The oil and gas sector will continue to help Alberta’s economy outperform the rest of the country, according to ATB Financial, but there will still be some pain for Albertans in the year ahead.
KHARTOUM, SUDAN – Sudan hopes to cut fuel subsidies over the course of 18 months, starting as early as March, and replace them with direct cash payments to the poor, the country’s finance minister said, laying out a timetable for sweeping economic reforms sought by international lenders.
The plan comes as Sudan’s fragile democracy is slowly taking shape after the ouster last year of the country’s long-time autocrat Omar al-Bashir.
In an interview with The Associated Press on Tuesday, Finance Minister Ibrahim Elbadawi said the decision was a “no brainer.” The government has previously said it will not change bread and flour subsidies.
Elbadawi’s comments are the first to reveal a planned timeline since the Sudanese government skirted the issue of slashing subsidies late last year, after the country’s pro-democracy movement rejected the move. The government included subsidies in the 2020 budget.
In the interview with the AP, Elbadawi said the plan now is to gradually lift fuel subsidies, which take up 36% of the nation’s budget, as early as March and following an economic conference with civil society groups, and continue into the next year. A former World Bank economist, Elbadawi was appointed to the country’s interim government last year. He said gasoline subsidies would be removed first, before tackling those related to diesel in mid-year.
Sudan’s new leadership is navigating a treacherous transition to civilian rule. Two-thirds of the country’s more than 40 million people live in poverty, and slashing the fuel subsidies could lead to destabilizing protests reminiscent of the large-scale demonstrations that ended al-Bashir’s 30-year rule in April. At the same time, sweeping economic reforms are required to re-integrate Sudan into the international economy and win support from international lenders.
Since al-Bashir’s ouster, an interim government made of civilian and military representatives has been leading the country and the economy — already in a severe downturn and battered by a weakening currency, shortages and inflation — has become the lynchpin of the fragile transitional period.
Sudan has been an international pariah after it was placed on the United States’ list of states that sponsor terror, more than two decades ago. This largely excluded it from the global economy and prevented it from receiving loans from international institutions like the International Monetary Fund.
Sudan’s interim government has also inherited a debt of 60 billion dollars and a rapid inflation rate, and badly needs an injection of funds from foreign donors. The nation’s currency, the Sudanese pound, is trading on the black market for double its official rate of 45.3 pounds to the dollar.
The uprising against al-Bashir began as protests over rising prices of key staples such as bread and frustration among the youth over unemployment and the brutality of the nation’s security forces. Many in the country’s civil society movement fear that lifting subsidies now could make the country’s most vulnerable even poorer.
Elbadawi said a direct cash payment to poor families, through banks or mobile phone transfers, could help ease the shock of the reforms. Such a program could be off the ground in six months, he said, though the government still needs better data to reach all those in need. As part of a pilot group, said that some 4.5 million people would start receiving the money soon, Elbadawi added.
“We think that if we manage to do this, it will be a very viable and credible alternative,” he told the AP. “It will target the poor, it will promote the cause of peace and it will actually change the social contract.”
Because of the longstanding subsidy program, Sudan has been one of the cheapest countries in the world to fill up a tank. Cheap gasoline prices have also encouraged fuel smuggling out of the country. If things were to stay as they were — with no changes to the 2020 budget — the government would be spending more on subsidies than on health, education and internal security combined, Elbadawi said.
To pave the way for international loans, Sudan has been in talks with the U.S. to remove it from the list of terrorism sponsors —something Elbadawi hopes will be only a matter of weeks or a few months. In the meantime, he said the government is in talks with the IMF and is working on a reform program that could lay the groundwork for future debt relief.
The government is also launching a national dialogue to explain the necessity of the subsidy reforms but will tread carefully, aware of likely popular opposition, Elbadawi said. The Sudanese Professionals Association, the main organizer of demonstrations during last year’s uprising, has threatened to mobilize protesters if the transition goes astray.
That means Sudan’s civilian stakeholders would have to be on board with the program.
“If, for whatever reason, we are unable to reach a consensus, then I think it will be incumbent upon the government to explain the consequences and to allow the Sudanese people to take whatever decision and course they want to take,” Elbadawi said.
Inflation and interest rates to slow Alberta economic growth: ATB
Alberta has benefited from high oil prices over the course of 2021, resulting in higher revenues and pushing the province to an expected $12.3-billion surplus.
