[unable to retrieve full-text content]
China's Economic Recovery Is the Flipside of US Strength BloombergChina's Economic Recovery Is the Flipside of US Strength - Bloomberg
Read More
Friday, June 30, 2023
China's Economic Recovery Is the Flipside of US Strength - Bloomberg
China's Economic Recovery Is the Flipside of US Strength - Bloomberg
Read More
Thursday, June 29, 2023
US Recession? Economic Fireworks Should Still Dazzle After the Fourth - Bloomberg
[unable to retrieve full-text content]
US Recession? Economic Fireworks Should Still Dazzle After the Fourth BloombergUS Recession? Economic Fireworks Should Still Dazzle After the Fourth - Bloomberg
Read More
Cornell's Prasad on China's Economy US Export Control - Bloomberg
[unable to retrieve full-text content]
Cornell's Prasad on China's Economy, US Export Control BloombergCornell's Prasad on China's Economy, US Export Control - Bloomberg
Read More
Wednesday, June 28, 2023
Rewriting the Bank of Canada's playbook as the post-COVID economy defies all expectations - The Hill Times
It seems certain that the expectations of how people react to a tighter credit environment will have to be rethought.
Rewriting the Bank of Canada's playbook as the post-COVID economy defies all expectations - The Hill Times
Read More
With eye towards 2024 Biden touts Bidenomics economic strategy - Al Jazeera English
United States President Joe Biden has laid out a broad economic plan he says will help restore the “American dream” as he readies for the presidential election in 2024.
Speaking from Chicago, Illinois, on Wednesday, Biden outlined his proposal for “Bidenomics” — a term he admitted he did not create but has since claimed. He explained his economic policies would focus on bolstering the middle class while countering policies that favour wealthy investors and corporations.
“This vision is a fundamental break from the economic theory that has failed America’s middle class for decades. It’s called trickle-down economics,” Biden said on Wednesday, rejecting a conservative theory that has held sway over US politics.
“Trickle-down economics” was championed in the 1980s under former Republican President Ronald Reagan and has been pushed in various forms by subsequent Republican leaders.
But on Wednesday, Biden offered a broadside against the theory, which refers to the belief that tax cuts and other benefits for the wealthy will ultimately “trickle down” and buoy all levels of society.
The approach, Biden said, was responsible for industries moving overseas, slashes to public investments and the stifling of competition.
“The latest iteration” of that “failed theory”, Biden added, came under former President Donald Trump, a frontrunner to be the Republican candidate in the 2024 presidential election.
In 2017, Trump signed the Tax Cuts and Jobs Act, awarding dramatic tax breaks to corporations. It also reduced taxes for the majority of US households, though the higher earners disproportionately benefitted.
Seeking to strike a contrast with his predecessor — and current competitor in the 2024 race — Biden explained that he would seek to grow the economy “from the middle out and the bottom up, instead of just the top down”.
Under his plan, he said, “the poor have a ladder up and the wealthy still do well”.
The speech served as a preview of what is likely to be a centrepiece of Biden’s re-election campaign. But the president faces an uphill battle to win public opinion.
Recent polls have shown lagging support for Biden’s economic leadership. An Associated Press-NORC Center for Public Affairs Research survey found just one in three US adults approve of his approach.
The White House has endeavoured to calm concerns about the volatile economy in the wake of the COVID pandemic. Monthly job creation has outpaced expectations but inflation remains high, despite steady decreases.
Meanwhile, warnings of a looming recession have persisted. On Wednesday, Federal Reserve Chair Jerome Powell acknowledged a recession was “certainly possible” but said it is “not the most likely case”. Biden on Tuesday also told reporters he did not expect a recession.
Some observers have noted the rollout of “Bidenomics” appears to be part of a wider attempt to unify Biden’s legislative victories into a more coherent ideology, emphasising middle-class gains.
Some foreign policy analysts have also noted Biden’s policies have at times resembled a repackaged version of Trump’s “America First” approach, by prioritising domestic investment over international engagement.
In a statement released on Wednesday, the White House identified the three pillars of “Bidenomics”. The first was “making smart public investments in America”, followed by “empowering and educating workers to grow the middle class” and “promoting competition to lower costs and help entrepreneurs and small businesses thrive”.
The release touted legislation passed under Biden, including a bipartisan infrastructure bill, a law to boost domestic semiconductor manufacturing, and investment in domestic clean energy industries. It also hailed a new $42bn initiative that aims to bring high-speed internet throughout the country.
Republicans were quick to seize on the new messaging, with House of Representatives Speaker Kevin McCarthy calling Bidenomics “blind faith in government spending and regulation”.
Trump’s campaign likewise sent out an email blast during Biden’s speech, saying the Democrat’s economic approach would mean “high taxes, crippling regulations, crushing inflation, war on American energy [and] soaring energy costs”.
White House officials have been glib when asked why the administration embraced the label “Bidenomics”, which first appeared in coverage critical of Biden’s policies. Since Reagan’s “Reaganomics”, presidents have sought to fuse their names with their economic plans, to varying degrees of success.
“You don’t like Bidenomics? I think it’s pretty clever. It’s pretty good,” White House Press Secretary Karine Jean-Pierre said on Monday when asked about the label. “It makes good sense, Bidenomics. It kind of flows off the tongue really well.”
With eye towards 2024, Biden touts ‘Bidenomics’ economic strategy - Al Jazeera English
Read More
Opinion: The global economy and financial system must brace for the coming storm - The Globe and Mail
The Port of Paramaribo in Paramaribo, Suriname, on May 16. Suriname, a tiny nation ravaged by recession, inflation and impossible debts, saw its relief held up by superpower politics.ADRIANA LOUREIRO FERNANDEZ/The New York Times News Service
Agustín Carstens is general manager at the Bank for International Settlements.
