Hobbled by high interest rates, punishing inflation and Russia’s war against Ukraine, the world economy is expected to eke out only modest growth this year and to expand even more tepidly in 2023.
That was the sobering forecast issued Tuesday by the Paris-based Organization for Economic Cooperation and Development. In the OECD’s estimation, the world economy will grow just 3.1 percent this year, down sharply from a robust 5.9 percent in 2021.
Next year, the OECD predicts, would be even worse: The international economy would expand only 2.2 percent.
“It is true we are not predicting a global recession,” OECD Secretary-General Mathias Cormann said at a news conference. “But this is a very, very challenging outlook, and I don’t think that anyone will take great comfort from the projection of 2.2 percent global growth.”
The OECD, made up of 38 member countries, works to promote international trade and prosperity and issues periodic reports and analyses. Figures from the organic action showed fully 18 percent of economic output in member countries was spent on energy after Russia’s invasion of Ukraine helped drive up prices for oil and natural gas. That has confronted the world with an energy crisis on the scale of the two historic energy price spikes in the 1970s that also slowed growth and drove inflation.
Inflation – largely exacerbated by high energy prices – “has become broad-based and persistent,” Cormann said, while “real household incomes across many countries have weakened despite support measures that many governments have been rolling out.”
Global slowdown
In its latest forecast, OECD predicts that the US Federal Reserve’s aggressive drive to tame inflation with higher interest rates – it has raised its benchmark rate six times this year, in substantial increments – will grind the US economy to a near-halt. It expects the United States, the world’s largest economy, to grow just 1.8 percent this year – down drastically from 5.9 percent in 2021, 0.5 percent in 2023 and 1 percent in 2024.
The war in Ukraine has driven inflation to historic levels [File: Wolfgang Rattay//Reuters]
That grim outlook is widely shared. Most economists expect the US to enter at least a mild recession next year, though the OECD did not specifically predict one.
The report foresees US inflation, though decelerating, to remain well more than the Fed’s 2 percent annual target next year and into 2024.
The OECD’s forecast for the 19 European countries that share the euro currency, which are enduring an energy crisis from Russia’s war, is hardly brighter. The organisation expects the eurozone to collectively manage just 0.5 percent growth next year before accelerating slightly to 1.4 percent in 2024.
And it expects inflation to continue squeezing the continent: The OECD predicts that consumer prices, which rose just 2.6 percent in 2021, will jump 8.3 percent for all of 2022 and 6.8 percent in 2023.
Asia, a silver lining
Whatever growth the international economy produces next year, the OECD said, will come largely from the emerging market countries of Asia: Together, it estimates, they will account for three-quarters of world growth next year while the US and European economies falter. India’s economy, for instance, is expected to grow 6.6 percent this year and 5.7 percent next year.
China’s economy, which not long ago boasted double-digit annual growth, will expand just 3.3 percent this year and 4.6 percent in 2023. The world’s second-biggest economy has been hobbled by weakness in its real estate markets, high debts and draconian zero-COVID policies that have disrupted commerce.
Powered by vast government spending and record-low borrowing rates, the world economy soared out of the pandemic recession of early 2020. The recovery was so strong that it overwhelmed factories, ports and freight yards, causing shortages and higher prices. Moscow’s invasion of Ukraine in February disrupted trade in energy and food and further accelerated prices.
After decades of low prices and ultra-low interest rates, the consequences of chronically high inflation and interest rates are unpredictable.
“Financial strategies put in place during the long period of hyper-low interest rates may be exposed by rapidly rising rates and exert stress in unexpected ways,” the OECD said in Tuesday’s report.
The higher interest rates being engineered by the Fed and other central banks will make it difficult for heavily indebted governments, businesses and consumers to pay their bills. In particular, a stronger US dollar, arising in part from higher US rates, will imperil foreign companies that borrowed in the US currency and may lack the means to repay their now-costlier debt.
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.
