The global economy will accelerate in 2021, though with significant variation around the world. The world will benefit from vaccinations, both directly in fewer illnesses and indirectly as lockdowns and fears subside. It will take most of 2021 and into 2022 for the full benefits of vaccination to be felt, and maybe even longer in poorer countries, but America’s major trading partners should look good next year.
The OECD recently reported, “Prospects have improved over recent months with signs of a rebound in goods trade and industrial production…. Global GDP growth is now projected to be 5.6% this year ….World output is expected to reach pre-pandemic levels by mid-2021.”
Skepticism about the statements of political organizations make sense, but consider the consensus forecast gathered by FocusEconomics. They survey on-the-ground economists around the world, averaging country forecasts and then adding up to a global average. (They also provide regional averages for those interested in, say, South America.) The latest compilation puts world economic growth at 5.2% in 2021 and 4.1% next year. Their forecasters put the greatest quarter-to-quarter gain in the second quarter of this year.
Covid cases and deaths are dropping rapidly around the world as in the United States. The decline in this last surge started well before vaccination, so it was probably a reaction to the high case level (more voluntary caution and government-mandated lockdown) plus distance from the Christmas holidays.
The greatest vaccination relative to population has occurred in the U.K. and the U.S. China has a low vaccination rate that is not as worrisome as it may seem because their count of new cases is very low. Although Chinese data are not totally trustworthy, even with substantial misreporting the country is in good shape.
Europe is having trouble with vaccinations largely reflecting less foresight than America’s Operation Warp Speed, which paid for vaccines from multiple companies before they were tested and succeeds even if only one vaccine works out. Perfect foresight is not needed, just a willingness to risk looking foolish. Perhaps a greater entrepreneurial attitude in the U.S. and the UK accounts for the difference. Nonetheless, good vaccines have been developed and are in production. Europe will eventually get most of its citizens jabbed and the economy will thrive.
Oil price, 2018-2021.
Dr. Bill Conerly based on data from Energy Information Administration
Widespread expectations for a global rebound are illustrated by commodity prices. In general, metals and petroleum can experience much faster demand changes than supply changes. So when demand surges, prices rise sharply. Demand, however, can be for current usage or for inventory to meet future demand. Oil prices have risen sharply due to expectations for greater future consumption. Oil received an extra boost from Russia and OPEC limiting production, but such limitations usually prove temporary.
Other industrial commodity prices have also increased. “Dr. Copper” is said to have a Ph.D. in economics because it forecasts future production of both consumer and industrial goods. The price of copper is now within spitting distance of a 60-year high.
Ocean shipping has surged, with delays for ships trying to unload containers in Los Angeles/Long Beach, Oakland and Savannah. Shipping costs are four times higher than a year ago. Part of the shipping delays, though, come from social distancing among dock workers, which is not a sign of economic strength.
In another indication of the improving global economy, interest rates are rising around the world, though not be as much as the U.S. experienced. The global demand for credit tends to rise with the economy, more than the global supply of savings. Thus interest rates tend to rise when the economy is strong, or expected to be strong in the near future.
Blurring the details, the entire planet shared the same roller coaster of Covid-induced economic recession and then partial recovery. We will all emerge from the slump in the next 12 months or so, with some variation in timing and magnitude.
TORONTO – Canada’s main stock index was higher in late-morning trading, helped by strength in energy stocks, while U.S. stock markets also moved up.
The S&P/TSX composite index was up 34.91 points at 23,736.98.
In New York, the Dow Jones industrial average was up 178.05 points at 41,800.13. The S&P 500 index was up 28.38 points at 5,661.47, while the Nasdaq composite was up 133.17 points at 17,725.30.
The Canadian dollar traded for 73.56 cents US compared with 73.57 cents US on Monday.
The November crude oil contract was up 68 cents at US$69.70 per barrel and the October natural gas contract was up three cents at US$2.40 per mmBTU.
The December gold contract was down US$7.80 at US$2,601.10 an ounce and the December copper contract was up a penny at US$4.28 a pound.
This report by The Canadian Press was first published Sept. 17, 2024.
OTTAWA – Canada’s inflation rate fell to two per cent last month, finally hitting the Bank of Canada’s target after a tumultuous battle with skyrocketing price growth.
The annual inflation rate fell from 2.5 per cent in July to reach the lowest level since February 2021.
Statistics Canada’s consumer price index report on Tuesday attributed the slowdown in part to lower gasoline prices.
Clothing and footwear prices also decreased on a month-over-month basis, marking the first decline in the month of August since 1971 as retailers offered larger discounts to entice shoppers amid slowing demand.
The Bank of Canada’s preferred core measures of inflation, which strip out volatility in prices, also edged down in August.
The marked slowdown in price growth last month was steeper than the 2.1 per cent annual increase forecasters were expecting ahead of Tuesday’s release and will likely spark speculation of a larger interest rate cut next month from the Bank of Canada.
“Inflation remains unthreatening and the Bank of Canada should now focus on trying to stimulate the economy and halting the upward climb in the unemployment rate,” wrote CIBC senior economist Andrew Grantham.
Benjamin Reitzes, managing director of Canadian rates and macro strategist at BMO, said Tuesday’s figures “tilt the scales” slightly in favour of more aggressive cuts, though he noted the Bank of Canada will have one more inflation reading before its October rate announcement.
“If we get another big downside surprise, calls for a 50 basis-point cut will only grow louder,” wrote Reitzes in a client note.
The central bank began rapidly hiking interest rates in March 2022 in response to runaway inflation, which peaked at a whopping 8.1 per cent that summer.
The central bank increased its key lending rate to five per cent and held it at that level until June 2024, when it delivered its first rate cut in four years.
A combination of recovered global supply chains and high interest rates have helped cool price growth in Canada and around the world.
Bank of Canada governor Tiff Macklem recently signalled that the central bank is ready to increase the size of its interest rate cuts, if inflation or the economy slow by more than expected.
Its key lending rate currently stands at 4.25 per cent.
CIBC is forecasting the central bank will cut its key rate by two percentage points between now and the middle of next year.
The U.S. Federal Reserve is also expected on Wednesday to deliver its first interest rate cut in four years.
This report by The Canadian Press was first published Sept. 17, 2024.
FREDERICTON – New Brunswick‘s finance minister says the province recorded a surplus of $500.8 million for the fiscal year that ended in March.
Ernie Steeves says the amount — more than 10 times higher than the province’s original $40.3-million budget projection for the 2023-24 fiscal year — was largely the result of a strong economy and population growth.
The report of a big surplus comes as the province prepares for an election campaign, which will officially start on Thursday and end with a vote on Oct. 21.
Steeves says growth of the surplus was fed by revenue from the Harmonized Sales Tax and federal money, especially for health-care funding.
Progressive Conservative Premier Blaine Higgs has promised to reduce the HST by two percentage points to 13 per cent if the party is elected to govern next month.
Meanwhile, the province’s net debt, according to the audited consolidated financial statements, has dropped from $12.3 billion in 2022-23 to $11.8 billion in the most recent fiscal year.
Liberal critic René Legacy says having a stronger balance sheet does not eliminate issues in health care, housing and education.
This report by The Canadian Press was first published Sept. 16, 2024.
