Economy
Trudeau's tighter COVID-19 rules hit Canada's economic growth – BNN
Prime Minister Justin Trudeau’s claims there isn’t a trade-off between Canada’s strict lockdowns and economic growth will be tested this week with the release of new output data.
Analysts expect gross domestic product shrank by more than 5 per cent last year, a middling result among advanced economies. The U.S., with far less restrictive pandemic measures last year, shrank by just 3.5 per cent.
Canada’s lagging performance is expected to continue into 2021. Economists see a stronger rebound in the U.S. this year because of its faster pace of COVID-19 vaccinations, looser virus-related curbs and President Joe Biden’s stimulus plan.
“It’s pretty obvious there is a trade-off,” Doug Porter, chief economist at Bank of Montreal, said in a phone interview.
The good news is investors and analysts don’t appear worried. The Canadian dollar is one of five major currencies that’s appreciated against the U.S. greenback this year. And the rise in government bond yields has been faster in Canada than the U.S., another sign of optimism about growth.
Despite the underperformance, Canada’s outlook remains positive.
Economists anticipate growth of 4.7 per cent this year. That’s slower than the U.S., but also the fastest in two decades. GDP data due Tuesday from Statistics Canada are also likely to show more resilience to the latest wave of restrictions this winter, in part because of a booming housing market.
A rally in commodities, meanwhile, is another major tailwind for the resource-producing economy. The Bank of Canada’s index of commodity prices — which tracks commodities produced in Canada and sold in world markets — has more than doubled since its lows in April to the highest levels since 2014. Excluding energy, the index is at an all-time high.
Bouncing Back
The debate is switching toward upside risks to forecasts.
A massive accumulation of excess savings is one wild card. While other countries have seen a similar pickup in household savings during the pandemic, the trend has been more pronounced in Canada because of its stricter lockdowns and generous government aid programs. There were fewer opportunities to spend, even as Canadian incomes surged.
Many economists, including those at the Bank of Canada, have chosen to make conservative assumptions about how much of a rush Canadians will be in to draw down those extra savings.
Others, including Finance Minister Chrystia Freeland, are more bullish.
The reservoir of savings is so large, a bigger worry may be a rebound that is too strong, putting pressure on the central bank to raise interest rates.
While there’s debate over who will hike first — the Federal Reserve or the Bank of Canada — markets are pricing in more aggressive increases in the policy rate north of the border amid expectations Governor Tiff Macklem will have less tolerance for price pressures.
“There is a narrower inflation mandate for the Bank of Canada than the Fed,” Derek Holt, an economist at Bank of Nova Scotia, said by phone.
Add rising wealth from a surging housing market and it may not require much to trigger a post-pandemic boom. Which would be great news for a Trudeau government that may face an election soon, but poses another challenge.
Freeland wants to keep the spending taps open for the next few years on the grounds the economy will need continued support. That’s getting harder to argue.
“With a large stock of excess household savings waiting on the sidelines, plus already highly supportive policy, governments do not need to spend much more to propel a strong economic recovery in the year ahead,” Porter said in a report to investors Friday. “An effective vaccine rollout would be the single most important contributor to growth.”
Economy
Federal budget is about ensuring fair economy for ‘everyone’: Trudeau – Global News
Delivering remarks to his Liberal cabinet during a caucus meeting on Wednesday, Prime Minister Justin Trudeau emphasized that the newly-announced federal government is intended to help create a fair economy for “everyone” in Canada, particularly those from Millennials and Gen Z.
Economy
Russia to grow faster than all advanced economies says IMF – BBC.com
An influential global body has forecast Russia’s economy will grow faster than all of the world’s advanced economies, including the US, this year.
The International Monetary Fund (IMF) expects Russia to grow 3.2% this year, significantly more than the UK, France and Germany.
Oil exports have “held steady” and government spending has “remained high” contributing to growth, the IMF said.
Overall, it said the world economy had been “remarkably resilient”
“Despite many gloomy predictions, the world avoided a recession, the banking system proved largely resilient, and major emerging market economies did not suffer sudden stops,” the IMF said.
The IMF is an international organisation with 190 member countries. They are used by businesses to help plan where to invest, and by central banks, such as the Bank of England to guide its decisions on interest rates.
The group says that the forecasts it makes for growth the following year in most advanced economies, more often than not, have been within about 1.5 percentage points of what actually happens.
Despite the Kremlin being sanctioned over its invasion of Ukraine, the IMF upgraded its January predictions for the Russian economy this year, and said while growth would be lower in 2025, it would be still be higher than previously expected at 1.8%.
Investments from corporate and state owned enterprises and “robustness in private consumption” within Russia had promoted growth alongside strong exports of oil, according to Petya Koeva Brooks, deputy director at the IMF.
Russia is one of the world’s biggest oil exporters and in February, the BBC revealed millions of barrels of fuel made from Russian oil were still being imported to the UK despite sanctions.
Away from Russia, the IMF downgraded its forecasts across Europe and for the UK this year, predicting 0.5% growth this year, making the UK the second weakest performer across the G7 group of advanced economies, behind Germany.
The G7 also includes France, Italy, Japan, Canada and the US.
Growth is set to improve to 1.5% in 2025, putting the UK among the top three best performers in the G7, according to the IMF.
However, the IMF said that interest rates in the UK will remain higher than other advanced nations, close to 4% until 2029.
The group expects the UK to have the highest inflation of any G7 economy in 2023 and 2024.
Chancellor Jeremy Hunt said the IMF’s figures showed that the UK economy was turning a corner.
“Inflation in 2024 is predicted to be 1.2% lower than before, and over the next six years we are projected to grow faster than large European economies such as Germany or France – both of which have had significantly larger downgrades to short-term growth than the UK,” he said.
Conflict in the Middle East
Economists at the IMF warned that if the Israel-Hamas conflict escalates further in the Middle East it could lead to rising food and energy prices around the world.
Continued attacks on ships in the Red Sea and the ongoing war in Ukraine could also affect the so far “remarkably resilient” global economy, it said.
A potential spike in food, energy and transport costs would see lower-income countries hardest hit, it added.
Economy
Why is Germany maintaining economic ties with China? – Al Jazeera English
German Chancellor Olaf Scholz has been on a three-day visit to China in a bid to shore economic ties.
Germany is China’s biggest European trade partner.
But, Berlin also sees Beijing as a competitor and a rival.
And – in its first-ever “strategy on China” launched last year – pledged to reduce German dependence on the Chinese market.
But, during his visit last week to China, the German Chancellor signalled his intentions to maintain business ties.
That may have angered some of Olaf Scholz’s closest allies.
The European Union has launched several investigations into exports of Chinese green technology to protect European industry from competition.
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