FRANKFURT — The widening coronavirus outbreak threatens to seriously disrupt the global economy, just as it was steadying itself against headwinds from the U.S.-China trade dispute.
Amid concerns that global output could decline for the first time since the global financial crisis a little more than a decade ago, stock markets sank Monday. In one sign of how sentiment has been negatively hit, gold spiked 1.8% to $1,688 an ounce, its highest level in seven years, as traders sought out financial assets some consider safer in times of stress.
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On Wall Street, the Dow Jones was down more than 900 points during early afternoon Monday trading, while in Europe, the pan-European Stoxx 600 slid 3.6% after an eruption of cases in Italy. Cases were also reported in new countries in the Middle East.
“Compounded with the already dramatic interruptions to global supply chains in China, traders fear that a rapid spread of the disease to other major economies could be enough to temporarily tip global economic growth into contraction in the first half of the year,” said Matt Weller, global head of market research at GAIN Capital in London.
China, the epicenter of the outbreak, faces the most acute near-term difficulties as factories lie idle and people remain homebound. But the ripple effects are being felt all around the world, as China is both a major importer of goods as well as a source of parts through intricate supply chains. Growth estimates for China are already being cut.
Concerns are growing in the 19-country eurozone, whose three biggest economies — Germany, France and Italy — are stalling. Concerns over the knock-on effects on Germany, Europe’s export powerhouse, are particularly acute. Germany’s main DAX stock market closed a whopping 4% lower Monday. .
“Given the latest developments, one has inevitably to talk about downside risks for German exporters,” said Andreas Rees, chief German economist at UniCredit.
Rees cited figures showing car sales in China fell 92% in the first two weeks of February, and pointed out that of the 21 million cars sold in China last year, about 1 in 5 was made either in Germany or through German investment in China. Most Chinese auto showrooms are closed.
Meanwhile Italy’s FTSE MIB slumped 5.4% as Italian civil protection officials said at least 222 people had tested positive for the virus in the country and that six people had died.
Jack Allen-Reynolds, senior Europe economist at Capital Economics, said the virus “makes another recession in Italy more likely than not.”
Europeans had been hoping for a modest upturn this year after major economies staggered through a rough patch at the end of the year. Germany showed zero growth in the fourth quarter, while the No. 2 and No. 3 economies, France and Italy, shrank slightly. Two straight quarters of falling growth is one definition of a recession.
The global economy was just stabilizing after wobbles caused by the trade war between the U.S. and China and fears of a disorderly British exit from the European Union.The coronavirus hit just as a U.S.-China preliminary deal and a Brexit withdrawal divorce agreement had boosted hopes for a modest upswing, particularly in Europe.
Nowthe world economy could see its first quarterly fall in seasonally adjusted output since the global financial crisisof more than a decade ago, says Ben May, director of global macro research at Oxford Economics.
Frequent business and tourism destinations for people from China are already being hit hard, confirming that this will be a key way that the pain will spread to other Asian economies, with Singapore and Hong Kong feeling the effects.
Comparisons to the 2003 SARS epidemic, another deadly outbreak that originated in China, aren’t reassuring because China’s share of the global economy is much bigger than it was back then, and supply chains moving raw materials, parts and products snake through the global economy more than ever.
Stock markets may have been slow to appreciate the risk posed by the outbreak because they hoped central banks could step in with more stimulus.
Individual companies have already reported trouble, most notably Apple, which said it will miss its sales target. But it could take until April or May before hard data on production and sales gives a clear picture of the impact on a regional or global level, Oxford Economics’ May said.
Markets are now pricing in a bigger chance for a rate cut by the European Central Bank by July, even though the ECB has already cut rates into unprecedented negative territory. Its key benchmark deposit rate is minus0.5%.
Kristalina Georgieva, the head of the International Monetary Fund, said that the fund’s baseline scenario is that China’s economy slows but returns to normal in the second quarter.
“But we are looking at more dire scenarios, where the spread of the virus continues for longer and more globally, and the growth consequences are more protracted,” she said.
Testifying to Congress on Feb. 11, Fed Chairman Jerome Powell said that it was too early to assess the scope of the impact the virus poses to the U.S. economy. He noted that at the moment the economy “is in a very good place “with strong job creation and steady growth.
Powell indicated that he saw no need to change the Fed’s benchmark interest rate, which is in a range of 1.5% to 1.75% after three rate cuts in 2019.
Raphael Bostic, head of the Fed’s Atlanta regional bank, said Friday that he expected the coronavirus to “be a short-time hit; we’ll get the economy back to its usual level” after the adverse effects pass.
The U.S. economy still looks resilient, growing at a solid 2.1% annual rate the last three months of 2019. American consumers are driving the record-breaking expansion, now in its 11th year.
Business investment has been weak, partly because President Donald Trump’s trade wars have generated uncertainty about where companies should locate factories and buy supplies. Investment could get weaker if the virus continues to disrupt the supply chains American businesses rely on.
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AP business writers Paul Wiseman and Martin Crutsinger contributed from Washington.
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.
