Opinion: A frail Canadian economy risks plunging into further turmoil - The Globe and Mail

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The downtown Toronto cityscape and office towers are silhouetted by the setting sun as seen from the Parliament St. and Front St. East area.Fred Lum/The Globe and Mail

Pedro Antunes is chief economist at the Conference Board of Canada.

Canada’s inflation rate has dropped below 3 per cent – the top of the Bank of Canada’s target range. However, getting inflation the rest of the way back down to 2 per cent may prove more elusive than we think. This means that higher rates for longer are possible. This could lead to stalled business revenues, skyrocketing bankruptcies, and rock-bottom consumer and business confidence.

In the current Conference Board of Canada forecast, economic growth is expected to accelerate later this year as interest rates begin to fall. But with economic growth stalled since early 2023, there are significant risks that a longer and more severe correction could occur.

Inflation has hit most developed economies in a similar way, peaking in June of 2022 in the United States and Canada, and in October, in Britain and much of Europe. Inflation came down sharply through most of 2023, as the effects of supply chain problems and higher commodity prices ebbed. However, the downward progress on inflation has slowed markedly in recent months.

U.S. inflation has been stuck above 3 per cent since June of last year and, even as Canada’s inflation rate edged below that level in January, that’s also in line with where it was at in the spring of 2023. Moreover, heightened inflation expectations persist, binding the Bank of Canada to a hawkish stand and hinting at a prolonged period of elevated interest rates.

Inflation, coupled with a steep rise in debt financing costs, is dealing a blow to consumers – one perhaps more painful than we realize. Total real household spending has stalled since the second quarter of 2023, but that flat performance has been buoyed up by an extraordinary surge in population growth.

The Conference Board estimates that real per capita consumer spending decreased by 0.7 per cent last year and, given the weak start to this year, there would likely be a decline of 1.6 per cent in 2024. This is much weaker than what occurred during the 2008-09 financial crisis and more in line with the deep recession in 1991-92 – a recession, for those that remember, caused by monetary tightening intended to beat back inflation.

Even as population growth keeps consumer spending positive this year, the business environment has deteriorated dramatically. Business revenues have stalled while financing costs and wages continue to climb. Exacerbating matters, bloated inventories plague businesses. Inventory accumulation accelerated in 2022, as supply chain issues were resolved, but sales didn’t follow, leaving businesses with massive inventories and stock-to-sales ratios reminiscent of the early nineties recession.

Stalled sales and higher costs are driving down profits, and Statistics Canada data show that corporate profits plummeted by nearly half, to just $167-billion in the third quarter of 2023 from an average of $324-billion in 2022. This is affecting the viability of many small and medium-sized businesses. Business bankruptcies, which had been trending up over the past 18 months, surged dramatically over the last few months of 2023.

The precarious balance of consumer and business confidence hangs by a thread, leaving the trajectory of Canada’s economy shrouded in uncertainty. Businesses went on a hiring spree following the pandemic closings, trying to narrow the gap on job vacancies and surging demand as the economy reopened. But the situation turned sharply last year and, despite stalled economic activity, employers have continued to hire or hold on to workers with the expectation that economic growth will rebound. The risk is that sustained economic malaise triggers job losses and further exacerbates a fragile economy.

The path to a soft landing hinges on conquering inflation. Success on this front would empower the Bank of Canada to lower interest rates, reignite consumer confidence and catalyze spending. However, failure to achieve this outcome could spell disaster, plunging an already frail economy into further turmoil.

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Opinion: A frail Canadian economy risks plunging into further turmoil - The Globe and Mail
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Yellen says global economy remains resilient, lauds US as growth driver - Yahoo Canada Finance

By Andrea Shalal

SAO PAULO (Reuters) - Strong U.S. economic growth has been a "key driver" of better than expected global growth, U.S. Treasury Secretary Janet Yellen will tell a news conference on Tuesday ahead of this week's meeting of G20 finance officials in Sao Paulo, Brazil.