The global economy is at a critical juncture that could weigh on prosperity for years to come. For the first time in decades, we face a combination of high inflation and financial fault lines. To stop these problems from becoming entrenched, it’s time for a reality check on what current policy settings can and cannot achieve.
Global inflation has crept down from its peaks as supply chains normalized, commodity prices fell and central banks embarked on the strongest and most synchronized monetary policy tightening in years. As we report in the latest Bank for International Settlements (BIS) Annual Economic Report, history shows that it typically takes a year for inflation to return to its previous level after surges, even during episodes less acute than the one following the pandemic.
Against this backdrop, there is an emerging sense of hope in some quarters that the global economy will achieve a soft, or soft-ish, landing. But we must be ready to tackle the significant risks that cloud this outlook.
One risk is that high inflation could persist. New price pressures could emerge. In many countries, households’ purchasing power has fallen, as wages have not kept pace with inflation. With tight job markets, workers may seek to redress the balance. Firms have found it easier to raise prices and may pass higher costs on to consumers, creating a vicious cycle. Once this sets in, it is hard to stop.
Meanwhile, risks to financial stability loom. Debt and asset prices exceed those in past periods of interest-rate hikes. So far, there are still buffers from pandemic-era savings and longer loan terms locked in during years of low borrowing costs. But these buffers are depleting. As they exhaust, growth could slow more than currently expected.
The resulting financial strains will likely come through credit losses. Weak banks risk losing their footing. Historically, banking stress often goes in tandem with higher interest rates. High debt, high asset prices and high inflation add to the risks. The current episode ticks all the boxes. Although banks are stronger than before, pockets of vulnerability remain, especially where rules to make banks stronger were not applied to smaller banks. As recent experience has shown, even small institutions can trigger systemic collapses in confidence.
Non-bank financial institutions will also be challenged. These types of investment firms have grown in leaps and bounds since the Great Financial Crisis. They are rife with hidden leverage and liquidity mismatches. Business models that worked in the era of low-for-long rates will face stern tests in a higher-for-longer one.
Shaky government coffers cloud the picture further. Financial instability, if acute enough, forces governments to step in to backstop markets. And it delivers a growth hit that weakens fiscal revenues. This would heighten already high public debt levels. In turn, any doubts about the government’s ability to pay its bills add to financial instability.
How should policy makers respond to these challenges? The task of central banks is clear: They must restore price stability. A shift to permanent high inflation would have enormous costs, especially for the most vulnerable in our societies.
To give central banks more room to fight inflation, extra measures must kick in to ensure the safety and stability of the financial system and institutions. Where gaps exist, new regulations may be required. Working together, central banks and governments should keep macroprudential policies tight, as this can limit the strains higher rates place on banks. And stiffer bank supervision could remedy some of the faults that came to light in recent bank failures. We urge policy makers to implement without further delay Basel III, the international standards for banks set in response to the 2008 financial crisis.
Fiscal policy must consolidate. This too would help in the fight against inflation and bolster financial resiliency. And it would provide badly-needed buffers that could be deployed against future downturns.
Above all, policy needs to take a longer-term view. Monetary and fiscal policies have carried too much of the burden of sustaining economic growth. As a result, they have severely tested the limits of what we call the region of stability – the mix of monetary and fiscal policy that fosters enduring economic and financial stability and defuses the inevitable tensions between them. History shows that overstepping these boundaries can trigger high inflation, economic slumps and banking, currency or sovereign crises.
Policy makers must be realistic about what they can achieve. High inflation and financial instability did not emerge by accident. They were the result of a long journey, reflecting in no small part an overly ambitious view of monetary policy’s ability to hit a small inflation target and a more general belief that macroeconomic policy could support growth indefinitely, without stoking inflation.
Mindsets need to change. They must recognize the shortcomings of repeated emergency action, which stimulates output in downturns but fails to rebuild buffers when growth resumes. To drive long-term economic prosperity, governments need to reinvigorate long-neglected structural reforms.
Without a reality check, we risk losing the trust that society needs to have in policy making. Only price and financial stability can assure wider economic prosperity over the longer term.
Opinion: The global economy and financial system must brace for the coming storm - The Globe and Mail
Read More
Vietnam Economy Grows Better Than Estimated in Second Quarter - BNN Bloomberg
(Bloomberg) -- Vietnam’s economy grew better-than-expected in the second quarter, showing the trade-reliant nation still has momentum despite slowing global demand for goods.
Gross domestic product in the quarter ending June rose 4.14% from a year ago, the General Statistics Office said in a statement Thursday. That compares with the median estimate for a 3.8% growth in a Bloomberg survey.
A recovery in manufacturing is key to bolstering overall activity in Vietnam, where exports are a main driver of the economy. For its part, the central has delivered four rounds of interest rate cuts this year to support the economy after recovery showed signs of running out of steam.
--With assistance from Tomoko Sato, Nguyen Xuan Quynh, Nguyen Kieu Giang, Linh Vu Nguyen and Cecilia Yap.
©2023 Bloomberg L.P.
Vietnam Economy Grows Better Than Estimated in Second Quarter - BNN Bloomberg
Read More
Europe's interest rates to stay high as long as needed to defeat inflation central bank chief says - Winnipeg Free Press
FRANKFURT, Germany (AP) — European Central Bank President Christine Lagarde warned Tuesday that inflation is holding its grip on the economy and underlined that the bank intends to raise rates high enough to “break this persistence.”
Lagarde acknowledged that inflation has fallen from all-time highs last year as energy prices plunged and the bank rolled out a rapid series of rate increases, which are meant to fight price spikes by making it more expensive for consumers and businesses to borrow and spend.