Oil companies were producing a record 3.88 million barrels of oil a day in September. With the Trans Mountain Pipeline expansion expected to be completed in the third quarter of 2023, an additional 690,000 barrels of exporting capacity will be brought online.
“It hits that wall after next year,” he said. “Without more pipelines, you just can’t keep expanding production.”
He says there is cautious optimism for the city, bolstered by the current energy market along with diversification of the local economy, specifically with record growth in tech. Still, there is a long way to go for economic balance between energy and other sectors.
Consumers facing higher costs for rent, groceries and utilities are still in for a tough year, said Roach.
Inflation has cooled since its highs of 8.1 per cent year-over-year this summer, down to 6.9 per cent nationally in October, but there are still a number of global factors that will continue to have an effect.
The war in Ukraine remains a wild card in how it affects global energy prices, supply chains and other commodities such as grain.
Supply chains are improving, but there are still challenges, particularly if COVID-related restrictions cause further interruptions. China has already seen disruptions in a number of sectors, especially those that rely on computer chips.
While gas prices have fallen off from their summer highs, they are still contributing to rising costs at grocery stores and other retail, especially as diesel remains about 60 cents per litre higher than gasoline.
Real estate is also expected to remain strong in Alberta in 2023, bolstered by the migration of 60,000 people to the province in 2022 from other countries.
The price of housing has come off its record-setting pace from 2021 and early 2022, but Re/Max is predicting a seven per cent increase in the price of single-family homes in Calgary in its 2023 Canadian Housing Market Outlook, released Tuesday. Only Muskoka, Ont., and Halifax are forecasted to have a higher increase in the price of a home at eight per cent, while Canada as a whole is looking at a 3.3 per cent decrease in home prices.
The Bank of Canada has been attempting to slow inflation, raising its benchmark interest rate from 0.25 per cent in March to 3.75 per cent in October. Roach said he expects rates to go up another 25 to 50 basis points next week. The strategy has had the desired effect of lowering prices in most other real estate markets, but Calgary remains an outlier.
He expects the bank to stop increasing rates next year, but it will be 2024 before a decrease is likely.
“It’s unlikely that they’ll stop at four,” said Roach.
“We think there’s still enough inflation that they’ll have to get into that 4.25 range. It’ll be all year those interest rates will be high, though, even if they stop raising them.”
India may become the third largest economy by 2030, overtaking Japan and Germany
India is set to overtake Japan and Germany to become the world’s third-largest economy, according to S&P Global and Morgan Stanley.
S&P’s forecast is based on the projection that India’s annual nominal gross domestic product growth will average 6.3% through 2030. Similarly, Morgan Stanley estimates that India’s GDP is likely to more than double from current levels by 2031.
“India has the conditions in place for an economic boom fueled by offshoring, investment in manufacturing, the energy transition, and the country’s advanced digital infrastructure,” Morgan Stanley analysts led by Ridham Desai and Girish Acchipalia wrote in the report.
“These drivers will make [India] the world’s third-largest economy and stock market before the end of the decade.”
India posted a year-on-year growth of 6.3% for the July to September quarter, fractionally higher than a Reuters poll forecast of 6.2%. Prior to this, India recorded an expansion of 13.5% for the April to June compared to a year ago, buoyed by robust domestic demand in the country’s service sector.
The country posted a record 20.1% year-on-year growth in the three months to June 2021, according to Refinitiv data.
S&P’s projection hinges on the continuation of India’s trade and financial liberalization, labor market reform, as well as investment in India’s infrastructure and human capital.
“This is a reasonable expectation from India, which has a lot to ‘catch up’ in terms of economic growth and per capita income,” Dhiraj Nim, an economist from Australia and New Zealand Banking Group Research, told CNBC.
Some of the reforms cited have already been set in motion, said Nim, highlighting the government’s commitment to set aside more capital expenditure in the country’s annual expenditure books.
Becoming a more export-driven hub
There’s a clear focus by India’s government to become a hub for foreign investors as well as a manufacturing powerhouse, and their main vehicle for doing so is through the Production Linked Incentive Scheme to boost manufacturing and exports, according to S&P analysts.