In excerpts of her remarks released by Treasury, Yellen said the International Monetary Fund and other forecasters had projected a broad-based slowdown in the global economy in 2023 that did not happen.

Instead, growth came in at 3.1%, exceeding expectations, and inflation fell, with prices expected to continue falling this year in about 80% of economies, she said.

"Going forward, we remain cognizant of the risks facing the global outlook and continue to carefully monitor the economic challenges in certain countries, but the global economy remains resilient," she said.

Yellen said U.S. economic strength had underpinned global growth, fueled by Biden administration policies supporting businesses hit hard by the COVID-19 pandemic and investments in domestic manufacturing, clean energy and infrastructure.

U.S. inflation had also declined significantly from its peak and the U.S. labor market was historically strong, she said, with the prime-age labor force above its pre-pandemic level and the unemployment rate near historic lows.

"Had a U.S. recession come in 2023, like many predicted, global growth would have been thrown off track. While there are risks to our outlook, America’s growth has consistently exceeded projections," Yellen said.

The IMF last month edged its global growth outlook to 3.1% in 2024, up two-tenths of a percentage point from its October forecast, and left its 2025 forecast unchanged at 3.2%.

The IMF's chief economist, Pierre-Olivier Gourinchas, said the global lender's updated World Economic Outlook showed a "soft landing" was in sight, but overall growth and global trade remained lower than the historical average.

Yellen said growth in many economies, including Brazil, the current president of the Group of 20 economies, had also contributed to global growth, although other economies still faced challenges. She did not specify which countries were facing problems.

IMF spokesperson Julie Kozack last week told reporters the global lender would take new information on the Japanese and British economies, which both slipped into recession, into account as it prepared a new global forecast to be released in April.

(This story has been corrected to fix the spelling of Sao Paulo in the dateline and paragraph 1)

(Reporting by Andrea Shalal; Editing by Chris Reese)

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How Israel’s war on Gaza is bleeding Egypt’s economy - Al Jazeera English

Already facing a deep crisis, Egypt’s economy appears poised to take a hit from Israel’s war on Gaza and the spiralling tensions in the Red Sea, analysts have said.

Currently on “life support”, Egypt’s deteriorating economy suffers from growing public debt now at more than 90 percent of its gross domestic product (GDP), capital flight and the currency’s fall against the US dollar.

Now, those challenges are being compounded by the war, as it edges closer and closer to Egypt’s border, with a large chunk of Gaza’s population pushed into Rafah, after four months of displacement as a result of Israel’s relentless attacks. Tourism and the Suez Canal are two of Egypt’s major sources of foreign exchange.

Bleak outlook for tourism

Egypt’s pyramids, museums, resorts and monuments attract visitors from all over the world and have long made tourism a major source of national income. In 2022, roughly three million Egyptians worked in the tourism industry.

Before Israel’s war on Gaza erupted, Egypt’s tourism sector was already struggling to recover from COVID-19. But it appeared to be rebounding. The Gaza war and the Red Sea crisis could batter revenue prospects from this industry. According to S&P Global Ratings, Egypt’s tourism revenues are set to experience a 10-30 percent fall from last year, which could cost the country 4-11 percent of its foreign exchange reserves and shrink GDP.

“The conflict’s proximity to the Sinai peninsula has led to a sharp decline in tourism, which brought in…$13.63bn in revenue during the 2022-23 fiscal year,” Amr Salah Mohamed​, an adjunct lecturer at George Mason University, told Al Jazeera.

“Although the full extent of the damage to Egyptian tourism from the ongoing conflict is difficult to quantify so far, early indications, such as a 25 percent drop in early November bookings, suggest a substantial downturn that is likely to continue if the conflict persists,” he added.

Drop in Suez Canal revenue

Since November, Egypt has been grappling with the economic impact of Houthi missile and drone attacks against Israel-linked commercial vessels in the Red Sea, which has been the Houthis’ response to Israel’s war on Gaza.

A consequence of these strikes along the shortest trade route linking Asia to Europe through the Suez Canal has been many shipping companies rerouting their vessels around the Cape of Good Hope.