“We are seeing a decline in the inflation rate as the shocks that originally drove up inflation wane and our monetary policy actions are transmitted to the economy,” she said in a speech opening the ECB’s annual policy conference in Sintra, Portugal.
“But the pass-through of those shocks is still ongoing, making the decline in inflation slower and the inflation process more persistent,” Lagarde added.
Businesses initially passed on their rising costs by charging customers higher prices, a phase that is starting to wane. Now, with unemployment at record lows, workers are demanding higher wages to make up for lost purchasing power — threatening to keep pushing up inflation in a wage-price spiral that the bank must prevent.
Workers, Lagarde said, “have so far lost out from the inflation shock, seeing large real wage declines, which is triggering a sustained wage catch-up process as they try to recover their losses. This is pushing up other measures of underlying inflation.”
She said the ECB needs “to address this dynamic decisively” by raising rates as far as needed. The bank would discourage “expectations of a too-rapid policy reversal” and keep rates high for as long as needed, Lagarde said.
Inflation in the 20 countries that use the euro currency came in at 6.1% in May, heading down from a peak of 10.6% in October after declines in energy prices that surged after Russia’s invasion of Ukraine.
But inflation is well above the bank’s target of 2% considered best for the economy. And core inflation — which excludes volatile food and fuel prices — is stubbornly high at 5.3%. New inflation figures are to be published Friday, with analysts at Deutsche Bank foreseeing another decline in overall inflation to 5.8%.
Higher interest rates can weaken the economy and raise the risk of recession. Europe’s economy already contracted slightly in the last months of 2022 and the first three months of this year, with two straight quarters of falling output being one definition of recession.
Even so, the bank is expected to raise interest rates again by a quarter-percentage point next month.
Lagarde all but promised such a hike at the bank’s meeting this month, repeating in her speech Tuesday that “barring a material change to the outlook, we will continue to increase rates in July.”
Central banks around the world have rapidly increased borrowing costs to combat inflation stemming from the global rebound from the COVID-19 pandemic and Russia’s war in Ukraine.
The U.S. Federal Reserve paused rate rises at its meeting this month, but Chair Jerome Powell, who will speak on a panel Wednesday with Lagarde and other major economies’ central bank chiefs, has said Fed officials expect to raise interest rates further this year.
The Bank of England surprised with a large half-point hike last week.
Europe's interest rates to stay high as long as needed to defeat inflation, central bank chief says - Winnipeg Free Press
Read More
Tuesday, June 27, 2023
Canada's inflation rate falls to 3.4% but Bank of Canada poised to hike rates again - The Globe and Mail
The Bank of Canada building in Ottawa. The central bank is widely expected to raise interest rates in the coming months as inflation remains above its target rate.Chris Wattie/Reuters
Canada’s annual inflation rate dropped by a percentage point in May, but the path to restore price stability could be challenging as the costs of some goods and services continue to rise at elevated rates.
The Consumer Price Index rose 3.4 per cent in May from a year earlier, down from 4.4 per cent in April, Statistics Canada said Tuesday in a report. It was the lowest inflation rate in two years. The slowdown met analysts’ expectations on Bay Street. Adjusted for seasonality, the CPI rose 0.1 per cent on a monthly basis.
Despite that progress, the Bank of Canada is widely expected to raise interest rates again in the coming months, and perhaps as soon as July. Its policy rate of 4.75 per cent is the highest since 2001.
The May inflation numbers benefited from favourable comparisons with a year ago, otherwise known as base-year effects. Commodity prices surged after Russia’s invasion of Ukraine in early 2022, but those initial effects are no longer part of the year-over-year calculation of consumer price inflation.
For instance, gasoline prices – which peaked in the late spring of 2022 – fell 18.3 per cent on an annual basis.
Still, inflation is proving tricky to tame. The short-term trend for various measures of core inflation – which strip out volatile components of the CPI – is tracking just below 4 per cent, when expressed at annualized rates.
The Bank of Canada has expressed concern that inflation could get stuck materially above its 2-per-cent target. This prompted the central bank to raise its policy rate to 4.75 per cent from 4.5 per cent earlier this month, ending a brief pause to changes in monetary policy.
“It looks almost like a done deal that the Bank of Canada will raise rates” again in July, said Royce Mendes, head of macro strategy at Desjardins Securities, in a note to clients. “The sticky inflation data builds a strong case for further monetary tightening.”
Grocery costs are still climbing at robust rates. Prices rose 9 per cent in May on an annual basis, barely changed from 9.1 per cent in April. The prices of bakery products rose 15 per cent, while those for cereal products jumped 13.6 per cent. Price growth also accelerated at restaurants.
In a report published Tuesday, the federal Competition Bureau said the country needed more competition in the grocery sector to improve products and help lower prices.
Mortgage interest costs rose almost 30 per cent from a year earlier. The Bank of Canada’s rate-hike campaign is having a significant impact on this area of the CPI, particularly as homeowners renew their mortgages at higher rates or dedicate more of their monthly payments to the interest portion rather than paying down principal.
Instant reaction: Money markets pare back odds of July rate hike after Canada inflation data
Excluding mortgage interest costs, the CPI rose 2.5 per cent annually in May, down from 3.7 per cent in April.
Canada’s affordability crisis is adding more pressure to the rental market, which saw prices rise 5.7 per cent in May from a year earlier.
There is, however, major progress in some industries. Prices for durable goods rose 1 per cent in May on an annual basis, slowing from 2.2 per cent in April, as supply chains return to more normal operations. Prices for furniture fell 2.9 per cent, the most since the early stages of the pandemic.
