Aurelia Butler

OTTAWA (Reuters) – Canadian Prime Minister Justin Trudeau’s government will outline limited new spending in a fiscal update to be released later this month, a source said on Thursday, as inflation soars and some business groups and opposition politicians call for restraint. Finance Minister Chrystia Freeland on Thursday told lawmakers the so-called fall fiscal update would be released on Dec 14. The update will be “limited in scope”, a source familiar with the drafting of the document told Reuters.This fiscal update will be similar to those released following the 2015 and 2019 elections, the source said. Other years when elections were not held, the fiscal update has been more substantial, like a mini-budget.After COVID-19 supports for businesses and individuals produced the highest deficit since World War Two last year, Trudeau during his campaign pledged C$78 billion ($60.9 billion)in new spending over five years to foster Canada’s economic rebound. “This will be an update on where the nation’s finances are right now,” the source said of the document. “We certainly have an ambitious plan that we will continue to move forward on. That’s why you have a budget.”The government is expected to release its 2022-23 fiscal-year budget during the first part of next year. Inflation is at an 18-year high and is being driven mainly by supply chain problems and energy price gains, but some fear more government spending will make it worse.This year’s budget included C$101 billion investments over three years.”There’s a major concern that people have about the level of government spending, and whether or not it is fueling inflation and fueling demand,” said Perrin Beatty, president and CEO of the Canadian Chamber of Commerce.The prospect of rising interest rates next year, as signaled by the Bank of Canada, will increase the servicing costs on the country’s debt, Beatty said.’JUSTIN-FLATION’Pierre Poilievre, the finance critic for the opposition Conservative Party, blames Trudeau for stoking inflation, which he calls “Justin-flation”, with excessive government spending.”We’re going to be prudent,” a second source familiar with the government’s plans said.”The prudent thing is to wait and just see how the next couple of months unfold and you always reserve the option in the winter budget to do more,” said Rebekah Young, director, fiscal and provincial economics at Scotiabank. “It’s harder to roll back than it is to roll out more programs in the winter.”Already in October, Freeland indicated Canada would significantly scale back spending on pandemic support programs now that more than 85% of the eligible population was vaccinated against COVID-19.”A combination of strong revenue recovery and fiscal restraint would put the federal debt and broader general government debt each on a faster reduction course,” Kelli Bissett-Tom, Fitch’s director of Americas sovereign ratings, said on Thursday.Fitch Ratings was the only ratings agency to strip Canada of a triple-A credit rating during the pandemic.In April, Freeland said debt as a percentage of output would progressively decline, providing a fiscal anchor going forward. In the budget, debt was forecast to be 51.2% of gross domestic product this fiscal year, falling to 50.7% the following year. Revenues were up C$47 billion, or 36.5%, in the April-September period, according to the Department of Finance. There was no immediate comment from the prime minister’s office. The finance ministry declined to comment.($1 = 1.2811 Canadian dollars) More

