Economy
The economy has delivered good news. Are recession fears over?
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Growing recession alarm at the outset of this year warned of a coming business slowdown and significant job losses — until a government report last month showed that unemployment stands at its lowest level in more than 50 years.
A couple weeks later, in mid-February, fresh retail sales data blew past economist expectations, suggesting resilient consumer spending, the lifeblood of the U.S. economy.
The blockbuster economic performance boosted hopes that the economy would avoid a recession altogether.
Treasury Secretary Janet Yellen, speaking to “Good Morning America” last month, rejected concern about a downturn, saying the economy remains “strong and resilient.” Goldman Sachs cut its odds of a recession in the next 12 months to 25%.
The U.S. economy is humming, at least in some key metrics, but most economists say that the nation remains on a crash course toward a likely recession within the next year. A survey conducted last month by the National Association for Business Economics found that 58% of economists expect a recession in 2023.
An aggressive series of interest rate hikes at the Federal Reserve is expected to continue cooling the economy, economists told ABC News, noting the decline of personal savings that previously fueled the pandemic recovery.
To be sure, economists often err in their forecasts and some told ABC News that the path of averting a downturn is still possible.
Jeffrey Roach, chief economist at LPL Financial, called the coexistence of strong economic data and persistent recession fears a “conundrum.”
“There’s so much flux in the market,” he added, acknowledging the mixed signals sent by the economy in recent weeks. “The economy is still in this massive retooling from the pandemic.”
The high prices that weigh on the economy trace back to the pandemic-induced supply bottlenecks that made it harder to access a slew of goods, including essentials like gas and food.
Meanwhile, COVID forced billions worldwide indoors, shifting demand away from concert tickets and restaurant meals and toward the exact goods in short supply. The Russia-Ukraine war has exacerbated the shortages and sent prices even higher.
The Federal Reserve has imposed a string of aggressive rate hikes since last year that aim to lower inflation by cooling the economy and choking off demand. The approach, however, risks tipping the U.S. into a recession and putting millions out of work.
The Fed’s rate hikes have helped bring inflation down significantly from a summer peak. However, the policy has failed to slow the overall economy, as evidenced by the recent strong economic data, economists told ABC News.
The combination of easing inflation and sustained economic growth have driven hope among some of a “soft landing,” in which the Fed slows the economy and brings down inflation, while preventing the U.S. from entering a recession.
But a slowdown brought about by the Fed typically lags months behind a given rate hike, Nancy Lazar, chief global economist at Piper Sandler, told ABC News.
“Just because the economy is doing OK today doesn’t mean the economy won’t go into recession,” she said. “It’s happening slowly.”
Federal Reserve Chair Jerome Powell addresses reporters during a news conference in Washington, February 1, 2023.
Jonathan Ernst/Reuters, FILE
Some parts of the economy have shown signs of a slowdown. Home sales fell for the 12th consecutive month in January, reaching their lowest rate since November 2010, according to the National Association of Realtors.
The personal savings rate fell to an all-time low in December, suggesting that U.S. consumers have spent down much of their pandemic reserves.
Tina Quigley, president and CEO of the Las Vegas Global Economic Alliance, a group tasked with attracting and boosting economic activity, said the city thrived last year as leisure and travel bounced back from a pandemic lull.
By the end of last year, the average nightly rate for a hotel room in Las Vegas stood at $165, well above the pre-pandemic high of $127, she said. The Las Vegas airport saw 52.6 million passengers pass through its doors last year; a jump from 51.5 million in 2019.
“I don’t want to paint a picture of everything being sunshine and rainbows but certainly 2022 was a very good year,” she said.
Still, the organization assisted far fewer companies in establishing locations in Las Vegas last year compared to the year prior, suggesting recession fears had curtailed business plans and may foretell a further slowdown, Quigley said. The group helped 11 companies locate in Las Vegas last year, a sharp decline from 39 a year prior, it said.
“That pipeline has slowed down,” Quigley said. “We’re preparing for a recession, but not overreacting to it.”
Roach, of LPL Financial, said he expects a recession but recent strong economic indicators raise the likelihood of a mild downturn.
“Recessions are often necessary to break the back of inflation,” Roach said. “But given the fact that there’s so much fundamental stability in the economy, that recession won’t be as bad as your average recession.”