The Bank of Canada is aggressively raising interest rates to tamp down demand and bring inflation under control. However, consumer spending has remained exceptionally robust. This, along with other strong economic data, convinced the bank that monetary policy was not restrictive enough to subdue CPI growth.
The bank’s governing council “felt that a broad range of indicators had increased their concern that the disinflationary momentum needed to bring inflation back to the 2% target could be waning,” read a summary of deliberations for the rate hike on June 7. That decision took the policy rate to its highest level since 2001.
Back in April, the bank projected that annual inflation would fall to about 3 per cent in the summer months before declining to the 2-per-cent target in late 2024.
Andrew Grantham, senior economist at CIBC Capital Markets, said inflation could soon fall below 3 per cent.
“However, inflation could accelerate slightly again after that, particularly if food prices continue to climb, and as the base effects from energy prices become less favourable,” he wrote in a research note. “Overall, today’s data don’t change the fact that inflation is running hotter” than the bank estimated in April.
The Bank of Canada will publish updated economic projections at its next rate decision, on July 12. Financial analysts are leaning toward a quarter-point hike at that time, taking the policy rate to 5 per cent. Some analysts on Bay Street think the increase will take place in September.
“Every inflation metric remains far above the 2-per-cent inflation target,” Benjamin Reitzes, a rates and macro strategist at Bank of Montreal, said in a client note. “Accordingly, Bank of Canada policy makers won’t breathe a huge sigh of relief after this report as core inflation remains sticky and has yet to show signs of a durable slowdown.”
Canada's inflation rate falls to 3.4%, but Bank of Canada poised to hike rates again - The Globe and Mail
Read More
Global Economy Latest: US Housing Market Is on the Mend - Bloomberg
[unable to retrieve full-text content]
Global Economy Latest: US Housing Market Is on the Mend BloombergGlobal Economy Latest: US Housing Market Is on the Mend - Bloomberg
Read More
Tunisia struggles to progress under cumbersome bureaucracy - Al Jazeera English
Tunis, Tunisia – Every time Mohamed Ali finds himself wrestling with Tunisia’s encrusted bureaucracy, the experience is the same: long delays and endless waits. That was the case last week when his uncle sought his help to register the sale of a plot of land.
“We had to go from office to office, with everyone sending us to different bureaus,” said Ali, an unemployed man in his early thirties from the coastal town of Ben Guerdane, close to the border with Libya.
“It’s the same with everything. If you need to register a birth, or a death, or whatever, you’re going to need half a day,” he added. “It’s crazy.”
Ali is not alone. In Tunisia and across much of North Africa, entire populations remain in hock to the giant, sclerotic bureaucracies that were bequeathed by their former colonial rulers and remain a central tenet of domestic politics today. In Tunisia’s case, the costs of that bureaucracy risk pushing it towards bankruptcy.
European colonial bureaucracies created government jobs and – by extension – an administrator class dependent on their overseas sponsor. Private enterprise, in Tunisia at least, was largely neglected, leaving no room for the small and medium-sized enterprises that typically make up the backbone of most countries’ economies.
Independence did little to correct that, as did the years that followed the revolution in 2011 that was brought on by frustration at the dwindling opportunities for employment within the state and its allied enterprises.
With unemployment as then and now a key driver of social unrest, successive administrations turned to the welfare state to address their citizens’ aspirations.
“Job creation slowed down post-revolution, as the economy failed to produce sufficient opportunities, particularly for university graduates and the prime working-age population,” reads a World Bank note. “While the state sought to compensate citizens through public employment creation and large consumer and producer subsidies, it has yet to tackle the profound distortions holding back the economy.”
‘Too much and too little state’
Currently, Tunisia has one of the highest rates of public spending in the world relative to the size of its economy, with a sorely-needed loan by the International Monetary Fund (IMF) largely dependent on its reform.
Subsidies on items such as bread, coffee and fuel make up a significant portion of that spending – 8 percent of the country’s gross domestic product (GDP) last year. However, much of the remaining cost goes to public sector salaries, primarily administrative jobs in the country’s ministries and allied state-owned enterprises.
Traditional areas of government spending, such as health, infrastructure or social care, appear, for the most part, to be overlooked almost entirely.
Less than two-thirds (PDF) of the waste in the capital, Tunis, is collected. Spending on healthcare, another state concern, appears to be decreasing, while maintaining the country’s roads and social systems barely register as afterthoughts.
The drains and wadis needed to maintain the country’s waterways – vital in the current drought – have lain dormant in administrators’ minds, only now gaining relevance as harvests fail and, as a consequence, more pressure is put on the country’s extensive and expensive food subsidy system.
“It’s paradoxical, isn’t it?” Hamza Meddeb, a Tunisian academic with the Carnegie Middle East Centre, said. “Tunisia suffers from both too much and too little state. It has the state, lots of it, but it’s all in the wrong place. Public services, for which there’s a massive demand, are almost non-existent, while the administration is everywhere.”
Now, as in 2011, the bulk of Tunisia’s unemployed are young graduates who hold degrees that often “do not match” the needs of the market. As a result, it is the state that inevitably picks up the pieces.
Overall, about 350,000 people are employed within Tunisia’s public sector, the largest employer in a country of some 12 million people with an economy that has failed to flourish under the weight of a small number of families that dominate everything from clothing stores to banks.
For many, employment by the state offers security, a steady salary and inevitable career progression. Employment in the private sector, as well as being hard to find, offers little but lower salaries and precarity.
“Over the last decade, the wage bill [of public sector workers] has tripled,” Meddeb said. “That’s not just recruitment. Salaries, which before the revolution were reviewed every three years, are now reviewed annually,” he added.
“For instance, a public sector salary that was 900 Tunisian dinars [$291] in 2011, is now around 1,600 Tunisian dinars [$520], which is larger than comparable wages in the private sector [by about 10 percent]. It creates a vicious circle,” said Meddeb.