In the 2022-23 fiscal year, the Suez Canal brought in $9.4bn of revenue for Egypt. In the first 11 days of this year, revenue from the Suez Canal plummeted by 40 percent compared with the same period in the previous year.

That damage has only increased since then. Egyptian authorities said revenue in January from the Suez Canal had fallen 50 percent since the start of the year, compared with the same period in 2023.

Gas sector problems

Since October 7, Egypt’s gas economy has also suffered greatly. Two days after the Hamas-led incursion into southern Israel, the Israeli defence establishment ordered the temporary halting of extractions from the Tamar gas field, located 25km (15 miles) from Israel’s southern coastal city of Ashdod.

Egypt is home to the Eastern Mediterranean’s only two gas liquefaction facilities. Israel exports its gas – including from Tamar – to Egypt, where it is turned into LNG and exported to other markets, in particular, Europe.

Because of the war, Egypt’s re-exports of gas fell by more than 50 percent in the fourth quarter of 2023 compared with that same period in 2022. This dynamic has highlighted Egypt’s economic dependence on Israel, which constitutes a huge vulnerability for Cairo at a time when tension is high in the region due to the Gaza war.

Potential influx of refugees

The fate of the 1.4 million Palestinians taking shelter in Rafah is also a source of unease in Egypt.

The government of President Abdel Fattah el-Sisi wants to prevent the influx of displaced Palestinians into the Sinai peninsula to escape Israel’s destruction across Gaza. There are already nine million refugees in Egypt, and Cairo has made clear it will not support any move that could amount to the permanent displacement of Palestinians from Gaza, which many experts fear is Israel’s game plan.

Security concerns over the presence of Palestinian fighters in Sinai, and the effects of their planned attacks against Israel on relations between Cairo and Tel Aviv, are a factor for Egypt. Economic challenges also help explain why Egypt views any forcible expulsion of Palestinians from Gaza into the Sinai as crossing a red line. Since Sudan’s conflict erupted 10 months ago, 450,000 Sudanese refugees have crossed Egypt’s southern border, which has already strained Egypt’s troubled economy.

Against this backdrop, Egypt has begun constructing a wall two miles west of the Egypt-Gaza border, potentially to forestall such a scenario. “There are those of us who fear that Israelis will destroy the existing Egyptian border fence so that they can push Gazans into Sinai,” said Patrick Theros, the former US ambassador to Qatar, in an interview with Al Jazeera.

“Egypt is building a second border wall lightly inside Egyptian territory to serve as a deterrent to the Israelis. Given Netanyahu’s desperate need to stay in power and avoid going to jail, the deterrent may not work,” he said, referring to Israeli Prime Minister Benjamin Netanyahu, whose popularity is at a record low domestically. Many analysts have argued that he needs the war to continue to avoid being removed from office. Netanyahu faces corruption cases.

“Washington’s irrational refusal to stop him may encourage Netanyahu to extend the fighting into Sinai, even if it ends the peace treaty with Egypt,” Theros said.

Managing expectations for economic reforms

Last month, US Treasury Secretary Janet Yellen met with the Egyptian Finance Minister Mohamed Maait in Washington to pledge US support for the Egyptian economy and reforms.

At the same time, there were discussions about augmenting Egypt’s $3bn loan with the International Monetary Fund (IMF) to help it cope with the war in Gaza and the Red Sea security crisis. The main elements of the economic reform package include the Egyptian government selling stakes in dozens of state-owned enterprises, subsidy reductions, moving towards a flexible exchange rate, and making the military’s role in the national economy more transparent.

Yet, analysts caution, the war in Gaza and the Red Sea security crisis coming in the aftermath of the geopolitical shocks caused by Russia’s invasion of Ukraine two years ago will probably make Egyptian officials more reluctant to implement some economic reforms.

In an interview with Al Jazeera, Ryan Bohl, a Middle East and North African analyst at the risk intelligence company RANE, said the IMF would need to be considerate of the multiple pressures facing Egyptian policymakers when making demands of them.

