(Bloomberg) — The world economy is entering the second half of 2020 still deeply weighed down by the coronavirus pandemic with a full recovery now ruled-out for this year and even a 2021 comeback dependent on a lot going right.
It’s a scenario few if any predicted at the start of the year when most economists were banking on another year of expansion and a U.S. and China trade agreement was meant to give corporate and investor confidence a shot in the arm.
Instead, the rare pandemic forced swathes of the global population into what the International Monetary Fund dubs ‘The Great Lockdown.’ Central banks and governments responded with trillions of dollars in unprecedented support to prevent markets from melting down and to keep furloughed workers and struggling companies afloat until the virus passed.
Even with those rescue efforts, the world is still suffering its worst economic crisis since the Great Depression. While some gauges of manufacturing and retail sales in major economies are showing improvement, hopes for a V-shaped rebound have been shattered as the reopening of businesses looks shaky at best and job losses risk turning from temporary to permanent.
It’s an economic trajectory Federal Reserve Bank of Richmond President Thomas Barkin has likened to riding the elevator down, but needing to take the stairs back up.
“There is a real danger of confusing rebound with recovery,” Carmen Reinhart, the World Bank’s chief economist, said at the Bloomberg Invest Global conference on June 23. “True recovery means you are at least as well off as you were before the crisis started and I think we are a long way off that.”
Uncertain Times
Much depends on the spread of the coronavirus, a vaccine for which remains out of grasp. The World Health Organization warns the worst of the pandemic is still to come as cases top 10 million and deaths have risen beyond 500,000. And even in countries where the virus appeared contained, fresh flare ups are frequent.
The IMF estimates that by the end of this year 170 countries — or almost 90% of the world — will have lower per capita income. That’s a reversal from January, when it predicted 160 countries would end the year with bigger economies and positive per capita income growth.
It’s now likely that global gross domestic product by the end of 2021 will in many cases still be lower than where it was at the end of 2019, according to HSBC Holdings Plc economists led by Janet Henry. Bloomberg Economics describes it as ‘Goodbye Victory V, Hello Worry W.’
Central bankers remain on the alert to do more. Federal Reserve Chairman Jerome Powell has warned the outlook is “extraordinarily uncertain” and European Central Bank President Christine Lagarde has spoken of a “restrained” recovery that will change parts of the economy permanently.
What Bloomberg’s Economists Say
Six months ago, Covid-19 was not on anyone’s radar. Three months ago, there was hope it could be contained. Now, the pandemic appears all-consuming. Longer lasting lockdowns, a ceiling on activity for contact-intensive sectors, the scarring impact of high unemployment, and stimulus that – in some important parts of the world – is falling short, all weigh on the outlook. Bloomberg Economics is lowering its estimate for global growth in 2020, and anticipates a weaker recovery into 2021.
Click here to read the full report
–Tom Orlik, Chief Economist
To be sure, there are pockets of recovery that could gain traction. Morgan Stanley economists are sticking to forecasts of a V-shaped recovery, pointing to positive surprises in recent economic data, especially in the U.S. and euro region.
Global markets are split between investors who are betting on a V-shape recovery, and those expecting significant dislocations. The MSCI All-Country World Index of global stocks has gained nearly 40% from a March low, but is still down about 6% this year, as investors bet policy stimulus around the world will cushion the economic impact from the pandemic. U.S. 10-year Treasury yields have tumbled by more than 100 basis points this year to around 0.67%.
Mixed Performance
Lessons on how the recovery plays out are being drawn from Asia where the virus has been brought under control but the rebound has been mixed.
In South Korea, which flattened its infection curve months ago, the emergence of new virus clusters is casting a chill on shoppers.
China’s manufacturing activity climbed in June, as did other manufacturing gauges across the region, yet new orders continue to show weakness.
That worrisome outlook means businesses are navigating in the dark, according to Joerg Wuttke, president of the EU Chamber of Commerce in China, who expects the uncertainty to last for another couple of years.
‘Chainsaw’ Recovery
“The recovery is not V, it is not W, it is looking like the top of a chainsaw,” he said. “Up and down and up and down and painful all the way.”
It also means that fast-expanding emerging economies won’t be the global growth engine they have been, with the World Bank predicting this group of countries will shrink 2.5% — their worst performance in data that starts in 1960. Latin America is now on the front lines of the virus.
A complete rebound to pre-crisis levels looks impossible until the virus is controlled — an outlook that’s especially true for sectors such as tourism, transport and entertainment where restrictions are expected to linger.
The hit to labor markets has been worse than initially estimated and will be impossible to repair in the second half of 2020 even under the most optimistic scenario, according to the International Labour Organization. It last week estimated that working hours in the second quarter were 14% lower than before the virus, equivalent to a loss of 400 million full-time positions.
Although U.S. companies added 4.8 million people to payrolls in June, only three in 10 jobs lost have been recovered and initial applications for unemployment benefits remain elevated. More than 2.8 million Americans lost their jobs for good in June.
Debt Worries
“While a near-term mechanical bounce in economic activity in response to the easing of lockdown measures looks likely, we expect the subsequent climb to be long and arduous,” said Joachim Fels, global economic adviser at Pacific Investment Management Co.
There are other challenges too.
Record levels of debt will restrain how much additional support governments can roll out — on top of the $11 trillion fiscal stimulus already in train.
Governments are grappling with how to extend or terminate costly near-term measures to fund wages and keep companies alive, while at the same time gearing up for longer-term stimulus to drive a recovery.
That borrowing won’t come without side effects, such as keeping zombie companies going, according to Alicia Garcia Herrero, chief Asia Pacific economist with Natixis SA.
“If there is no clean-up of debt, going back to pre-crisis levels will take even longer,” said Garcia Herrero.
Meantime, central banks have slashed interest rates to new lows with some embracing negative borrowing costs. In a bid to cap market rates, multiple types of assets have been bought and policy makers continue to tweak their tool kit with hints of more innovation to come.
Morgan Stanley predicts $13 trillion in cumulative central bank balance-sheet expansion from the U.S., euro region, Japan and U.K. through the end of 2021.
Even with those steps, it’s too soon to conclude they will be enough, said Kazuo Momma, who used to be in charge of monetary policy at the Bank of Japan.
“The crisis is far from over,” he said.
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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.
