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Economy

World Bank Says Global Economy in Precarious State as Rates Rise

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(Bloomberg) — The global economy is in a precarious situation and heading for a substantial growth slowdown as sharp interest-rate increases hit activity and stir vulnerabilities in lower-income countries, the World Bank said.

Greater-than-expected resilience in the early months of 2023 is predicted to fade into more enduring weakness as tighter monetary policy compounds lingering shocks from the pandemic and Russia’s invasion of Ukraine, the lender said in its latest Economic Prospects report.

While stronger recent momentum led the institution to raise its world gross domestic product forecast for the year to 2.1% from the 1.7% predicted in January, it cut its outlook for 2024 to 2.4% from 2.7%. Risks to the outlook remain tilted to the downside, it said.

“Global growth is projected to slow significantly in the second half of this year, with weakness continuing in 2024,” the World Bank said. “The possibility of more widespread bank turmoil and tighter monetary policy could result in even weaker global growth.”

The caution comes as major central banks assess how and when to pare back the fastest global monetary policy tightening since the 1980s. Next week, the Federal Reserve will examine the possibility of taking a pause in rate increases, while investors expect the European Central Bank will keep hiking, although at the slower 25-basis-point pace it set last month.

The World Bank said the drag from higher borrowing costs is “increasingly apparent,” with more lagged effects still to come as credit conditions become more restrictive.

It also said its analysis shows the outlook for emerging market and developing economies is particularly “worrisome” as increases in rates driven by the perceived hawkishness of the Fed substantially boost the likelihood that those countries could face a financial crisis. Amid restrictive credit conditions, one in four has effectively lost access to bond markets, the World Bank said.

To mitigate the risks of financial contagion, the Washington-based lender said central banks should communicate their intentions “as early and as clearly as possible” to avoid abrupt changes in the outlook.

“Global growth has slowed sharply and the risk of financial stress in emerging market and developing economies is intensifying amid elevated global interest rates,” the World Bank said.

Other highlights from the report:

  • Growth in emerging markets and developing economies over the first half of the 2020s is expected to average 3.4%, making the period one of the weakest half-decades in the past 30 years
  • Growth in advanced economies is set to decelerate to 0.7% in 2023 and “remain feeble” in 2024
  • Fiscal positions are “increasingly precarious” in low-income countries, requiring higher revenues and more efficient spending
  • Policy challenges include greater focus on financial regulation after bank failures and greater global cooperation to mitigate climate change and provide debt relief to countries in distress
  • Global inflation is projected to gradually edge down, but core price increases in many countries and is expected to remain above its pre-pandemic level beyond 2024

–With assistance from Zoe Schneeweiss and James Regan.

 

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Economy

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.

The Canadian Press. All rights reserved.

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Economy

September merchandise trade deficit narrows to $1.3 billion: Statistics Canada

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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.

The Canadian Press. All rights reserved.

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Economy

How will the U.S. election impact the Canadian economy? – BNN Bloomberg

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How will the U.S. election impact the Canadian economy?  BNN Bloomberg

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