“You put one set of salaries up, you have to put all up and then, by the time of the next review, the union are talking about inflation.”
Given its scale, it is hardly surprising that the state’s bureaucracy has taken a central role in negotiations with the IMF. For years, Tunisia’s donors, from the World Bank to the European Union, have been pushing Tunisia to address its public sector wage bill. But analysts say successive governments have opted to kick the can down the road rather than take serious action to address the issue.
The current round of talks – with some $1.9bn on the table – is no different. The IMF is once more pressing Tunisia to liberalise its food subsidy system and its public sector.
However, given the private sector’s limited ability to absorb any potential layoffs, the impact on the country could be significant.
Bureaucracy lumbering on
Unemployment has figured largely in protests since the revolution, with demonstrations over the ingrained nature of the issue becoming an almost annual event. In 2019, the election of President Kais Saied – a political independent who had made a point of speaking for the jobless – galvanised the hopes of thousands who felt let down by what they had come to regard as the empty promises of politicians.
But thus far, central government action to reduce public sector recruitment has been limited to the cessation of a scheme to automatically offer public sector jobs to graduates suffering from long-term unemployment. Little more has been discussed.
Nevertheless, while loan and aid negotiations rumble on, the omens remain grim. At the moment, public debt sits at about 90 percent of GDP, while fuel and subsidised foods are in short supply. In June, credit ratings agency Fitch downgraded Tunisia’s rating to CCC-, stating the chances of a default on its international loans were “high”.
The implications of a default, which grows more likely the longer the IMF loan remains unsigned, would be catastrophic – not least for those employed by the public sector.
“Overnight, their salaries would be reduced significantly,” Meddeb said.
“Imports, on which we all rely, would soar in price and, in reality, Saied risks losing a key constituency – one that depends upon him and his position for support. This is why he’s vested in preserving the status quo, no matter what the cost. As soon as he mentions reform”, with no network of small and medium-sized enterprises that might typically absorb any jobs lost, “he risks jeopordising everything”, added Meddeb.
Yet, reforms instituted in nearby Morocco, once saddled with a similarly cumbersome colonial bureaucracy, have provided a practical example of what could be done to address the issue. In recent years, Rabat has transformed its administration, offering much-sought-after jobs within the state to trained and motivated graduates.
In contrast, Tunisia’s bureaucracy, like that of Cairo and Algeria, lumbers on.
None of this helps Ali, or his uncle, for that matter. For them, the constant waits and delays at various offices remain a fact of life. Like countless others, they remain victim to bureaucracies that have become ends in themselves.
Tunisia struggles to progress under cumbersome bureaucracy - Al Jazeera English
Read More
Monday, June 26, 2023
B.C. economy in for a rough ride says TD economic forecast - Vancouver Sun
Province expected to take a turn for the worse compared to most other provinces in the coming year
Article content
Falling retail spending will lead to significant challenges for B.C.’s economy over the next year, says a TD Bank economic forecast released on Monday.
Advertisement 2
Article content
“In recent months, cracks have been seen in both consumer spending and labour markets,” the report read. “B.C.’s economy is expected to take a turn for the worse compared to most other provinces in the coming year.”
Article content
“Nominal retail spending in the first quarter slipped over five per cent annualized, with an even deeper contraction posted in inflation-adjusted terms. With B.C.’s households facing the highest average debt burdens in the country, the financial squeeze from the Bank of Canada’s steady tightening campaign is becoming increasingly evident.”
The report said B.C. businesses have responded to the reduced retail spending by reducing hiring.
“Job growth in the January-May period slowed to a more pedestrian 1.5 per cent, below the national pace. In the coming quarters, we’re expecting a further flattening in employment gains to collide with continued relatively brisk labour force growth, pulling up the province’s unemployment rate to 5.5 per cent by late 2023. In that environment, the pace of average wage gains are likely to slow.”
Advertisement 3
Article content
The drop in wage gains will play a role in controlling the province’s inflation rate.
The bank also noted a 10 per cent jump in average house prices in B.C. over the past year, though it expects that to taper off in the last half of 2023 and into 2024. The bank also forecast the Bank of Canada to raise rates again in July.
Construction activity is also expected to contract by six per cent, despite a burst of activity related to the development of the Kitimat LNG project.
The report noted the B.C. government is set to increase spending by eight per cent, the highest among all provinces.
“Housing affordability measures carry a $1.1 billion tab. The government will also make permanent increases to the climate action tax credit and enhancements to the B.C. family credit,” the report read.
Support our journalism: Our in-depth journalism is possible thanks to the support of our subscribers. For just $3.50 per week, you can get unlimited, ad-lite access to The Vancouver Sun, The Province, National Post and 13 other Canadian news sites. Support us by subscribing today: The Vancouver Sun | The Province.
Article content
B.C. economy in for a rough ride, says TD economic forecast - Vancouver Sun
Read More
Sunday, June 25, 2023
China Consumer Spending Data Signals Warning for Economic Growth - Bloomberg
[unable to retrieve full-text content]
China Consumer Spending Data Signals Warning for Economic Growth BloombergChina Consumer Spending Data Signals Warning for Economic Growth - Bloomberg
Read More
China Economic Gloom Worsens With Weak Consumer Spending Data - BNN Bloomberg
(Bloomberg) -- China’s consumer-driven recovery is flashing warning signs as spending on everything from holiday travel to cars and homes loses momentum, adding to expectations for more stimulus to support the economy.
Domestic travel spending during the recent holiday for the dragon-boat festival was lower than pre-pandemic levels, according to official data released this weekend. Home sales figures are below the level in previous years, while estimates for June car sales showed a drop from a year ago.
