Canada’s economy is on the road to recovery after the shock from COVID-19, yet risks and uncertainties remain, and some economic sectors and groups remain vulnerable. Support to households and firms should continue until a recovery is well under way, with assistance then focusing on helping viable firms to create jobs, according to a new OECD report.
“This global crisis has been a wake-up call on many fronts. The recovery process is an opportunity to build more resilient economies that are also fairer and greener,” said OECD Director of Country Studies Alvaro Pereira, presenting the Survey at a virtual event hosted by the Canadian Association of Business Economics (CABE) and the Ottawa Economics Association (OEA). “With the right policies, Canada can emerge from this crisis with a stronger, more sustainable and more inclusive economy delivering greater well-being for all.”
The latest OECD Economic Survey of Canada says that contagion and fatalities have been less severe than in many countries and underscores that the policy response to the crisis has been rapid, entailing one of the biggest total support packages of OECD countries. Although the latest round of containment measures has slowed the rebound in activity, the easing of restrictions as vaccination progresses will see the recovery gather momentum. Following a 5.4% contraction in output in 2020, the Survey sees growth of 4.7% for 2021 and 4% in 2022.
Substantial risks and uncertainties surround Canada’s economic outlook. On the upside, the boost from US stimulus could be larger than expected. On the domestic front, it is unclear how fast consumer confidence will rebound – with unemployment likely to remain above pre-crisis levels through 2022 – or how soon households may start to spend the sizable savings that many accumulated during lockdowns. Concerns remain over high household and corporate debt.
Macroeconomic support for aggregate demand should remain substantial while the economy is fragile. Support to people and businesses should evolve as the recovery progresses to ensure assistance focuses on jobs and viable companies. Monetary policy should continue to be geared towards supporting the recovery. At the same time, significant policy support also means the public debt has increased substantially. The report underscores the need for a clear and transparent roadmap in fiscal policy that ensures the public debt burden does not spiral out of control. After the pandemic subsides, it will be necessary to stabilise debt and find ways to accommodate additional spending commitments.
Businesses will also need support to adapt to post-COVID conditions. The Survey suggests insolvency procedures be re-examined to ensure that viable companies running into difficulty have an opportunity to recover. In general, the business climate would benefit from lowering barriers to inter-provincial trade and improving high-speed Internet infrastructure. Stronger incentives for business to become greener are also needed. The report supports the recent federal government proposals for substantial carbon-price increases, announced as part of a strengthened climate plan. It also suggests Canada could expand its use of environmental taxes more generally, which are low relative to other countries’.
The crisis has exacerbated socio-economic inequalities. Job losses have been greatest in low-wage sectors that employ substantial numbers of young people and women. The crisis has also highlighted disadvantages among ethnic minorities and Indigenous groups, who tend to fare poorly in terms of income, life expectancy, housing and health, even in normal times. It has also exposed shortcomings in areas like long-term care for the elderly, health policy and the provision of affordable housing. The recovery should be used to address these vulnerabilities.
Well-being, the subject of in-depth assessment in the report, could be broadly improved if governments made greater use of well-being indicators in policy design and budgeting. In terms of specific issues, well-being would benefit from strengthening social support, boosting childcare provision so women can pursue careers and enhancing the quality of health services with more efficient procedures. Shortages of affordable housing could be addressed though measures that increase supply, including by reducing rent controls and relaxing zoning and land use regulations. For Indigenous peoples, the report recommends enhancing self-determination in particular as key to boosting outcomes.
Economic Activity in Myanmar to Remain at Low Levels, with the Overall Outlook Bleak
Myanmar’s economy and people continue to be severely tested by the ongoing impacts of the military coup and the surge in COVID-19 cases in 2021. Following an expected 18 percent contraction of the economy in the year ended September 2021, the World Bank’s Myanmar Economic Monitor, released today, projects growth of 1 percent in the year to September 2022. While reflecting recent signs of stabilization in some areas, the projection remains consistent with a critically weak economy, around 30 percent smaller than it might have been in the absence of COVID-19 and the February 2021 coup.
The near-term outlook will depend on the evolution of the pandemic and the effects of conflict, together with the degree to which foreign exchange and financial sector constraints persist, as well as disruptions to other key services including electricity, logistics and digital connectivity.
“The situation and outlook for most people in Myanmar continues to be extremely worrying,” said World Bank Country Director for Myanmar, Cambodia and Lao PDR Mariam Sherman. “Recent trends of escalating conflict are concerning – firstly from a humanitarian perspective but also from the implications for economic activity. Moreover, with a low vaccination rate and inadequate health services, Myanmar is highly vulnerable to the Omicron variant of COVID-19.”
Among recent signs of economic stabilization, mobility has recovered to 2020 levels after falling around 70 percent below pre-COVID-19 baseline levels in July 2021, though it remains about 30 percent below pre-pandemic levels for retail, recreation, and transport venues. This is likely to have supported the services sector, though overall consumer demand continues to be weak due to recent shocks to incomes and employment. In the manufacturing sector, output and employment also appear to be stabilizing, and exports have recovered in recent months.
