A Modell’s store is closed, as retail sales suffer record drop during the outbreak of the coronavirus disease in New York City on April 15, 2020.
BRYAN R SMITH/Reuters
The U.S. economic recession underway, caused by the coronavirus pandemic, will be worse than previously thought, with more economists polled by Reuters over the past week expecting a “U-shaped” recovery rather than any other option.
The novel coronavirus has infected nearly 2.5 million people around the world, killed nearly 170,000 and led to lockdowns in many countries, shutting schools, industries and businesses. The United States has the highest infection numbers and deaths among individual nations.
So far, the U.S. Federal Reserve’s policy of zero interest rates and unlimited asset purchases – which will likely expand its balance sheet to $10 trillion this year, according to the poll – as well as $2.3 trillion of federal government spending, have only softened the blow.
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In the latest Reuters poll taken April 15-20, before the price of U.S. crude oil fell below zero per barrel on Monday, just under half of 45 respondents based in the U.S. and Europe who answered an additional question said the U.S. economic recovery would be “U” shaped, as represented on a chart tracking economic expansion or deceleration in percentage terms.
Ten said it would be “V” shaped, seven said it would resemble a tick mark, and five said it would be “W” shaped.
But economists, who have spent the last several weeks slashing forecasts by greater and greater amounts, were more doubtful than ever about the country’s growth outlook, now that the longest expansion on record has abruptly ended.
“We’ve never gone through anything like this before. So, anyone who claims to have real expertise in these sort of issues, I think is not being honest. Right now the weakness is pretty dramatic, the economy is weakening pretty sharply,” said Jim O’Sullivan, chief U.S. macro strategist at TD Securities.
“The bottom line is that there is going to be damage and a lot of firms are not going to survive. So no, we’re not going to get back to where we were – and forget getting above that for quite a while. Ultimately, with time and stimulus, the economy will recover, I’m confident of that. But the real question is how long the recovery takes.”
After more than a month of financial turmoil, including the biggest Wall Street crash since 1929, volatility remains high in global markets.
U.S. gross domestic product is now forecast to have contracted 4.8% in the first quarter and will shrink another 30% this quarter, on a seasonally adjusted annualized basis.
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In a poll taken just three weeks ago, the median views were for 2.5% contraction in the first, and 20% contraction in the second quarter.
While the poll predicted a 12% rebound in the third quarter and 9% in the fourth, compared with 10.5% and 5.4% in the previous poll, more than 80% of respondents said the risks to their GDP forecasts in the second half of 2020 were skewed more to the downside.
The median 2020 GDP forecast was downgraded to a drop of 4.1% from a 3% contraction three weeks ago, still more optimistic than the International Monetary Fund’s recent prediction for a 5.9% contraction.
For this year, the median worst-case scenario in the Reuters poll was contraction of 10% compared to a decline of 7.3% previously. The economy is now set for a 3.8% rebound in 2021, compared with 3.2% three weeks ago, the poll showed.
Still, economists said the outlook could be far worse and prolonged, depending on the pandemic’s course.
“Our central expectation is for a rebound in the second half of the year; however, that is riddled with uncertainty and downside risks,” said Kevin Loane, senior economist at London-based Fathom Consulting.
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“Among these are the risks that: lockdowns are extended longer than currently envisaged, there is a second wave of COVID-19 cases, temporary job losses are made permanent resulting in labor market friction, businesses fail resulting in wasted capital, or businesses and households remain fearful even without official lockdowns and opt not to spend or hire.”
With businesses shut, 22 million Americans have filed for unemployment benefits over the past month. The jobless rate was forecast to soar to 13.7% in the current quarter, coming down to 11% in the third quarter and 8.5% in the fourth.
In the meantime, the Fed’s balance sheet rose to a record $6.42 trillion last week, a little under one-third the size of U.S. GDP before the crisis struck. That jumped from just $4.29 trillion in the first week of March.
It is expected to grow another $3.5 trillion to $10 trillion by the end of this year.
Over the course of its response to the last global financial crisis that began more than a decade ago, the Fed’s balance sheet expanded by a total of nearly $3.6 trillion to peak around $4.5 trillion.
Twenty-three of 36 economists said the Fed was not done yet. They said it may resort to buying exchange-traded equity funds as well as non-government mortgage securities and implementing some form of yield curve control, as the Bank of Japan has been doing for many years.
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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.
