THE PANDEMIC caused a fearsome economic slump, but now a weird, exhilarating boom is in full swing. The oil price has soared, while restaurants and haulage firms are having to fight and flatter to recruit staff. As listed firms signal that profits will hit an all-time high this year, stockmarkets are on a tear. An index produced by JPMorgan Chase and IHS Markit suggests that global growth is at its highest since the exuberant days of 2006.
Any escape from covid-19 is a cause for celebration. But today’s booming economy is also a source of anxiety, because three fault lines lie beneath the surface. Together, they will determine who prospers, and whether the most unusual recovery in living memory can be sustained.
The first fault line divides the jabs from the jab-nots. Only those countries getting vaccinations into arms will be able to tame covid-19. That is the condition for shops, bars and offices to reopen permanently, and customers and workers to have the confidence to leave their homes. But only one in four people around the world has had a first dose of vaccine and only one in eight is fully protected. Even in America some under-vaccinated states are vulnerable to the infectious Delta variant of the virus.
The second fault line runs between supply and demand. Shortages of microchips have disrupted the manufacture of electronics and cars just when consumers want to binge on them. The cost of shipping goods from China to ports on America’s west coast has quadrupled from its pre-pandemic level. Even as these bottlenecks are unblocked, newly open economies will create fresh imbalances. In some countries people seem keener to go for a drink than they do to work behind the bar, causing a structural labour shortage in the service sector. House prices have surged, suggesting that rents will soon start to rise, too. That could sustain inflation and deepen the sense that housing is unaffordable.
The final fault line is over the withdrawal of stimulus. At some point, the state interventions that began last year must be reversed. Rich-world central banks have bought assets worth over $10trn since the pandemic began and are nervously considering how to extricate themselves without causing a flap in capital markets by tightening too fast. China, whose economy did not shrink in 2020, offers a sign of what is to come: it has tightened credit policy this year, slowing its growth.
Meanwhile, emergency government-aid schemes, such as unemployment-insurance top-ups and eviction moratoriums, are beginning to expire. Households are unlikely to get a fresh infusion of “stimmies” in 2022. Deficits will contract rather than expand, dragging down growth. So far, economies have largely avoided a wave of damaging bankruptcies but nobody knows how well firms will cope once emergency loans come due and workers can no longer be furloughed at taxpayers’ expense.
You might think that an event as extreme as a pandemic, combined with the unprecedented government response to it, would eventually trigger an equally extreme global economic reaction. Pessimists worry about a return to 1970s-style inflation, or a financial crash, or that capitalism’s underlying energy will be drained by state handouts. Such apocalyptic outcomes are possible, but they are not likely. Instead a better way to think about the unusual outlook is to examine how the three fault lines interact differently in different economies.
Start with America. With abundant vaccines and enormous stimulus, it is at the biggest risk of overheating. In recent months inflation has reached levels not seen since the early 1980s. Its labour market is coming under strain as economic activity shifts. Even after a rise of 850,000 in the number of jobs in June and accounting for abundant vacancies, the number of people working in leisure and hospitality is 12% lower than before the pandemic. Workers are reluctant to return to the industry, which has pushed up wages. Hourly pay is almost 8% higher than in February 2020. Perhaps they will come back when emergency unemployment benefits expire in September. But countries without such a scheme, like Australia, are also seeing a labour shortage. Attitudes to work may be changing at the bottom of the income spectrum, among waiters and cleaners, not just among well-heeled professionals who dream of yachts and sabbaticals. All this suggests that America’s economy will run hot, with continual pressure on the Federal Reserve to tighten policy.
Elsewhere in the rich world the picture is less exuberant. It includes some jab-nots, like Japan, which has fully vaccinated less than 15% of its population. Europe is catching up on vaccines, but its smaller stimulus means that inflation has not reached American levels. In Britain, France and Switzerland 8-13% of employees remained on furlough schemes at the end of May. In all these economies the risk is that policymakers overreact to temporary, imported inflation, withdrawing support too quickly. If so, their economies will suffer, just as the euro area suffered after the financial crisis of 2007-09.
Low- and middle-income countries are in a bind. They should be benefiting from surging global demand for commodities and factory goods, but they are struggling. Indonesia, battling another covid-19 wave, is redeploying oxygen from industry to hospitals. In 2021 the poorest countries, which are desperately short of vaccines, are forecast to grow more slowly than rich countries for only the third time in 25 years.
Even as covid-19 weakens their recoveries, emerging markets face the prospect of higher interest rates at the Fed. That tends to put downward pressure on their currencies as investors buy dollars, raising the risk of financial instability. Their central banks do not have the luxury of ignoring temporary or imported inflation. Brazil, Mexico and Russia have raised interest rates recently, and more places may follow. The combination of jabbing too late and tightening too soon will be painful.
Prepare to take shelter
The economic cycle has been frantic, leaving the slump far behind in only a year. Perhaps by the summer of 2022 most people will be vaccinated, business will have adapted to new patterns of demand and stimulus will be unwinding in an orderly way. In this weird boom, however, beware those fault lines. ■
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.
