The United Kingdom’s economy shrank by a record 20.4 per cent in the second quarter when the coronavirus lockdown was tightest, the most severe contraction reported by any major economy so far, with a wave of job losses set to hit later in 2020.
The scale of the economic hit may also revive questions about U.K. Prime Minister Boris Johnson’s handling of the pandemic, with England suffering the highest death toll in Europe. More than 50,000 U.K. deaths have been linked to the disease.
“Today’s figures confirm that hard times are here,” finance minister Rishi Sunak said. “Hundreds of thousands of people have already lost their jobs, and sadly in the coming months many more will.”
The data confirmed that the world’s sixth-biggest economy had entered a recession, with the low point coming in April when output was more than 25 per cent below its pre-pandemic level.
Growth restarted in May and quickened in June, when the economy expanded by a monthly 8.7 per cent — a record single-month increase and slightly stronger than forecasts by economists in a Reuters poll.
However, some analysts said the bounce-back was unlikely to be sustained.
Prime Minister Boris Johnson’s handling of the pandemic is being questioned after the U.K.’s economy plummeted 20 per cent. (Christopher Furlong/WPA Pool/Getty Images)
Last week, the Bank of England forecast it would take until the final quarter of 2021 for the economy to regain its previous size and warned unemployment was likely to rise sharply.
Any decision to pump more stimulus into the economy by the Bank of England and finance minister Sunak will hinge on the pace of growth in the coming months and whether the worst-hit sectors such as face-to-face retail and business travel ever fully recover.
The second-quarter GDP slump exceeded the 12.1 per cent drop in the eurozone and the 9.5 per cent fall in the United States.
Some economists said the sharper decline partly reflected the timing of U.K.’s lockdown — which fell more in the second quarter — and its dependence on domestic consumer spending.
Pent-up demand
Suren Thiru, an economist with the British Chambers of Commerce, said the recent pick-up probably only reflected the release of pent-up demand rather than a sustained revival.
“The prospect of a swift ‘V-shaped’ recovery remains remote,” he said.
The nation’s unemployment rate is expected to jump when the government ends its huge job subsidy program in October.
A wave of job losses is set to hit the U.K. later in 2020 as the ripple effects of the economic contraction are felt. (Simon Dawson/Reuters)
Sunak — who told the BBC he saw some “promising signs” in GDP data for the month of June — reiterated his opposition to extending the program.
In July, he cut sales tax for the hospitality sector and in August is subsidizing restaurants to draw in diners.
Hotels and restaurants did just one fifth of their normal business in June, when the lockdown was still largely in force.
Later lockdown
U.K. GDP shrank by 2.2 per cent in the first quarter of the year, reflecting the lockdown that started on March 24.
It closed restaurants, shops and other public spaces after many other European countries, meaning more of the hit was felt in the second quarter.
However, the Office for National Statistics said that over the first six months of 2020, GDP fell by 22.1 per cent, slightly less than Spain’s 22.7 per cent but more than double the 10.6 per cent fall in U.S.
“The larger contraction of the U.K. economy primarily reflects how lockdown measures have been in place for a larger part of this period in the U.K.,” it said.
Non-essential shops in England did not reopen until June 15, and pubs and restaurants were shut until July 4.
The Bank of England forecast it would take until the final quarter of 2021 for the economy to regain its previous size, and warned unemployment was likely to rise sharply. (Leon Neal/Getty Images)
Sunak, as well as some economists, said the U.K.’s greater reliance on consumer-facing services businesses — many of which were completely shut in the lockdown — also explained why the economy suffered more than its peers.
In both the U.K. and Spain, spending on hotels, restaurants, recreation and culture make up around 13 per cent of the economy, compared with around 10 per cent or less elsewhere in Europe and the United States.
Although some sectors appear to have made a rapid recovery, businesses are wary about the outlook, especially as a second wave of COVID infections could lead to the reimpositions of lockdowns.
Employers have already shed more than 700,000 jobs since March, according to tax data.
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.
OTTAWA – Statistics Canada says the country’s merchandise trade deficit narrowed to $1.3 billion in September as imports fell more than exports.
The result compared with a revised deficit of $1.5 billion for August. The initial estimate for August released last month had shown a deficit of $1.1 billion.
Statistics Canada says the results for September came as total exports edged down 0.1 per cent to $63.9 billion.
Exports of metal and non-metallic mineral products fell 5.4 per cent as exports of unwrought gold, silver, and platinum group metals, and their alloys, decreased 15.4 per cent. Exports of energy products dropped 2.6 per cent as lower prices weighed on crude oil exports.
Meanwhile, imports for September fell 0.4 per cent to $65.1 billion as imports of metal and non-metallic mineral products dropped 12.7 per cent.
In volume terms, total exports rose 1.4 per cent in September while total imports were essentially unchanged in September.
This report by The Canadian Press was first published Nov. 5, 2024.