The rebound in consumption after China shed its Covid controls has propelled growth so far this year, but confidence is weak and evidence is mounting that the economy may need more help. After the central bank cut policy rates earlier this month, economists raised their expectations for more monetary and fiscal stimulus, and state-run media outlets have also published a series of articles in recent days highlighting possible avenues of support.
The holiday tourism data pointed to “fading post-Covid recovery momentum for in-person services,” Lu Ting, chief China economist at Nomura Holdings Inc., wrote in a Sunday research note. He noted the average spending per trip was about 16% lower than in 2019, “implying either a weaker intention to spend or less purchasing power.”
“As pent-up demand fades and the risk of an economic double-dip becomes more real in coming months, we expect in-person services consumption growth to weaken further,” Lu wrote.
Not all of the recent data suggests a slowdown, with box office revenue reaching the second-highest amount on record for the dragon-boat holiday, the official Xinhua News Agency reported. But other indicators provide evidence that spending isn’t gaining momentum.
Home sales in major cities were muted through the first few weeks of June and over the holiday period, the 21st Century Business Herald reported, citing research analysts. Passenger car sales in the month are expected to have dropped nearly 6% from last year, according to preliminary estimates from China’s Passenger Car Association.
Growing concern over growth have fueled speculation about the possibility of increased stimulus this year.
Last week, Wang Huning — the No. 4 official in China’s ruling Communist Party — held a meeting with representatives of other Chinese political parties to discuss policy suggestions for reviving consumption. Then on Monday, two state-run securities newspapers floated a series of suggestions from analysts on policy options Beijing could consider.
One fiscal measure would be to accelerate the sale of special local government bonds — a key source of infrastructure funding — so that local authorities use most of their quota by the end of the third quarter, according to the China Securities Journal, citing economist Gao Ruidong at Everbright Securities. Local governments have so far been been slow to use their quota this year.
Shanghai Securities News, meanwhile, reported that further monetary easing — including cuts to interest rates and the amount of cash banks need to keep in reserve — are likely in the second half of the year.
However any stimulus is unlikely to be large in scale, according to Louis Kuijs, chief economist for Asia Pacific at S&P Global Ratings. The firm cut its forecast for China’s 2023 gross domestic product growth to 5.2% from 5.5%, citing the uneven recovery.
The government could still consider measures like easing housing purchasing restrictions and mortgage down-payment requirements, along with possible “fiscal support for consumption,” Kuijs wrote in a Sunday report. While the “recovery in consumer confidence is slow,” he said, some retail sales and discretionary spending data has held up, suggesting an expansion through the rest of this year and into 2024.
©2023 Bloomberg L.P.
China Economic Gloom Worsens With Weak Consumer Spending Data - BNN Bloomberg
Read More
World economy at critical juncture in inflation fight central-bank body warns - Reuters.com
LONDON, June 25 (Reuters) - The world's central bank umbrella body, the Bank for International Settlements (BIS), called on Sunday for more interest rate hikes, warning the world economy was now at a crucial point as countries struggle to rein in inflation.
Despite the relentless rise in rates over the last 18 months, inflation in many top economies remains stubbornly high, while the jump in borrowing costs triggered the most serious banking collapses since the financial crisis 15 years ago.
"The global economy is at a critical juncture. Stern challenges must be addressed," Agustin Carstens, BIS general manager, said in the organisation's annual report published on Sunday.
"The time to obsessively pursue short term growth is past. Monetary policy must now restore price stability. Fiscal policy must consolidate."
Claudio Borio, the head of BIS's monetary and economics unit, added there was a risk an "inflationary psychology" was now setting in, although the bigger-than-expected rate hikes in Britain and Norway last week showed central banks were pushing "to get the job done" in terms of tackling the problem.
Their challenges are unique by post-World War Two standards though. It is the first time that, across much of the world, a surge in inflation has co-existed with widespread financial vulnerabilities.
The longer inflation remains elevated, the stronger and prolonged the required policy tightening, the BIS report said, warning that the possibility of further problems in the banking sector was now "material".
If interest rates get to mid-1990s levels the overall debt service burden for top economies would, all else being equal, be the highest in history, Borio said.
"I think central banks will get inflation under control. That is their job – to restore price stability," he told Reuters. "The question is what will the cost be."
BANKING CRISES
The Swiss-based BIS held its annual meeting in recent days, where top central bankers discussed the turbulent last few months.
March and April saw a failure of a number of U.S. regional banks including Silicon Valley Bank and then the emergency rescue of Credit Suisse in the BIS's own backyard.
Historically, about 15% of rate hike cycles trigger severe stress in the banking system, the BIS report showed, although the frequency rises considerably if interest rates are going up, inflation is surging or house prices have been rising sharply.
It can even be as high as 40% if the private debt-to-GDP ratio is in the top quartile of the historical distribution at the time of the first rate hike.
"Very high debt levels, a remarkable global inflation surge, and the strong pandemic-era increase in house prices check all these boxes," the BIS said.
It estimated too that the cost of supporting aging populations will grow by approximately 4% and 5% of GDP in advanced (AEs) and emerging market economies (EMEs) respectively over the next 20 years.
Absent belt-tightening by governments, that would push debt above 200% and 150% of GDP by 2050 in AEs and EMEs and could be even higher if economic growth rates wane.
Part of the report published already last week also laid out a "game changing" blueprint for an evolved financial system where central bank digital currencies and tokenised banking assets speed up and smarten up transactions and global trade.
Commenting further on the economic picture, Carstens, former head of Mexico's central bank, said the emphasis was now on policymakers to act.
"Unrealistic expectations that have emerged since the Great Financial Crisis and COVID-19 pandemic about the degree and persistence of monetary and fiscal support need to be corrected," he said.
