Darkening outlook

The recovery is losing steam fast — and so might the G20 prescription for fiscal tightening to build market confidence.

OTTAWA — The recovery is losing steam fast — and so might the G20 prescription for fiscal tightening to build market confidence.

One week after the vast majority of leaders from the world’s large economies prescribed a dose of fiscal restraint for the global economy, fresh data from all corners of the globe points to a darkening outlook.

Indicators from Europe, North America and Asia were punctuated Friday by jobless numbers from the U.S. that signalled worse than expected growth and heightened risks of a double-dip recession.

The U.S. shed 125,000 jobs in June — although private sector employment gained a modest 83,000 — with hours worked down, earnings lower, and about 650,000 fewer Americans looking for jobs.

Moreover, the U.S. Commerce Department said orders for manufactured goods decreased by a massive 1.4 per cent in May, the biggest drop in over a year.

As for the G20’s key objective of building confidence about the future, the early results are not encouraging.

North American stock markets have been down since the summit, with the Toronto exchange down nearly 100 points Friday, bringing the loss for the week to more than 511 points or more than four per cent.

CIBC economist Meny Grauman said investors have their eyes on economic data.

“We have high hopes from big meetings of world leaders, but the reality is that not much happens,” he said.

“What we’re seeing is the market reacting to new information coming out of China, and also today out of the U.S.”

Canada won’t get a real sense on how it is holding up until next week, when employment for June is released. The country has seen growth sputter in recent weeks including April’s worse-than-expected gross domestic product reading of zero growth.

Most economists say a double-dip recession is increasingly a risk, but still not the most likely outcome.

“One thing we do know, the global economic recovery has lost momentum,” said Sherry Cooper, chief economist with the Bank of Montreal.

“The global economy is deleveraging, not in the government sector, but in the private sector to such an extent that total debt is falling, which inevitably slows growth.”

The G20 has also touched off a furious debate among economists and policy makers about the best course forward for governments.

As head of a global leader in growth and prospects, Prime Minister Stephen Harper believes the danger is sovereign debt reaching unsustainable levels.

Some economists, led by Nobel laureate Paul Krugman, think fiscal restraint too fast, too hard is the real enemy that will keep growth so low, governments won’t be able to grow out of their deficit problems.

Most governments and most economists are siding with Harper.

The outliers are Japan, which has seen a mirage recovery before, and U.S. President Barack Obama, who is signalling he may propose a second round of stimulus spending.

“I’m in the camp that says this is no time for fiscal tightening in the U.S. because the economy is still too shaky,” Cooper said.

“Hopefully, the U.S. will implement deficit-reducing measures next year that are back-ended so the contractionary effects will not occur too soon.”

Royal Bank assistant chief economist Paul Ferley said some high debt countries will be forced to cut spending, but most major economies would be wise to wait for clear signs of a recovery before slamming on the brakes.

Too much money and effort has been spent getting the economy to this point to jeopardize the fragile recovery on a premature exit, he argued.

“In the course of the downturn, fiscal policy had to become very stimulative and at some point that is going to have to be reversed, but I don’t think the policy makers are going to be in such a rush to do so that they jeopardize the recovery,” he said.

Ferley noted that even the Canadian government has said it will keep fiscal stimulus in place until next spring.

Get local stories you won't find anywhere else right to your inbox.
Sign up here

Just Posted

This unicorn was stolen from the small community of Delia, northeast of Drumheller on Friday and was recovered, with its bronze horn broken off, on Saturday. RCMP are looking for information on the suspects.
(Photo from RCMP)
Unicorn statue stolen from Delia recovered

Statue found with horn broken off in field about 15 km from Delia

Prime Minister Justin Trudeau holds a news conference at Rideau cottage in Ottawa, on Friday, March 13, 2020. THE CANADIAN PRESS/Fred Chartrand
Liberals to release federal budget with eye on managing crisis, post-pandemic growth

OTTAWA — The federal government will this afternoon unveil its spending plans… Continue reading

Patches are seen on the arm and shoulder of a corrections officer in the segregation unit at the Fraser Valley Institution for Women during a media tour, in Abbotsford, B.C., on Thursday, Oct. 26, 2017. Correctional Service Canada says three inmates at Fraser Valley Institution recently tested positive for COVID-19. THE CANADIAN PRESS/Darryl Dyck
Drumheller Institution inmate dies in custody

Inmate’s April 15 death under investigation

In this image from NASA, NASA's experimental Mars helicopter Ingenuity lands on the surface of Mars Monday, April 19, 2021. The little 4-pound helicopter rose from the dusty red surface into the thin Martian air Monday, achieving the first powered, controlled flight on another planet. (NASA via AP)
NASA’s Mars helicopter takes flight, 1st for another planet