Nevertheless, economic activity continues to be affected by substantial weaknesses in both supply and demand. Firms continue to report sharp reductions in sales and profits, cashflow shortages, and a lack of adequate access to banking and internet services. Results from the latest World Bank firms’ survey indicate that around half of all companies experienced disruptions in the supply of inputs and raw materials in October, largely because of increases in costs amid logistics constraints and a sharp depreciation of the kyat. Farmers continue to be affected by higher prices for key inputs, restricted access to credit, and ongoing logistics constraints.
Ongoing economic pressures are having a substantial effect on vulnerability and food security, particularly for the poor, whose savings have been drained as a result of recent shocks. The share of Myanmar’s population living in poverty is expected to have doubled compared to pre-COVID-19 levels. Combined with pressures on agricultural production, rapid price inflation and reduced access to credit are expected to further compound food security risks.
Over the longer term, events since February 2021 are expected to limit Myanmar’s growth potential. “Most indicators suggest that private investment has fallen markedly, and previously viable projects are becoming unviable as demand remains weak, the cost of imports has risen, and kyat-denominated revenues are worth less in foreign currency terms,” said World Bank Senior Economist for Myanmar Kim Edwards. “In addition, lost months of education, together with large increases in unemployment and displacement, will substantially reduce human capital, skills and productive capacity over the longer term.”
Structural Reforms Needed to Put Tunisia on Path to Sustainable Growth
Decisive structural reforms and an improved business climate are essential to put Tunisia’s economy on a more sustainable path, create jobs for the growing youth population and better manage the country’s debt burden, according to the Winter 2021 Edition of the World Bank’s Tunisia Economic Monitor.
Titled “Economic Reforms to Navigate out of the Crisis” (in French, “Réformes économiques pour sortir de la crise”), the report estimates a slow economic recovery from COVID-19, with projected growth of 3% in 2021. Weighing on this recovery is rising unemployment, which increased from 15.1% to 18.4% in the third quarter of 2021, affecting the youth and people in the western regions hardest.
The report outlines how the weak recovery puts pressure on Tunisia’s already strained public finances, with the budget deficit still elevated at 7.6% in 2021, despite a small contraction from 9.4% in 2020. The budget deficit is projected to gradually decline, reaching 5% to 7% of GDP in 2022-23, helped by lower health-related expenditures and provided that the moderately positive trajectory of spending and revenue are maintained. However, Tunisia’s rising public debt will be hard to finance without decisive public finance and economic reforms, the report noted.
“Just like everywhere else, COVID-19 has adversely affected Tunisia’s economy and the report strongly highlights the need to address longstanding challenges to sustainable growth, including improving the business environment,” said Alexandre Arrobbio, World Bank Country Manager for Tunisia. “To emerge from this crisis, Tunisia needs to adopt decisive reforms to promote private sector development, boost competitiveness and create more jobs, especially for women and youth.”
The first chapter of the report analyzes potential reasons behind Tunisia’s slow economic recovery and highlights two specific factors: the country’s reliance on tourism and transport services; and the rigidity of the business climate, including restrictions on investments and competition which constrain the reallocation of resources in the economy.
The second chapter elaborates on key barriers to competition, arguing that Tunisia’s current regulatory environment restricts competition and discourages the development of new businesses. Looking ahead, the report recommends that policy reforms to ensure a level playing field in every sector are essential in order to boost employment for Tunisians and to increase purchasing power.
Lebanon’s Crisis: Great Denial in the Deliberate Depression
The scale and scope of Lebanon’s deliberate depression are leading to the disintegration of key pillars of Lebanon’s post-civil war political economy. This is being manifested by a collapse of the most basic public services; persistent and debilitating internal political discord; and mass brain drain. Meanwhile, the poor and the middle class, who were never well served under this model in the first place, are carrying the main burden of the crisis.
According to the World Bank Lebanon Economic Monitor (LEM) Fall 2021 “The Great Denial”, Lebanon’s deliberate depression is orchestrated by the country’s elite that has long captured the state and lived off its economic rents. This capture persists despite the severity of the crisis –one of the top ten, possibly top three most severe economic collapses worldwide since the 1850s; it has come to threaten the country’s long-term stability and social peace. The country’s post-war economic development model which thrived on large capital inflows and international support in return for promises of reforms is bankrupt. In addition, the collapse is occurring in a highly unstable geo-political environment making the urgency of addressing the dire crisis even more pressing.
The LEM estimates real GDP to decline by 10.5 percent in 2021, on the back of a 21.4 contraction in 2020. In fact, Lebanon’s GDP plummeted from close to US$52 billion in 2019 to a projected US$21.8 billion in 2021, marking a 58.1 percent contraction—the highest contraction in a list of 193 countries.
Monetary and financial turmoil continue to drive crisis conditions, under a multiple exchange rate system which poses valuable challenges on the economy. The sharp deterioration in the Lebanese Lira persisted in 2021, with the US$ banknote rate and the World Bank Average Exchange rate depreciating by 211 and 219 percent (year-on-year), respectively, over the first 11 months of the year. Exchange rate pass through effects on prices have resulted in surging inflation, estimated to average 145 percent in 2021—ranking 3rd globally after Venezuela and Sudan. Inflation is a highly regressive tax, disproportionally affecting the poor and vulnerable, and more generally, people living on fixed income like pensioners. Food inflation remains concerning as it forms a larger proportion of the expenses incurred by poorer households who are struggling to make ends meet with their deteriorating purchasing power.