The BIS thinks an economic "soft, or soft-ish" landing - where rates rise without triggering recessions or major banking crashes - is still possible, but accepts it is a difficult situation.
Analysts at Bank of America have calculated there have been a whopping 470 interest rate rises globally over the past 2 years compared with 1,202 cuts since the financial crash.
The U.S. Federal Reserve has lifted its rates 500 basis points from near zero, the European Central Bank has hiked the euro zone's by 400 bps and many developing world economies have done far more.
The question remains what more will be needed, especially with signs that companies are taking the opportunity to boost profits and workers are now demanding higher wages to prevent a further erosion of their living standards.
"The easy gains have now been reaped and the last mile is going to be more difficult," Borio said, referring to challenges central bankers now face reeling inflation back to safe levels. "I wouldn't be surprised if there were more surprises".
(This story has been corrected to change the combined rise ECB rate hikes to 400 basis points from 375 basis points in paragraph 22)
Reporting by Marc Jones; Editing by Emelia Sihtole-Matarise
Our Standards: The Thomson Reuters Trust Principles.
World economy at critical juncture in inflation fight, central-bank body warns - Reuters.com
Read More
Saturday, June 24, 2023
High interest rates and economic uncertainty are behind recent rise in corporate defaults - CNBC
Federal Reserve Board Chairman Jerome Powell departs after speaking during a news conference following the Federal Open Market Committee meeting, at the Federal Reserve in Washington, DC, on June 14, 2023.
Mandel Ngan | AFP | Getty Images
The Federal Reserve plans to keep hiking interest rates to stem inflation, which means an increase in corporate default rates is likely in coming months.
The corporate default rate rose in May, a sign that U.S. companies are grappling with higher interest rates that make it more expensive to refinance debt as well as an uncertain economic outlook.
There have been 41 defaults in the U.S. and one in Canada so far this year, the most in any region globally and more than double the same period in 2022, according to Moody's Investors Service.
Earlier this week, Fed Chairman Jerome Powell said to expect more interest rate increases this year, albeit at a slower rate, until more progress is made on lowering inflation.
Bankers and analysts say high interest rates are the biggest culprit of distress. Companies that are either in need of more liquidity or those that already have hefty debt loads in need of refinancing are faced with a high cost of new debt.
The options often include distressed exchanges, which is when a company swaps its debt for another form of debt or repurchases the debt. Or, in dire circumstances, a restructuring may take place in or out of court.
"Capital is much more expensive now," said Mohsin Meghji, founding partner of restructuring and advisory firm M3 Partners. "Look at the cost of debt. You could reasonably get debt financing for 4% to 6% at any point on average over the last 15 years. Now that cost of debt has gone up to 9% to 13%."
Meghji added that his firm has been particularly busy since the fourth quarter across numerous industries. While the most troubled companies have been affected recently, he expects companies with more financial stability to have issues refinancing due to high interest rates.
Through June 22, there were 324 bankruptcy filings, not far behind the total of 374 in 2022, according to S&P Global Market Intelligence. There were more than 230 bankruptcy filings through April of this year, the highest rate for that period since 2010.
Bed Bath & Beyond logo is seen on the shop in Williston, Vermont on June 19, 2023.
Jakub Porzycki | Nurphoto | Getty Images
Envision Healthcare, a provider of emergency medical services, was the biggest default in May. It had more than $7 billion in debt when it filed for bankruptcy, according to Moody's.
Home security and alarm company Monitronics International, regional financial institution Silicon Valley Bank, retail chain Bed Bath & Beyond and regional sports network owner Diamond Sports are also among the largest bankruptcy filings so far this year, according to S&P Global Market Intelligence.
In many cases, these defaults are months, if not quarters, in the making, said Tero Jänne, co-head of capital transformation and debt advisory at investment bank Solomon Partners.
"The default rate is a lagging indicator of distress," Jänne said. "A lot of times those defaults don't occur until well past a number of initiatives to address the balance sheet, and it's not until a bankruptcy you see that capital D default come into play."
Moody's expects the global default rate to rise to 4.6% by the end of the year, higher than the long-term average of 4.1%. That rate is projected to rise to 5% by April 2024 before beginning to ease.
It's safe to bet there will be more defaults, said Mark Hootnick, also co-head of capital transformation and debt advisory at Solomon Partners. Until now, "we've been in an environment of incredibly lax credit, where, frankly, companies that shouldn't be tapping the debt markets have been able to do so without limitations."
This is likely why defaults have occurred across various industries. There were some industry-specific reasons, too.
"It's not like one particular sector has had a lot of defaults," said Sharon Ou, vice president and senior credit officer at Moody's. "Instead it's quite a number of defaults in different industries. It depends on leverage and liquidity."
In addition to big debt loads, Envision was toppled by health-care issues stemming from the pandemic, Bed Bath & Beyond suffered from having a large store footprint while many customers opted for shopping online, and Diamond Sports was hurt by the rise of consumers dropping cable TV packages.
"We all know the risks facing companies right now, such as weakening economic growth, high interest rates and high inflation," Ou said. "Cyclical sectors will be affected, such as durable consumers goods, if people cut back on spending."
High interest rates and economic uncertainty are behind recent rise in corporate defaults - CNBC
Read More
Friday, June 23, 2023
Uh-oh. More good news that may be bad for your economic health - CBC.ca
At first glance, the reappearance of "sold over asking" real estate signs may seem like an encouraging signal for the Canadian economy, especially for highly invested homeowners who have watched prices fall from last year's highs.
But a growing number of economists worry that a series of recent indicators, the latest being Wednesday's rise in Canadian retail sales, may instead be a red flag for central bankers, goading them into more rate hikes that could ultimately make many Canadians feel miserable.
