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U.S. recession looks likely — and there are 3 ways the economy could get hit, analyst says – CNBC

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Rising gas prices are piling pressure on the U.S. economy.
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The odds of the U.S. economy falling into recession by next year are greater than 50%, Richard Kelly, head of global strategy at TD Securities, said Monday, outlining three possible ways it could get hit.

Rising gas prices combined with a hawkish Federal Reserve and a generally slowing economy are among the tripartite risks facing the world’s largest economy right now, according to Kelly.

Could that raise the possibility of a recession? “I don’t think it’s a potential,” he told CNBC’s “Street Signs Europe.”

“The odds of a recession in the next 18 months are greater than 50%,” Kelly added.

Exactly when that downturn might hit is harder to predict, however.

Kelly said the economy could slip into a technical recession — defined as two consecutive quarters of negative growth — as soon as the end of the second quarter of 2022. Analysts will be closely watching the Bureau of Economic Analysis on July 28 for early estimates on that.

Alternatively, the fallout from surging gas prices following Russia’s unprovoked invasion of Ukraine and the Fed’s continued interest rate hikes could both weigh on the economy by the end of the year or into early 2023, he said.

And if the U.S. manages to weather all of that, a general slowdown could take the wind out of the economy’s sails but mid- to late-2023.

“You really have three shots at a recession right now in the U.S. economy,” said Kelly.

“We haven’t even hit the peak lags from gas prices, and Fed hikes really won’t hit until the end of this year. That’s where the peak drag is in the economy. I think that’s where the near-term risk for a U.S. recession sits right now,” he continued.

“Then, if you get past that, there’s the overall gradual slowing as we get into probably the middle or back half of 2023.”

Investment firm Muzinich agreed Monday that a forthcoming recession was not a matter of “if” but “when.”

“There will be a recession at some point,” Tatjana Greil-Castro, co-head of public markets, told CNBC, noting that the forthcoming earnings season could provide a gauge for when exactly that might occur.

“Where earnings are coming in is for investors to establish when the recession is likely to happen.”

The comments add to a chorus of voices who have suggested that the economy could be on the cusp of a recession.

David Roche, veteran investment strategist and president of Independent Strategy, said Monday that the global economic outlook had recently shifted, and it had now become easier to assess how different parts of the world might respond to various pressures.

“You can now make detailed prognosis for different parts of the world which are themselves very different from the simply blanket recession picture,” he said.

Roche said he considered a recession the loss of 2-3% of jobs in a given economy, suggesting that a U.S recession may be some way off. Data published Friday by the Bureau of Labor Statistics showed stronger-than-expected jobs growth, with nonfarm payrolls increasing by 372,000 in the month of June, well ahead of the 250,000 expected.

However, he noted — not for the first time — that Europe is on the brink of what he calls a “war-cession,” with the fallout from the war in Ukraine piling economic pressure on the region, particularly as it pertains to energy and food shortages.

“Europe may be hit by an energy crisis all of its own which produces the war-cession. The recession caused by war,” he said.

It comes as Nord Stream 1, the primary pipeline supplying natural gas to Europe from Russia, is shut down this week for maintenance, raising concerns that it could be turned off indefinitely due to ongoing disputes over Ukraine sanctions.

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Economy

Canada’s unemployment rate holds steady at 6.5% in October, economy adds 15,000 jobs

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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 Press. All rights reserved.

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Economy

Health-care spending expected to outpace economy and reach $372 billion in 2024: CIHI

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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.

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Trump’s victory sparks concerns over ripple effect on Canadian economy

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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.

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