The writer, Morgan Stanley Investment Management’s chief global strategist, is author of ‘The Ten Rules of Successful Nations’
Driven by the success of America’s vaccine rollout and massive government stimulus, the US economy is expected to grow as fast as 7 per cent this year and is currently leading the world recovery. The commentariat is talking up an “American Renaissance” in a nation that on Sunday marked its 245th Independence Day.
But there is a problem: America just went through an economic renaissance. It’s not likely to be reborn again.
A decade ago, in the wake of the 2008 financial crisis, Standard & Poor’s downgraded US government debt for the first time ever, triggering dire forecasts of American decline. Instead, the 2010s saw an expansion of American economic power, driven by its tech prowess and its relatively quick resolution of the debt crisis.
The US share of global gross domestic product rose from a 2011 low of 21 per cent to 25 per cent last year. Average incomes started the decade 26 per cent higher in the US than in Europe and finished more than 60 per cent higher. The US income lead over Japan grew even more dramatically. By early 2020, despite talk of “despair” in the jobless middle classes, US consumer and small business confidence hit highs unsurpassed since the 1960s.
As a financial superpower, the US reached even greater heights. Its share of global stock markets increased in the 2010s from 42 per cent to 58 per cent. The dollar emerged more dominant than ever, helping the US extend its lead over other developed nations.
By late 2019, 75 per cent of all overseas loans to individuals and corporations were denominated in dollars, up from 60 per cent before the crisis of 2008. Six of every 10 countries used the dollar as their “anchor” — the currency against which they measure and stabilise the value of their own currency — near a record high. China’s efforts to challenge the dollar as the world’s favourite reserve currency also failed utterly during the 2010s.
After a comeback decade, America is unlikely to rise anew in the 2020s. As I argued at the start of the pandemic, booms that are potent are almost always followed by a long hangover.
The US economy led the world in the 1960s, but in the 70s it worried about falling behind the oil-fuelled Soviet Union. In the 1980s it fretted over an ascendant Japan. The US came roaring back during the tech boom of the 1990s, but the 2000s were all about the rise of emerging markets led by China.
Forecasts for another US surge rest in part on faith that it can keep extending its lead in technology. But the US internet giants already face challengers in emerging markets from Asia to Africa, where local entrepreneurs are building national and regional market leaders in ecommerce, e-banking and search. Europe is closing the innovation gap in fields such as robotics and AI, and European start-ups are attracting more private equity money than ever before.
Booms are often killed by complacency, which grips the US now. Significant voices in both political parties have argued that America should continue to borrow and spend freely, thanks to the unrivalled status of the dollar as the world’s most wanted currency.
But easy money flowing out of the Fed is threatening to weaken the dollar and feeding the rise of zombies — companies which earn too little to make even interest payments on their debt. They barely existed in the US 20 years ago, but accounted for 6 per cent of listed companies by 2010, and almost 20 per cent by last year.
The federal government and corporations are now so deep in debt, it is hard to imagine how they can further boost the economy. In 2010, the US owed the rest of the world $2.5tn, a sum equal to 17 per cent of US GDP. By early last year, those liabilities had risen to $10tn and more than 50 per cent of GDP — a threshold that has often triggered currency crises in the past. Currently they are $14tn and 67 per cent of GDP.
None of this means that American declinists, so wrong in the 2010s, will finally be proved right. China’s rising share in the global economy has come largely at the expense of Europe and Japan. Declinists, still convinced the US will soon be overtaken by China, overlook the fact that China has huge debt problems too.
What is more likely is that the US will have a mediocre decade, weighed down by the excesses of its recent boom. Relative to other markets, US stocks are at a 100-year peak. Valuations that high reflect the new optimism: after a decade of unanticipated US success, many analysts now expect more of the same. Alas, this may be as good as it gets for America.
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.