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Calgary Economic Region Labour Market Outlook 2024-2033 - City of Calgary Newsroom

Today, the Calgary Economic Region Labour Market Outlook 2024-2033 was released on calgary.ca/economy.  This is the first economic regional-level labour market outlook to provide detailed labour market projections, including a 10-year assessment of the expected gap between labour demand and supply within the Calgary Economic Region.

The report assesses what is responsible for changes in the demand and supply of jobs and estimates future supply and demand by industry, occupation, and education. After providing a long-term assessment of potential labour market imbalances in the region, the report suggests policy changes to help address the identified labour market imbalances.

“The key takeaway from the Labour Market Outlook is that the Calgary Economic Region is expected to experience dynamic labour market conditions and challenges over the next decade. During the current budget cycle, the CER labour market will experience labour surpluses driven by increases in population and labour supply, but the Outlook also shows that we should anticipate labour shortages in specific occupations in the next budget cycle”, said Carla Male, The City’s Chief Financial Officer. 

Key highlights include:

- Over the next 10 years, the Calgary Region is expected to offer 479,000 positions to job seekers. Economic growth is expected to drive job openings within the current budget cycle. However, replacing aging workers will be the primary driver of job openings in the long term, as it is estimated that one in every six Calgarians will be at least 65 years or older by 2030.

- Hiring challenges that began after the pandemic are expected to ease within the current budget cycle (2023-2026) as the number of job seekers exceeds the number of job openings as net migration reaches record highs. This labour surplus will be driven by the federal government’s plan to attract 985,000 workers (and their families), coupled with Calgary’s relative housing affordability.

- The next budget cycle (2027-2030) will see a different trend driven by a shortage in labour supply. The combination of economic expansion as interest rates moderate, coupled with a slowdown in population growth will lead to a slowdown in job seekers and surge in job openings. Without compensating policy actions, some labour market imbalances are expected to re-emerge in key occupations between 2027 and 2030.

- Five Industries are expected to account for half of all job openings over the next 10 years.
      o   Professional, Scientific and Technical Services
      o   Health Care and Social Assistance
      o   Retail Trade
      o   Accommodation and Food Services
      o   Construction

- To read the report and learn about the recommended policy actions to address the upcoming hiring challenges visit Calgary Economic Region Labour Market Outlook 2024-2033 at calgary.ca/economy.

About this report and its authors

The City of Calgary monitors and forecasts key indicators for the local economy and labour market. The forecasts are used to assist the municipal government in financial and physical planning for Calgary.

The City’s Corporate Economics team are experts in their field and create reliable forecasts based on various indicators. They have developed reliable methods of forecasting and analysis that are specific to the Calgary region.

-30 –

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Cargojet shrinks expansion plans on 'uncontrolled inflation,' falling consumer demand - Financial Post

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Cargojet Inc. swung to a loss last quarter as it felt the pinch of falling consumer demand along with rising inflation, leading the firm to cut back on growth plans.

The air freight and plane leasing company reported a net loss of $34.9 million in its fourth quarter versus a profit of $2.6 million in the last three months of 2022, marking Cargojet’s first quarterly loss in nearly two years.

Article content

“To say that 2023 was a challenging year for Cargojet would probably be an understatement,” said co-chief executive Pauline Dhillon.

She cited higher interest rates, “uncontrolled inflation,” a sputtering economy and a consumer pullback from the splurge on doorstep deliveries during the pandemic as key reasons behind the Mississauga, Ont.-based outfit’s struggles.

The COVID-19-induced spending wave doubled Cargojet’s revenue between 2019 and 2022 and turbocharged its share price to a high that topped $242 in November 2020. However, that same surge in demand soon posed challenges for the company, as “every passenger airline in Canada announced their entry into the dedicated air cargo business,” Dhillon said.

Cargojet’s stock now trades at less than half its 2020 high. Shares were down $4.78 at $112.27, or more than four per cent, after dipping as low as $108.69 in early trading.