Zweli’s, a chain of three Zimbabwean restaurants in Durham, North Carolina, has enjoyed an uptick in business in recent months, said co-owner Leonardo Willliams, who runs the company with his wife.
Whereas last year a restaurant had about one or two tables occupied at a given time; now it’s four or five, he said. The company plans to hire 10 workers over the next month, increasing its workforce by 40%, he added.
“Business is slowly creeping back up,” he said.
However, rising costs have eaten away at the company’s profits, since major food purveyors charge twice as much for some products as they did before the pandemic, he said. And he fears that a recession would force corporate clients to cut back on catering, which accounts for 70% of the company’s revenue.
“It’s scary,” he said. “As small businesses, we’re equipped to be problem solvers but how much can one take?”
OTTAWA –
Serious money is heading for Canadian industries looking to reduce emissions after the federal government unveiled its answer to the U.S. Inflation Reduction Act.
The spending commitments announced in Tuesday’s federal budget include tax credits for investments in clean electricity, clean-tech manufacturing, and hydrogen that together are expected to cost some $55 billion through to the 2034-35 fiscal year.
Total tax incentives amount to almost $83 billion over that timeframe when the carbon capture and storage and clean-tech investments credits announced last year are factored in, both of which saw minor boosts this round.
The government says the funding is necessary to boost clean economy spending from some $15 billion a year to the $100 billion a year needed. The spending is also needed to not fall behind as other countries roll out subsidies, most notably with the US$369 billion contained in the landmark U.S. legislation passed last year.
“In what is the most significant economic transformation since the Industrial Revolution, our friends and partners around the world, chief among them the United States, are investing heavily to build clean economies,” said Deputy Prime Minister Chrystia Freeland as she introduced the budget.
Tax credits are the backbone of the effort because they are stable and efficient way to roll out government support, while leaving decision-making with the expertise of the private sector, said a senior government official in the budget lockup.
Clean electricity is the biggest focus of the credits, costing $6.3 billion over the first four years starting in 2024, and $25.7 billion through to the 2034-35 year. Notably, provincial utilities and Indigenous-owned corporations will be eligible for the credits.
The spending is meant to help spur both more generation, as well as a better-connected east-west grid to meet the expected doubling of electricity demand by 2050.
The clean electricity package is where the government has likely done enough to meet its goals, said Michael Bernstein, executive director of Clean Prosperity.
Other funding areas however, including the $11.1 billion in credits for manufacturing and $12.4 billion for carbon capture through to 2034, likely aren’t enough to close the gap with what the U.S. is offering, he said.
“It really is one of those situations where your competitor has stepped up and said we are going to be providing an almost unthinkable amount of money.”
Canada has opted for construction-focused project support, while the U.S. IRA covers operational costs with payments based on production volumes. It’s like Canada is offering a single large cup of soda, whereas the U.S. is offering endless kiddy-cup sized refills, meaning Canada needs to offer a pretty big cup to compete, said Bernstein.
Since it’s not covering operations, Canada needs to move quickly on offering the carbon pricing backstop that it’s promised to develop in the budget, he said.
The so-called contracts for difference would provide certainty to industry on future carbon pricing and credits, but so far they’re still in consultation, as are several other key policies.
“What surprised me was how many things are still left to be determined,” said Rachel Samson, vice-president of research at the Institute for Research on Public Policy.
Along with the contacts for difference, she noted that details are scarce about how the $15 billion Canada Growth Fund will be spent.
The government announced in the budget that the fund will be administered independently by the Public Sector Pension Investment Board, with money starting to flow in the first half of the year, but didn’t provide guidance on priority areas.
Samson said it was good the government isn’t trying to direct the money itself, but worried that pension fund managers are too cautious to put the money in the bold projects needed.
“We need projects that are more on the cutting-edge, that are riskier.”
The government also pushed down the road any commitments on biofuels such as sustainable jet fuels, which surprised Samson as Canada is currently exporting the raw wood pellet feedstock and knows companies have projects ready to go.
The budget was also notable for what wasn’t in it for the oil and gas industry. While it did tweak last year’s carbon capture incentives, it didn’t go as far as some were pushing for, while the emissions cut-off for hydrogen production will likely exclude most carbon-capture based hydrogen projects.
“Oil and gas did not get a lot of what I think it wanted in this,” said Samson.
The lack of funding comes as climate advocacy groups have pushed against support for both programs as wasteful projects that don’t achieve the emission cuts needed in the near term, while also pushing against support for an industry that has reported record profits.
