As a result of the COVID-19 pandemic, emerging economies are suffering from an unprecedented slowdown in investment, trade and tourism. Economists fear that many countries will go off the rails.
It was even worse than after the collapse of Lehman Brothers in 2008. As the COVID-19 pandemic spread across the globe from Asia, foreign investors turned away from emerging and developing markets almost overnight. In the early phase of the pandemic alone, the International Monetary Fund (IMF) estimates that more than $100 billion (€88 billion) in foreign capital was withdrawn from these countries.
It is “a crisis like no other” with “an uncertain recovery,” the IMF described in its updated outlook for the global economy in June. Advanced economies might lose a year or two of economic growth, while developing and emerging countries face a lost decade.
Emphasizing the seriousness of the situation, IMF boss Kristalina Georgieva said never have so many countries asked the IMF for financial assistance at the same time since its founding in 1945. The crisis managers at the IMF fear that a prolonged coronavirus crisis will push the institution to its financial limits.
For its part the World Bank expects economies in emerging markets to decline by 2.5% in 2020. This doesn’t look that bad when industrialized countries are expected to go down by 8%. For emerging markets though it is the worst economic downturn since the 1960s.
In the meantime, the flight of capital has slowed down and initial data point to the fact that since June more investments have been flowing into emerging countries than are being withdrawn. But this does not apply to all economies affected by the coronavirus.
A global problem
In Europe, Russia was hit hard by the pandemic. But analysts at IHS Markit see, above all, difficult times ahead for countries such as Montenegro, Bosnia-Herzegovina, Armenia, Turkey and Croatia. In Montenegro, tourism accounts for over 20% of gross domestic product (GDP). In Turkey, it is more than 12%. Like many other emerging economies, Turkey is also heavily dependent on foreign investment.
Worldwide, countries like the Philippines where tourism accounts for 25% of GDP and Thailand where the sector’s contribution is around 22%, have been hit hard. Even the huge economies of China and India, which do not depend on tourism as much, have been severely affected by international travel restrictions.
The BRICS stars
Former stars among emerging economies such as Brazil and South Africa, which as members of the so-called BRICS countries have been in the financial spotlight for many years, were already suffering economically before the corona crisis. The fact that the COVID-19 pandemic is raging there is just exacerbating the situation.
So far, the pandemic has claimed fewer lives in the poorer countries of Southeast Asia, Latin America and Africa than in the heavily affected industrialized countries. However, Raghuram Rajan, a former IMF chief economist, says the economic damage will be considerably higher for poorer countries.
Economist Raghuram Rajan has worked for the IMF as chief economist and as an advisor to the Indian government
Rajan, who now teaches at the University of Chicago, is especially worried about the high level of debt companies in emerging economies have amassed. Many of these countries’ currencies have already lost significant value against the dollar and euro. That means companies that have their debt in euros or dollars must raise more and more money in their local currency to service their loans.
International trade in goods, foreign direct investment and tourism have been slumping for months. For many emerging economies severely affected by the pandemic, this can hardly be compensated for, wrote Rajan in an article in the Financial Times in early July.
They hardly have the means to stabilize their economy through billion-dollar stimulus packages for consumers and companies. In addition, in many emerging countries there is hardly anything close to a nationwide health care system that can respond to a major coronavirus outbreak.
“The longer this persists — and rising infections suggest that worse is still to come — the more that even viable, large domestic corporations will have to borrow to stay afloat. If lenders do not write down corporate loans, many of these over-indebted firms will then be unable to finance their recoveries when demand improves. Yet lenders may also lack the capital to absorb accumulating loan losses,” according to Rajan.
Slow before the pandemic
The coronavirus crisis is impacting many emerging markets in an already difficult phase. Long before the pandemic, the economists at the London-based think tank Capital Economics were certain “The golden age of the emerging markets is over.”
And sooner or later China will have to prepare for growth rates of around 2% a year. For the emerging economies, the period since the turn of the millennium was a period of unusually high growth which can no longer be achieved in the foreseeable future.
“We expect EM [emerging market] GDP growth to ease from an average of 5.5% in the 2000s and 2010s to around 3.5% in 2020-2040. Growth will still be faster than that in the developed world. But incomes will converge more slowly than previously,” the economists said.
Deceptive normalcy Ipanema Beach in Rio de Janeiro during the COVID-19 pandemic
The situation in Latin America
Latin American countries such as Chile, Guatemala, Mexico, Paraguay, Peru and Panama have managed to place bonds on the international financial markets even after the pandemic broke out in the spring. “Some of the issues achieved relatively good interest rates,” explained economist Jose Antonio Ocampo in an analysis for the Washington-based Brookings Institution think tank.
The economist, who is a development consultant to the United Nations and teaches at the Columbia University in New York, expects that hard-hit countries in Latin America will need to defer payments under the supervision of the World Bank or regional development banks in order to better deal with the consequences of the pandemic
But the situation is much more serious for heavily indebted countries such as Argentina and Ecuador. Even before the crisis they needed more than just deferring payment of their public debt.
According to Raghuram Rajan, international investors will have to waive part of their claims against poor and emerging countries. Simply out of self-interest “the world’s more industrialized countries need to avoid beggaring the rest. What happens elsewhere will not stay there,” he warned. The threat of mass unemployment in poorer countries will lead to mass emigration and ultimately, more protectionism in industrialized countries, triggering “endless flotillas and caravans of the desperate,” said Rajan. “Sharing growth is in everyone’s interest.”
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.