Government revenues are estimated to almost halve in 2021 to reach 6.6 percent of GDP, marking the 3rd lowest ratio globally after Somalia and Yemen. The expenditure contraction was even more pronounced, led partially by drastic cutbacks in primary spending, which has reinforced the economic spiral. Meanwhile, gross debt is estimated to reach 183 percent of GDP in 2021, taking Lebanon to the 4th highest ratio in the world preceded only by Japan, Sudan and Greece.
A rare relative bright spot in 2021 has been tourism, which helped hold the current account deficit-to-GDP ratio steady.
Starting Spring 2021, a disorderly termination of the foreign exchange (FX) subsidy commenced and was in full force by the summer. The path authorities followed to the subsidy removal was opaque, inadequately coordinated and lacked timely pro-poor alleviation measures. As a result, subsidy removal mostly benefited importers and smugglers while precious and scarce FX resources were drained.
“Deliberate denial during deliberate depression is creating long-lasting scars on the economy and society. Over two years into the financial crisis, Lebanon has yet to identify, least of all embark upon, a credible path toward economic and financial recovery,” said Saroj Kumar Jha, World Bank Mashreq Regional Director. “The Government of Lebanon urgently needs to move forward with the adoption of a credible, comprehensive and equitable macro-financial stabilization and recovery plan and accelerate its implementation if it is to avoid a complete destruction of its social and economic networks and immediately stop irreversible loss of human capital. The World Bank reconfirms its readiness to continue to support Lebanon in addressing the pressing needs of its people and challenges affecting their livelihoods.”
As detailed and called for in previous issues of the LEM, this strategy would be based on: (i) a new monetary policy framework that would regain confidence and stability in the exchange rate; (ii) a debt restructuring program that would achieve short-term fiscal space and medium-term debt sustainability; (iii) a comprehensive restructuring of the financial sector to regain solvency of the banking sector; (iv) a phased, equitable, fiscal adjustment to regain confidence in fiscal policy; (v) growth enhancing reforms; and (vi) enhanced social protection.
Particularly, initiating a comprehensive, well-structured and swift reform of the electricity sector is critical to address the long-standing and compounding challenges of this sector which is at the center of Lebanon’s economic and social recovery. In addition, Lebanon needs to step-up efforts to ensure efficient and prompt delivery of social protection assistance to the poor and vulnerable households struggling under the continuing economic crisis.
The Special Focus section of the LEM “Searching for the External Lift in the Deliberate Depression” examines the reasons for the weaker than expected increase in exports considering the Lebanese Lira’s sharp depreciation; it analyzes the failure thus far for the external sector to sufficiently benefit from increased price competitiveness and become a more robust driver of growth. The Special Focus finds that Lebanon’s exports are inhibited by three factors (outside of the crisis itself): (i) (pre crisis) economic fundamentals; (ii) global conditions; and (iii) political/institutional environment.
A Post-Crisis Kazakhstan: Economic and Social Transformation
Preconditions for protests The deepening gap between what can be seen as economic successes and the low quality of life...
Is War Inevitable?
Over the past days and weeks, media outlets have been proliferating all kinds of apocalyptic predictions and scenarios on the...
Potash War: Double edged sword for Lithuania and Belarus
As per the recent proclamation made by the Lithuanian government, the Belarusian potash will get banned across the country from...
King Mohammed VI of Morocco launches Pan-African Giant Vaccine Production Plant
Morocco is getting ready to produce its own vaccines. In Benslimane, King Mohammed VI kicked off on Thursday 27th of...
Environment contaminated with highly toxic substances, risking the health of nearby communities
New research published today by Zero Waste Europe (ZWE) about incinerators in three countries – Spain, Czechia, and Lithuania –...
Shaking Things Up: A Feminist Pakistani Foreign Policy
Almost eight years ago, under Foreign Minister Margot Wallstrom in 2014, Sweden created its first of a kind feminist foreign...
Indonesia’s contribution in renewables through Rare Earth Metals
The increasing of technological advances, the needs of each country are increasing. The discovery of innovations, the production of goods...
Middle East4 days ago
Embarking on Libya’s Noble Foray Into the Future
East Asia4 days ago
“Post-Communism Era”, “Post-Democracy Era”, in the face of “authoritarian liberalism”
Southeast Asia4 days ago
Spreading Indonesia’s Nation Branding Through “Kopi Kenangan”
East Asia4 days ago
The role of China in fighting of fascism and racism
East Asia4 days ago
The American politicization of the Beijing Winter Olympics, and the “post-truth era” theory
Middle East3 days ago
Ukraine crisis could produce an unexpected winner: Iran
Economy3 days ago
2022: Rise of Economic Power of Small Medium Businesses across the World
Eastern Europe2 days ago
Ukraine Lies About 2022 Russian Attack to Hide Dying Economy