Air Canada and WestJet established fleets of air freighters, rather than simply hauling goods in their passenger planes.

Nonetheless, co-chief executive Jamie Porteous said Cargojet sees “no threat” from Canada’s two largest airlines domestically, where it has refocused its efforts after ditching plans to expand internationally with a slate of aircraft aimed at intercontinental trips.

Article content

Last month, Cargojet announced it would scale down its fleet expansion by scrapping the purchase of four Boeing 777 airliners. The move came after the company nixed the other four 777s in its initial eight-plane order announced to shareholders in March 2022.

“The move that now centres almost entirely on 767s will see the benefit of a singular fleet that can be more effectively operated at lower cost,” said RBC Capital Markets analyst Walter Spracklin in a note to investors.

“We now view Cargojet as much more of a pure-play domestic overnight business and see the (plane leasing) business as filling in the gaps for aircraft utilization.”

The change in plans came alongside a change in leadership.

On Jan. 1, Cargojet went through with a C-suite shuffle announced in November, as then chief executive Ajay Virmani became executive chairman and yielded his top spot to chief corporate officer Pauline Dhillon and chief strategy officer Jamie Porteous — now co-chief executives.

In the quarter ended Dec. 31, Cargojet reported that revenue fell six per cent to $254.7 million from $271.0 million in the same period a year earlier.

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On an adjusted basis, Cargojet said it lost 14 cents per share in its latest quarter compared with an adjusted profit of 89 cents per share a year earlier.

The loss notched 117 per cent below analyst expectations of an adjusted profit of 81 cents per share, according to financial markets data firm Refinitiv.

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Japan’s Nikkei hits new high after topping 1989 peak - Al Jazeera English

Tokyo’s benchmark Nikkei 225 last week made history by hitting its highest level in nearly 35 years.

Japan’s stock market has hit a new high after bursting past its 1989 peak last week following decades of stagnation.

Tokyo’s benchmark Nikkei 225 index rose nearly 0.7 percent in morning trading on Monday, extending a rally that has made Japanese stocks some of the hottest buys of the past year.

Major gainers included Mitsubishi UFJ Financial Group and pharmaceutical company Daiichi Sankyo.

On Thursday, the Nikkei passed its all-time high of 38,915.8, reached in 1989 as Japan’s economy was on the precipice of an asset crash that set in motion several “lost decades” of economic stagnation.

The Nikkei gained 28.2 percent throughout the whole of 2023, well ahead of the S&P500, which itself enjoyed a bumper year.

Foreign cash has poured into Japanese stocks as investors take advantage of the cheap yen and corporate governance reforms that have boosted shareholder returns.

Japan’s overall economy, however, has continued to struggle with anaemic growth amid structural challenges that include a shrinking population and rigid labour force.

The Japanese economy officially entered recession earlier this month, relinquishing its place as the world’s third-largest economy to Germany.

Elsewhere, other Asian markets on Monday fell.

Hong Kong’s Hang Seng and the Shanghai Composite both dipped 0.7 percent, while South Korea’s Kospi slid 0.8 percent.

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Javier Milei: Argentina's new president presses ahead with economic 'shock therapy' as social unrest grows - The Conversation Indonesia

Only weeks into his term, Argentina’s new president, Javier Milei, seems to be making good on his promise to put a chainsaw to the country’s crisis-ridden economy. In his inaugural address, Milei told the nation: “There is no alternative to shock.” He dissolved half of the country’s ministries days later, and implemented a 50% devaluation of the peso.

But amid massive spending cuts, prices continue to spiral. Argentina’s annual rate of inflation has reached a three-decade high of 254.2%. Milei blames the poor economy on years of mismanagement, and has warned his compatriots to expect more pain before any gains will be felt.

While many support his measures, there are clear signs of disconnect. His government suffered the earliest general strike in history, conceding the streets to masses of protestors. More alarming for Milei, his all-reaching “omnibus law”, which ranged from economic policy to the privatisation of state entities, failed to get sanctioned by a divided National Congress in which he lacks a majority.

