Connect with us


Two Key Things to Know About This Confusing Economy




Person with child strapped to their chest is seen from the waist down standing in a grocery store aisle and holding an...


Despite higher-than-expected G.D.P. growth at the end of last year, many signs now hint that the economy is slowing sharply.Photograph by Oscar Wong / Getty

Among the noneconomists I’ve recently interacted with, there is a lot of confusion and uncertainty about how the economy’s doing and where it is heading. Among economists, it’s pretty much the same. Some of them are predicting a recession starting later this year. Others are predicting a soft landing or a “slowcession,” when economic growth “comes to a near standstill but never slips into reverse,” as Scott Hoyt, a senior director at Moody’s Analytics, describes it.

The world economy is still emerging from an unprecedented pandemic, Europe is experiencing its biggest war since 1945, and many countries have been recording inflation rates not seen in thirty years, so it’s hardly surprising that the economic picture is blurred. Since the coronavirus started to spread, in 2020, some long-standing economic relationships have broken down. Other, new trends have emerged, and they could turn out to be temporary. But, in looking through this haze of conflicting data, two things stand out.

The first is that, while higher inflation has raised the cost of living significantly in the past couple of years, the U.S. economy has made an impressive recovery from the pandemic in terms of output and jobs. On Thursday, the Department of Commerce reported that inflation-adjusted G.D.P. rose at an annualized rate of 2.9 per cent in the third quarter of last year. In 2022 as a whole, growth came in at 2.1 per cent, down from a bumper 5.9 per cent in 2021, but still well above the average growth rate from 2001 to 2020, which was about 1.7 per cent. If one considers G.D.P. levels rather than growth rates, the economy is now almost back on the trend line that it was on before the pandemic. And the unemployment rate, at 3.5 per cent, is back to its pre-pandemic February, 2020 level, which was the lowest level in half a century. These outcomes are much better than many economists and policymakers had expected during 2020. In fact, as the Washington Post’s Heather Long pointed out, to “recover all jobs and output in basically 2 years is remarkable.”

It’s easy to forget now that, between April and June of 2020, the unemployment rate surged into the double digits. At that point, it seemed possible that a vicious cycle would kick in—rising joblessness would lead to falling incomes over all, falling incomes would result in less spending, which in turn would lead to more job losses (as the demand for goods and services went down). That this didn’t happen is testament partly to the rapid reopening of parts of the economy after the initial shutdowns and to three big stimulus packages that Congress passed in 2020 and 2021, which together provided roughly four trillion dollars in financial support for households, businesses, and local governments.


To be sure, there is still a heated discussion about how much these measures, particularly the American Rescue Plan Act, which a Democratic Congress passed in March, 2021, may have contributed to the surge in inflation that the economy experienced in 2021 and 2022, as opposed to snarls in global supply chains and other challenges prompted by the pandemic. However, there can be no doubt that the stimulus policies succeeded in preventing a long-term slump in output and employment, which would have piled more human hardship on top of the public-health crisis, and would likely also have brought on a financial crisis, as unemployed workers and stricken businesses defaulted on their debts. Even if the stimulus policies did contribute to an inflation spike that increasingly appears to be a temporary one—and my assessment is that other factors played a much bigger role—it was a price worth paying to avoid a much larger calamity.

The second point that stands out is that, despite higher-than-expected G.D.P. growth at the end of last year, many signs now hint that the economy is slowing sharply, and that if the Federal Reserve sticks to its policy of raising interest rates it will likely bring about the recession it wants to avoid. Beyond the headline figure of 2.9 per cent, the G.D.P. report contained some worrying signs. Companies building up inventories that they haven’t sold yet accounted for about half of the fourth-quarter G.D.P. growth, and foreign trade for another fifth. Final domestic sales—the stuff and services that Americans actually bought—expanded by just 0.8 per cent on an annualized basis.

Another thing to note: the G.D.P. report is backward-looking. It doesn’t necessarily point to where things are heading. On Friday, a separate Commerce Department report said that in December consumer spending fell a bit compared to the previous month, a sign that economic growth was weakening toward the end of the fourth quarter. Earlier this week, the Conference Board released its latest index of leading indicators, which, in contrast to the G.D.P. report, includes forward-looking reports, such as the amount of new orders from businesses; findings from consumer-confidence surveys; the numbers of building permits issued; and interest-rate spreads. The index “fell sharply again in December—continuing to signal recession for the US economy in the near term,” Ataman Ozyildirim, the senior director of economics at the Conference Board, noted in a statement accompanying the release. “Overall economic activity is likely to turn negative in the coming quarters before picking up again in the final quarter of 2023.”

Now, the Conference Board’s index isn’t infallible, and one thing we’ve learned repeatedly in this pandemic economy is that economic forecasts should be treated skeptically. Given the big fall in energy prices since last summer and the lingering supportive effects of the stimulus packages, as well as some new spending from last year’s bipartisan infrastructure bill and Inflation Reduction Act, it’s still possible that this year’s economy could turn out to be stronger than the pessimists predict. But we can’t rely on that happening, and it’s time for Jerome Powell and his colleagues to help things along.

Since the beginning of 2022, the central bank has focussed almost exclusively on bringing inflation down. It’s already winning that war: the Commerce Department report released on Friday also showed that a measure of inflation the Fed watches closely fell to five per cent last month, from 5.5 per cent in November, and 6.3 per cent in August. With inflation steadily coming down, the Fed now has the flexibility to pay more attention to its other policy mandate, which is to maximize employment. At its first policy meeting of the year, which will take place next week, it should do just that. ♦


Source link

Continue Reading


Federal budget 2023: Canada's clean economy tax credit plan – CTV News




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.

Adblock test (Why?)


Source link

Continue Reading


Trudeau and Freeland up the ante on a clean economy –



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.

U.S. President Joe Biden is shown a Chevrolet Silverado EV by General Motors CEO Mary Barra during a visit to the Detroit auto show to highlight electric vehicle manufacturing in America, in Detroit, Michigan, U.S., Sept. 14, 2022.
U.S. President Joe Biden is shown a Chevrolet Silverado EV by General Motors CEO Mary Barra during a visit to the Detroit auto show to highlight electric vehicle manufacturing in Detroit, Michigan on Sept. 14, 2022. (Kevin Lamarque/Reuters)

“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

Provinces need to be at the table as Canada competes with U.S. Inflation Reduction Act: Freeland

17 hours ago

Duration 9:13

“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.”

Hydro power lines are shown just outside Winnipeg, Monday, May 1, 2018. Newly released documents say the federal agency created to finance new infrastructure - and alleviate the burden off the public purse - was not supposed to get involved in projects to expand or enhance existing public electricity grids.
Greening the grid will require federal and provincial governments to work with each other. (John Woods/The Canadian Press)

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

Conservative leader threatens to vote against federal budget

1 day ago

Duration 1:17

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.

Adblock test (Why?)


Source link

Continue Reading


EU removes Pakistan from list of high-risk countries – Al Jazeera English



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.

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.

[embedded content]

Adblock test (Why?)


Source link

Continue Reading