lowering consumption. China will, therefore, be forced to accept sub-5% economic growth in the coming years as it rebalances its economy away from non-productive expenditures and starts experiencing the negative effects of population decline.
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