The government has also framed the budget as one of fiscal restraint that it hopes will allow private capital to do much of the heavy lifting to keep Canada in the running.
“Canada must either meet this historic moment, this remarkable opportunity before us, or we will be left behind as the world’s democracies build the clean economy of the 21st century,” said Freeland.
This report by The Canadian Press was first published March 28, 2023.
Justin Trudeau’s basic argument is that Canada and the world face both historic challenges and unique opportunities — and the Liberals are better suited than the Conservatives to overcoming those challenges and seizing those opportunities.
Mind you, the two parties don’t entirely agree on which issues are most deserving of attention right now. But there is no bigger challenge than climate change and the transition to a low-carbon future it requires. And Tuesday’s federal budget — described by the Canadian Climate Institute as “the most consequential budget in recent history for accelerating clean growth in Canada” — could be a pivotal piece of the Liberal response.
The actual consequences of this budget will take years to measure. But in response to political and economic pressure, Trudeau’s Liberals have at least significantly upped the ante.
“In our minds, there is probably no more pressing issue of economic policy than accelerating Canada’s transition to a low carbon economy,” a senior finance official told reporters during a briefing on Tuesday. “We cannot, as a country, afford to be left behind.”
Keeping up with the neighbours
The obvious impetus for all of this is the Inflation Reduction Act recently passed in the United States. Though it was couched in terms of affordability, the American legislation was actually a massive package of subsidies for clean energy and technology.
Comparisons with President Joe Biden’s signature legislation are somewhat unfair — the United States has to lean heavily on subsidies because there is no chance of Congress passing any kind of carbon-pricing policy. But the Trudeau government could not afford to ignore it.
“In what is the most significant economic transformation since the Industrial Revolution, our friends and partners around the world — chief among them the United States — are investing heavily to build clean economies and the net-zero industries of tomorrow,” Finance Minister Chrystia Freeland said Tuesday.
“Today, and in the years to come, Canada must either meet this historic moment — this remarkable opportunity before us — or we will be left behind as the world’s democracies build the clean economy of the 21st century.”
Freeland’s third budget as finance minister offers $16.4 billion in tax credits for clean tech manufacturing, clean electricity and hydrogen over the next five years, adding to the $6.7 billion in supports for clean tech investment announced last fall. Freeland also has agreed to add $500 million to the $4.1 billion in support announced last year for carbon capture, utilization and storage.
Beyond those subsidies, the government has committed billions toward a handful of potentially lucrative funds, including $15 billion for the Canada Growth Fund, $8 billion for a “net zero accelerator” and $20 billion through the Canada Infrastructure Bank.
WATCH: Provinces need to be at the table as Canada competes with U.S., Freeland says
“Message to provinces – you guys have a strong fiscal position right now,” said Finance Minister Chrystia Freeland. “When it comes to supporting investments in the clean economy, provinces are going to need to be at the table too.”
The Liberals also are moving to shore up the federal carbon price. Under a mechanism called “contracts for difference,” companies that receive funding through the Canada Growth Fund would be eligible for compensation if the industrial carbon price fails to rise as scheduled.
In other words, if some future government pauses or outright repeals the price, it would come at a direct cost to the government.
The “backbone” of the plan, the senior official said, is funding for clean electricity — billions of dollars that will go toward cleaning and expanding Canada’s grid.
“If there’s one single input that is essential to the transition to a low-carbon economy in Canada, it is the availability of low cost, clean electricity,” the official said.
Ideally, these actions would boost Canada’s economic growth. But they also give the Liberal government a positive and forward-looking economic narrative.
The clean economy ‘pyramid’
The enthusiastic technocrats in the Liberal government envision their approach as a four-level pyramid. Carbon pricing and regulation form the foundation. Atop that sit investment tax credits and “strategic finance,” with “targeted programming” at the apex.
Voters probably aren’t going to commit the graphic to memory but “it feels like a coherent package,” said Dale Beugin, executive vice president at the Canadian Climate Institute.
“To me, that’s the right way to think about this. Don’t try to do the [Inflation Reduction Act] from scratch because you don’t have to — you don’t have to spend all that money. [But] do some things. Make sure it’s as targeted as you can and aim that support at the places of comparative advantage, or where the market’s not going to [act].”