UK ministers have rejected Washington’s linking of the lifting of metal tariffs with a dispute over post-Brexit trading rules in Northern Ireland, describing it as a ‘false narrative’. The Financial Times reported on Wednesday that the US was delaying a deal to remove Trump-era tariffs on steel and aluminium because of concerns that Boris Johnson, the UK prime minister, is preparing to unilaterally suspend parts of the UK-EU trade deal. The US agreed to lift the tariffs on EU steel and aluminium in October.Penny Mordaunt, UK trade minister, told the House of Commons on Thursday that the Johnson government did not accept such a link. “It might be true in terms of how some people in the United States feel, but it is a false narrative. These are two entirely separate issues,” she said.Johnson’s spokesperson added he was “not aware” of the US administration linking the two issues. “We are working closely with the Biden administration,” he said, adding that Washington was looking to “de-escalate the issue”.Anne-Marie Trevelyan, UK international trade secretary, will travel to the US on Monday for a three-day visit to New York and Washington. One Whitehall official confirmed the tariffs would be “one of the issues she will raise” in meetings, including with commerce secretary Gina Raimondo.Trevelyan told MPs she remained hopeful of striking a broad UK-US trade pact. “We have always been clear that a good deal is better than a quick deal and we are here when the US are ready to continue those discussions.”UK steelmakers warned that unless there was a deal on the Trump-era tariffs within days they would lose further sales to EU producers, as their tariffs would be lifted on January 1. The two sides should “strain every sinew” to get a deal, UK Steel said in a statement. “Since those tariffs came in, our exports to the US have declined from 350,000 tonnes in 2018 to 200,000 tonnes in 2020,” it said. “While many of our US customers have stood by us, it is imperative that all parties work together to come to an agreement that provides the UK with the same tariff-free quotas the EU has already secured.”Johnson is facing pressure from Washington, Brussels and Paris not to trigger Article 16, the safeguarding clause of the Northern Ireland protocol that overrides part of the UK’s exit from the EU. British ministers have suggested this is now unlikely to happen before Christmas.Democratic legislators in Washington have publicly warned that by threatening to trigger Article 16, Britain could destabilise trade relationships and “hard-earned peace”.The UK prime minister argues that the protocol needs to be changed to safeguard the peace process. Unionists complain that increased border checks on trade from Great Britain to Northern Ireland has put strains on the union. Emmanuel Macron, president of France, said this week that the NI protocol was “an existential question” for the EU and was a matter of “war and peace for Ireland”.Downing Street on Thursday responded: “When it comes to the protocol it’s vital we use measured and appropriate language given the sensitivities involved.”Negotiations between UK Brexit minister Lord David Frost and Maros Sefcovic, the Brexit commissioner, will continue on Friday. The Commission said that despite a lack of progress over the last six weeks, it would keep talking. “We continue to work intensively with the UK to find joint solutions to tackle the practical problems people are facing in Northern Ireland. We are working around the clock,” a commission spokesperson said. “I am not going to create new deadlines.”Many EU member states remain prepared for Frost to trigger Article 16 after Christmas. “We will be back to the threats in January. I don’t think the US pressure will make a difference,” said one EU diplomat. More

The writer is a senior fellow at Harvard Kennedy SchoolIt is hard not to pity those who must produce a macroeconomic outlook for 2022. The paths of growth and inflation were already uncertain, and now there is the added unknown of the new coronavirus variant, Omicron. The chief executive of Moderna told the FT that existing vaccines are likely to be much less effective at tackling Omicron. The chief executive of BioNTech is more sanguine and expects fully vaccinated people will face only moderate illness. The World Health Organization says it’s possible the variant will be much more transmissible, but concurs that vaccines should protect against severe cases. And those are the experts. With time, we’ll know the answers. But the central bankers who meet this month don’t have the luxury of time. The US Federal Reserve meets on December 14-15, the Bank of England and the European Central Bank on December 16. Will Omicron be a drag on demand that requires stimulus? Or a further boost to inflation that requires tighter monetary policy? The best case is for Omicron to be so transmissible it becomes dominant, but causes only mild cases with no long-term effects — evolving into a version of the seasonal flu. Another good outcome would be that vaccines remain extremely effective and there are few breakthrough cases, which are moderate. In either scenario, the central bankers’ base case — that inflation will peak next year as supply chain disruptions abate — will probably prove correct. Yet if the variant is transmissible enough to become dominant, causes severe illness and can circumvent vaccines, the impact on global economies is certain to be strong, if unclear. People may again stop going in to work. According to an August survey by The Conference Board, fear of contracting Covid and fear of exposing a family member were respondents’ biggest concerns about returning to the workplace. And this against a backdrop of freely available, highly effective vaccines. If workers stay at home because of the new variant, supply chain disruptions would be exacerbated and prices could rise even faster, a consequence Fed Chair Jay Powell highlighted in congressional testimony this week. Yet the negative scenario could also result in much slower price increases. Even without a new variant, the surge in demand experienced on reopening the economy is expected to ease. Real incomes and personal savings have already reverted to pre-pandemic trend. Add to this a deadly virus against which we have little to no protection, and there’s a strong likelihood people would stop going out and spending money just as supply begins to increase next year. Leaders in the US and Europe have vowed not to impose new lockdowns. But some may feel they have no choice. Austria imposed a temporary lockdown before the Omicron variant emerged in order to address an outbreak of the Delta variant. German hospitals already had a record caseload of Delta before Omicron showed up. Demand could crater even without lockdowns. According to research conducted by Austan Goolsbee and Chad Syverson of the University of Chicago, a collapse in US travel in the spring and winter of 2020 resulted more from voluntary behaviour changes than from government-mandated lockdowns. Given accelerating inflation in Europe and the US, it’s unlikely central banks will put the stimulus pedal to the metal again. But will the variant temper their plans to slowly withdraw accommodation? Even in the face of a collapse in demand, monetary policy kicks in with huge lags, and a vaccine can be adapted for new variants in a matter of months. Omicron will not bring us all the way back to the uncertainty of March 2020. But it is a warning that however this variant shakes out, other mutations will almost certainly follow. You don’t really have to pity the central bankers, but maybe cut them some slack. More