CAPE CANAVERAL, Fla. — NASA’s experimental helicopter Ingenuity rose into the thin… Continue reading

In this August 21, 1994 file photo, Rwandan Hutus give the departing French troops the thumbs-up as the French army pull out of Cyangugu, in southwest Rwanda. A report commissioned by the Rwandan government due to be made public on Monday, April 19, 2021 concludes that the French government bears "significant" responsibility for "enabling a foreseeable genocide" that left more than 800,000 dead in 1994 and that that France "did nothing to stop" the massacres. (AP Photo/Jean Marc Bouju, File)
Rwanda report blames France for ‘enabling’ the 1994 genocide

PARIS — The French government bears “significant” responsibility for “enabling a foreseeable… Continue reading

A vial of the Medicago vaccine sits on a surface. CARe Clinic, located in Red Deer, has been selected to participate in the third phase of vaccine study. (Photo courtesy www.medicago.com)
Red Deer clinical research centre participating in plant-based COVID-19 vaccine trial

A Red Deer research centre has been selected to participate in the… Continue reading

In this Feb. 24, 2020, photo, the Olympics rings are reflected on the window of a hotel restaurant as a server with a mask sets up a table, in the Odaiba section of Tokyo. The vaccine rollout in Japan has been very slow with less than 1% vaccinated. This of course is spilling over to concerns about the postponed Tokyo Olympics that open in just over three months.(AP Photo/Jae C. Hong, File)
Will Japanese Olympians be vaccinated ahead of the public?

TOKYO — The vaccine rollout in Japan has been very slow with… Continue reading

PSG's Kylian Mbappe, right, greets Bayern's Lucas Hernandez at the end of the Champions League, second leg, quarterfinal soccer match between Paris Saint Germain and Bayern Munich at the Parc des Princes stadium, in Paris, France, Tuesday, April 13, 2021. (AP Photo/Francois Mori)
PSG, Bayern the big names missing from Super League plan

DÜSSELDORF, Germany — The plan for the new Super League soccer competition… Continue reading

In this image released by Paramount Pictures, Marion Cotillard, left, and Brad Pitt appear in a scene from "Allied." (Daniel Smith/Paramount Pictures via AP)
Leo Carax’s ‘Annette’ to open Cannes Film Festival

Leo Carax’s “Annette,” starring Marion Cotillard and Adam Driver, will open the… Continue reading

From left, Producer Doug Mitchell, actor Chris Hemsworth and director George Miller attend at a press conference to announce the new "Mad Max" film at Fox Studios Australia in Sydney, Monday, April 19, 2021. (Mick Tsikas/AAP Image via AP)
‘Mad Max’ prequel shot in Outback to be released in 2023

SYDNEY, Australia — A prequel to the “Mad Max” movie franchise starring… Continue reading

In this Feb. 1, 2021 file photo, emissions from a coal-fired power plant are silhouetted against the setting sun in Independence, Mo. President Joe Biden faces a vexing task as he convenes a virtual climate summit on Thursday. He is expected to present a nonbinding but symbolic goal to reduce greenhouse gas emissions that will have a tangible impact not only on climate change efforts in the U.S. but throughout the world. (AP Photo/Charlie Riedel, File)
Biden pressed on emissions goal as climate summit nears

WASHINGTON — When President Joe Biden convenes a virtual climate summit on… Continue reading

Women wearing masks wait near an advertisement ahead of the Auto Shanghai 2021 show in Shanghai on Sunday, April 18, 2021. Automakers from around the world are showcasing their latest products this week in the world's biggest market for auto vehicles. (AP Photo/Ng Han Guan)
VW, Ford unveil SUVs at China auto show under virus controls

SHANGHAI — Volkswagen, Ford and Chinese brands unveiled new SUVs for China… Continue reading

Investigators from the Vancouver Police Department were in Chilliwack Saturday, collecting evidence connected to a double homicide. (file photo)
Police investigate shooting death of man outside downtown Vancouver restaurant

Vancouver police say one man was killed in what they believe was… Continue reading

Dr. E. Kwok administers a COVID-19 vaccine to a recipient at a vaccination clinic run by Vancouver Coastal Health, in Richmond, B.C., Saturday, April 10, 2021. THE CANADIAN PRESS/Jonathan Hayward
B.C. to start registering people 18 years and older for COVID-19 vaccines

VICTORIA — The British Columbia government says it’s inviting people 18 years… Continue reading

Most Read