The so-called PLIS, which was introduced in 2020, offers incentives to both domestic and foreign investors in the form of tax rebates and license clearances, among other stimulus.
“It is very likely that the government is banking on PLIS as a tool to make the Indian economy more export-driven and more inter-linked in global supply chains,” S&P analysts wrote.
By the same token, Morgan Stanley estimates that Indian manufacturing’s share of GDP will “rise from 15.6% of GDP currently to 21% by 2031” — which implies that manufacturing revenue could increase three times from the current $447 billion to around $1,490 billion, according to the bank.
“Multinationals are more optimistic than ever about investing in India … and the government is encouraging investment by both building infrastructure and supplying land for factories,” Morgan Stanley said.
“India’s advantages [include] abundant low-cost labor, the low cost of manufacturing, openness to investment, business-friendly policies and a young demographic with a strong penchant for consumption,” said Sumedha Dasgupta, a senior analyst from the Economist Intelligence Unit.
These factors make make India an attractive choice for setting up manufacturing hubs until the end of the decade, she said.
Salient sticking points that could challenge Morgan Stanley’s forecast include a prolonged global recession, since India is a highly trade-dependent economy with nearly 20% of its output exported.
Other risk factors cited by the U.S. investment bank include supply of skilled labor, adverse geopolitical events and policy errors which may arise from voting in a “weaker government.”
A global slowdown may dampen India’s export businesses outlook, India’s finance ministry said last Thursday.
Brazil's economy grows less than expected in third quarter, but still reaches record level – Reuters
BRASILIA, Dec 1 (Reuters) – Brazil’s economic growth slowed more than expected in the third quarter as higher interest rates affected household spending, underscoring challenges facing President-elect Luiz Inacio Lula da Silva next year.
Gross domestic product rose 0.4% in the three months to September, government statistics agency IBGE said on Thursday, below the 0.7% growth forecast by economists polled by Reuters.
Brazil’s central bank have raised borrowing costs to a nearly six-year high to battle double-digit inflation this year, which has begun to weigh on domestic demand.
Economists warn that if Lula unleashes a surge of new government spending, the central bank may not cut rates as expected.
“The balance of risks for 2023 are to the downside, due mostly to politics and the deterioration of the fiscal picture, which could keep interest rates high for even longer,” wrote economist Andres Abadia of Pantheon Macroeconomics in a note.
Household consumption rose just 1%, down from 2.1% in the second quarter, while fixed investments gained 2.8% and a burst of election-year spending lifted government expenditures 1.3%.
On the production side, farm output fell 0.9% in the quarter due to a delayed sugar cane harvest, while industrial output advanced 0.8% and the dominant services sector rose 1.1%.
This was the fifth consecutive quarter of expansion, putting activity in Latin America’s largest economy 4.5% above its pre-pandemic level in the fourth quarter of 2019.
“The clear message from today’s figures is that the economy is losing momentum,” said William Jackson, chief emerging markets economist at Capital Economics, predicting an even weaker fourth quarter due to a worsening global outlook and high interest rates.
“We’re sticking to our view that while the economy will grow by 3% this year, it will expand by little more than 1% in 2023,” he wrote in a note to clients.
The government of outgoing President Jair Bolsonaro forecasts GDP to rise by 2.7% this year and 2.1% in 2023.
President-elect Lula, who will be sworn in on Jan. 1, is pushing to exclude a major welfare programme from Brazil’s constitutional spending cap, opening space for more public expenditures to meet his campaign promises.
As Lula has still not proposed alternative fiscal rules to keep a lid on public debt, his push for more spending has created doubts about monetary policy and pushed up Brazil’s yield curve, implying higher financing costs for the government’s hefty interest bill.
The central bank paused its tightening cycle in September after 12 consecutive hikes that raised the benchmark interest rate to 13.75% from a record-low 2% in March 2021.
Central bank chief Roberto Campos Neto has said that fiscal uncertainty could force policymakers to take a more restrictive approach.
Brazil’s GDP expanded by 3.6% from the third quarter of 2021, IBGE reported on Thursday, slightly below the 3.7% rise forecast by economists polled by Reuters.
IBGE also revised down second-quarter growth to 1% from the prior quarter, compared to 1.2% reported previously, while revising upward first-quarter growth to 1.3% from 1.1% previously.
Our Standards: The Thomson Reuters Trust Principles.
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