With each new smidgen of optimistic data, money market traders point to a rising chance that central bankers will raise rates again. A growing number of Canadian bank economists agree there will be another rise in interest rates when the Bank of Canada's Tiff Macklem announces his rate decision on July 12.
Rate hike 'baked in'
"We expect that there is a 25-basis-point hike baked in for July," said RBC economist Carrie Freestone on Wednesday, using economist-speak for a quarter percentage point, shortly after the retail figures came out.
That will mean more pain for short-term and floating-rate borrowers, whose interest costs rise with the Bank of Canada overnight rate.
Borrowers looking for longer-term fixed-rate loans are more directly affected by the Federal Reserve, the U.S. central bank that paused last week after 10 consecutive rate increases while warning that two more quarter-point rises are likely before the year is out.
Fed chair Jerome Powell reiterated that warning in front of a hostile U.S. congressional committee on Wednesday.
"Inflation pressures continue to run high and the process of getting inflation back down to two per cent has a long way to go," Powell testified to the House Financial Services Committee.
The fact is very few people, including members of Congress, like rising interest rates. Stock prices, which have recently been on the upswing, slumped after Powell spoke.
The continued surge in the price of everything, long after prices were supposed to be contained by rising interest rates, is not just a U.S. and Canadian phenomenon. As the Wall Street Journal reported this week, "inflation around the world just won't go away."
Buoyant global outlook
Policymakers worry that the effect of rate hikes are ebbing, the Journal reported. A decline in house prices seems to have stopped and unemployment has begun to fall again.
"Canada, Sweden, Japan and the U.K. skirted recessions after growth unexpectedly rebounded," said the Wall Street Journal report. "Business surveys suggest a relatively buoyant outlook."
In the U.S., there have been many reports that a persistently rising stock market is making the Federal Reserve nervous. In the Journal's words, a rising market was telling Powell, "You haven't done enough."
BMO's chief economist, Doug Porter, echoed that point in a recent market overview.
"The Canadian housing market is sending the Bank of Canada the same message," he wrote, noting that sales have now rebounded to last year's levels, and prices are rising, too.
Thus, we're seeing the return of "sold over asking" signs.
"We suspect that for all the Bank [of Canada]'s talk about Q1 GDP [economic growth], April CPI [inflation] and a strong job market, the rekindling in the housing market really hit a nerve," said Porter.
And that may mean continuing rate hikes until house buyers feel the effect. Conventional economics tells us that if interest rates go high enough, even with a housing shortage, eventually no one will be able to afford a loan to pay high house prices. But evidently, we have not reached that point.
More spending, but not so much stuff
The latest retail data does indicate that some consumers are beginning to feel the pinch as borrowing costs and prices outpace incomes.
While retail sales were up more than one per cent in dollar terms, consumers were not getting as much for their money. The actual amount of stuff they were able to buy only rose by a third of a per cent and sales of things like furniture and appliances, which many people borrow to buy, actually fell.
WATCH | Retail sales are up — but not because people are buying more:
Retail sales numbers from Statistics Canada show increases in all sectors but furniture, appliances and electronics. Analysts say it is due to higher prices rather than people making more purchases, which has them forecasting another interest rate hike in July.
As RBC's Carrie Freestone noted in a CBC interview on Wednesday, before the Bank of Canada makes its decision, there are plenty more indicators besides retail sales and houses to show whether prices are responding to the central bank's action, including new inflation numbers and employment data.
Central bankers both here and in the U.S. have warned repeatedly about inflationary expectations, a self-fulfilling prophecy that makes prices keep rising because people expect higher prices. But it may be that Macklem and Powell face a different kind of expectation, where people refuse to believe that a rising economy is about to end.
Certainly Canadians who learned to ignore nearly two decades of gloomy predictions about housing and thus profited from enormous returns in an unquenchable residential real estate market may be difficult to convince.
That continued optimism is hard to reconcile with the latest round of warnings from banks and regulators that serious bad news could be around the corner. The latest warning was from the Office of the Superintendent of Financial Institutions, which raised capital requirements again as "insurance" for a coming financial storm.
"Today's decision reflects our assessment that financial system vulnerabilities remain elevated and in some cases have continued to increase," said banking regulator Peter Routledge this week. "Households and [companies] remain highly leveraged, making them more vulnerable to economic shock."
But until that shock comes, many Canadians who have heard similar warnings before may not be inclined to listen.
Uh-oh. More good news that may be bad for your economic health - CBC.ca
Read More
Subscribe to:
Posts (Atom)
-
We blew it. That is the queasy feeling I have as I watch borrowing costs surge, housing starts fall, and politicians rush to subsidize fos...
-
Germany’s Green party adopted an election manifesto on Sunday that vowed to transform the country’s economy and fast-track its transition t...
-
Mohawk College is playing a major role in a new cross-Canada program that provides free training to help industries become greener and more...
:format(jpeg)/cloudfront-us-east-1.images.arcpublishing.com/tgam/JL7WTIJBGJLOFKCWY6OT266PPM.JPG){kind=link}
:format(jpeg)/cloudfront-us-east-1.images.arcpublishing.com/tgam/THQ5CU56TVK23CLPGYFRW2QJHE.JPG){kind=link}
Comments
Postmedia is committed to maintaining a lively but civil forum for discussion and encourage all readers to share their views on our articles. Comments may take up to an hour for moderation before appearing on the site. We ask you to keep your comments relevant and respectful. We have enabled email notifications—you will now receive an email if you receive a reply to your comment, there is an update to a comment thread you follow or if a user you follow comments. Visit our Community Guidelines for more information and details on how to adjust your email settings.
Join the Conversation