Some pieces of the pyramid may prove sturdier than others. Contracts for difference will have to be carefully designed, Beugin said. Tax credits always run the risk of “free ridership” — of rewarding actions that would have happened anyway. Electrification requires working with provinces and, as Beugin notes, “federalism is always a tricky game.”
The Climate Action Network also pointed out on Tuesday that one piece of the government’s promised climate agenda — eliminating subsidies for fossil fuel industries this year — was conspicuously missing from the budget.
But neither the Conservatives nor the New Democrats were eager to condemn the promised new spending for clean energy and technology. Conservative Leader Pierre Poilievre repeated his condemnation of the federal carbon price, cast aspersions on the notion of contracts for difference and repeated his belief that the Trudeau government is spending altogether too much money — but he did not single out any of the government’s clean economy measures for criticism.
WATCH: Poilievre says Conservatives reject the budget
Speaking ahead of the tabling of the federal budget, Pierre Poilievre urged the prime minister to cancel tax hikes and inflationary deficit spending.
Maybe that means Poilievre has found some climate policy he can support.
Both Poilievre and NDP Leader Jagmeet Singh did criticize the budget’s lack of emphasis on housing. Liberals might counter they are already taking action to make housing more affordable, but it’s not obvious that what they’re doing is enough. If that’s still the case when the next election comes, the Liberal government’s chances of retaining power might be severely diminished.
The same could be said of crime or inflation, or any of the other issues that can grind away at a government’s standing and leave more voters craving change.
The measures announced on Tuesday may be relatively unchallenged — and this budget may prove to be truly consequential in building the economy of Canada’s future. But if the Liberals want to see this plan to fruition, there are other challenges to overcome and opportunities to seize.
Ministry of Commerce says move will ease cost and time of legal and financial transactions by Pakistani entities and individuals.
Islamabad, Pakistan – The European Union has removed Pakistan from its “list of high-risk third countries”, a move that is expected to improve conditions for business activity.
In a statement announcing the news on Wednesday, Pakistan’s Ministry of Commerce said the listing of Pakistan in 2018 had resulted in creating a regulatory burden affecting Pakistani companies doing business with the 27-member bloc.
“The new development would add to the comfort level of the European economic operators and is likely to ease the cost and time of legal and financial transactions by Pakistani entities and individuals in EU,” the statement said.
Foreign Minister Bilawal Bhutto-Zardari said in a Twitter post that Pakistani businesses and individuals “would no longer be subjected to Enhanced Customer Due Diligence” by European legal and economic operators.
EU authorities have removed Pakistan from the List of High Risk Third Countries which have strategic deficiencies in their AML/CFT regime. Pakistani businesses & individuals would no longer be subjected to Enhanced Customer Due Diligence by European legal & economic operators.
— BilawalBhuttoZardari (@BBhuttoZardari) March 29, 2023
The high-risk third countries list includes nations that, according to the EU, do not have a robust enough regulatory and legal system to prevent financial crimes and “terrorism” financing that could pose significant threats to the financial system of the bloc.
When a country is added to the list, it is subjected to particularly enhanced scrutiny and additional measures that increase the cost of doing business.
The Pakistani entities that will no longer be subjected to enhanced EU scrutiny include credit and financial institutions, auditors, external accountants, tax advisers, notaries and independent legal professionals, among others.
Pakistan’s delegation in the EU called the removal from the list a “positive step”.
“In line with last year’s FATF decision, the EU has decided to remove Pakistan from its list of countries with high risk regarding money laundering & financing of terrorism,” it tweeted, referring to the decision by the global money laundering and financing watchdog, the Financial Action Task Force (FATF), to remove Pakistan from its list of countries under “increased monitoring” after four years.
Khaqan Najeeb, a former adviser to Ministry of Finance, hailed the EU decision as evidence of Pakistan’s success in removing “strategic deficiencies” that were highlighted under the FATF listing, which can severely restrict a country’s international borrowing capabilities.
“This announcement shows that the EU has accepted that weaknesses in the country’s legal and regulatory systems have been upgraded and Pakistan can now prevent financial crimes and terrorist financing,” he told Al Jazeera.
Inside the Very Tough Business of Trying to Disrupt Media – Vanity Fair
Federal budget 2023: Canada's clean economy tax credit plan – CTV News
Post Politics Now: Biden to press for democratic renewal in speech to global summit – The Washington Post
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