However, this resistance seems only to be emboldening the president. His plan to dollarize the currency, which some dismissed as mere electoral strategy, now seems likely to come sooner than expected. Milei has also launched a “cultural war” against his critics including Lali Espósito, a well-known Argentine pop star. But unless the economy picks up soon, he may be fighting a growing mass of unhappy citizens.

Argentina’s president, Javier Milei, addresses a crowd from the balcony of the Casa Rosada in Buenos Aires. Juan Ignacio Roncoroni / EPA

Echoes of the past

Shock therapy – involving the sudden removal of trade barriers and labour protection, and the implementation of drastic fiscal policies – is not new in Argentina. It was integral to the last dictatorship’s economic plan (1976-1983), who had learned from the pioneer in shock therapy: Chilean dictator Augusto Pinochet. In both cases, an eventual debt crisis followed.

In the 1990s, the then-Argentinian president, Carlos Menem, announced “major surgery without anaesthesia” on the economy. Failing to curb escalating inflation, it took currency “convertibility” – pegging the peso to the dollar – to break that cycle. But this generated new public debt, chronic stagnation, high levels of unemployment, and provoked the largest sovereign default in history.

Shock therapy is not only a Latin American phenomenon. The collapse of the Soviet Union led to a rapid transition from state-based to free market economies for a large part of the world’s population.

In Poland, the Balcerowicz Plan provoked an initial hike in inflation before eventually stabilising the economy based on free market capitalism – although new inequalities and social problems were on the way.

Milei’s challenge

Two features distinguish Milei’s shock therapy. First, he has a comparatively weak political position – particularly in Congress. Second, it is unclear how much of Argentina’s population is prepared to support his measures, as memory of the crisis looms close in the public imagination.

Milei has already introduced massive spending cuts, including a reduction of salaries and pensions via both inflation and suspending funding to subnational governments to pay salaries and subsidies. He has also launched an ambitious project to reset the Argentine economy, which includes the privatisation of all public companies, liberalisation of trade, and deregulation of labour.

Social opposition was immediate. Despite the government discouraging mobilisation by banning road blocks and large public gatherings, spontaneous protests took place in cities across the country. Labour organisations and trade unions have provided the largest resistance, through declarations, protests and legal claims.

Then, on January 24, when Milei was barely a month into office, a general strike was called. The strike, which included even Argentina’s more conservative unions, brought the country to a standstill.

People gathering in Buenos Aires to protest during the general strike. Juan Ignacio Roncoroni / EPA

Meanwhile, Milei has faced resistance in Congress. His omnibus law was expected to collect support from centre-right parties and subnational governors in need of national funding. However, Milei’s dogmatism prevented the government from accepting the changes requested by its potential allies, and the bill collapsed.

Since taking office, Milei has had a fragile relationship with governors and deputies, calling lawmakers a “delinquent cast set out to get bribes and perpetuate the decadent status quo”.

Instead of taking advantage of his strong electoral victory and fragmented opposition parties, he has provoked confrontation and ever-unified resistance. Public opinion also seems to be turning, as the proportion of people living in poverty has shot up from 45% to almost 60%.

With a sluggish economy, it is difficult to imagine how the president will find the necessary support for his shock therapy.

Dollarization: Milei’s big gamble

The most ambitious, yet unpredictable, element is Milei’s well-publicised plan to dollarize the currency. He claims this will generate hope and reboot a competitive economy, with the middle class able to travel and buy imported goods at ease.

But, based on current exchange rates, the average wage is set to be just US$218 (£171) per month, and this is likely to fall further following expected devaluations in the coming months.

If the plan fails, Milei can expect resistance to be mighty. Argentina has a deep history of popular uprisings. In 2001, five presidents resigned in the space of two weeks, with one of them escaping the Pink House (the president’s official workplace) in a helicopter.

Since then, despite regular protest and crisis, all governments have finished their terms and pursued their economic policies. Will Milei break the mould and be thrown out of office early? Or will he be able to show Argentinians a real economic turnaround before patience runs out?

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