The Brazilian economy entered a technical recession in the third quarter as surging inflation choked off its pandemic recovery.Third-quarter data released on Thursday showed a 0.1 per cent contraction in gross domestic product from the previous quarter, when it shrank 0.4 per cent. Compared with the third quarter of last year, the economy expanded 4 per cent. The contraction was driven primarily by an 8 per cent drop in agriculture, which has been affected by an unprecedented drought, and a 9.8 per cent decline in the export of goods and services. Industry remained stagnant, while services grew 1.1 per cent.“The economy has basically stagnated. We reached the pre-Covid level, but since then there has been no growth at all and there is no indication that growth will come,” said Mauricio Molon, chief economist at Logus Capital in São Paulo.Latin America’s largest economy had rebounded quickly from the initial impact of Covid-19, with GDP in the first quarter of this year returning to where it was before the pandemic struck at the end of 2019.Since then, however, the recovery has lost steam and some economists have forecast a contraction next year. Presidential elections in October also threaten to bring uncertainty.Paulo Guedes, Brazil’s finance minister, has remained bullish, telling the Financial Times recently that Brazil would “surprise the world again” and continue its “V-shaped recovery”. However, many question his ministry’s forecast of more than 5 per cent growth this year and more than 2 per cent next year. Most economists expect Brazil will round out this year with a 4.8 per cent expansion and either stagnate or grow only slightly next year. Credit Suisse and Itaú Unibanco, Brazil’s largest lender, forecast a contraction next year of 0.5 per cent. “Covid is not our main problem any more. Our main problem now is inflation. This has domestic roots due to exchange rate uncertainty and fiscal uncertainty, but we are also importing inflation from abroad,” said Fernando Genta, chief economist at XP Asset Management.Brazil’s central bank in October announced its biggest interest rate rise in almost 20 years in an attempt to tame inflation, which has reached almost 11 per cent, diluting incomes and fuelling discontent.

By the end of the year, the benchmark Selic rate is expected to reach 9.25 per cent, up from 7.75 per cent at present and 2 per cent earlier this year. These efforts by the central bank to rein in prices, however, are likely to affect growth next year by reducing economic activity.Molon said the economy will probably stagnate in 2022 as a result of the twin pressures of tightening monetary policy and declining confidence among consumers and businesses.“We don’t have the same impulse from commodities, income is being diluted by inflation, and the labour market is still weak,” he said.The negative outlook is further complicated by uncertainty regarding next year’s presidential election. While both frontrunners are well known, neither Jair Bolsonaro, the incumbent rightwing president, nor Luiz Inácio Lula da Silva, a former leftwing president, are beloved by Brazil’s business community.Many expect Bolsonaro to abandon fiscal rectitude and hand out cash to Brazil’s poorest in order to win votes. Lula’s economic policies are unclear, although he has spoken out against the privatisation of state companies and a government spending cap, which is considered a key fiscal anchor. More

TOKYO (Reuters) – Four days a week, no meetings, you choose the hours and work where you want. The coronavirus pandemic has sped up a transition into more flexible and diverse working hours around the world, opening up ways of working that were unthinkable just a few years ago. “The traditional model of how we work has been broken,” Meghana Reddy, vice president of video messaging service Loom, told the Reuters Next conference. “I think there’s a real opportunity there to just say, let’s have work fit into our lives in a better way, as opposed to us fit our lives into work.”Loom has moved to a flexible model where employees may or may not come to the office and even move to live in other places without being penalised for doing so. Meetings have also been reduced to a minimum.Far from this renowned Silicon Valley model of flexibility, Jin Montesano, Chief People Officer at luxury toilet maker Lixil Group Corp, has managed to bring worker-centred policies to one of Japan’s most emblematic companies, navigating traditional “salaryman” culture. Japan is known for a rigid work structure, where long hours at the office symbolized a strong work ethic. However, in recent years, cases of so-called “over-work” where employees have committed suicide or suffered health issues have forced the country to reckon with its work culture.Lixil decided to get rid of core working hours and morning meetings, while also revisiting the concept of what an office should be.”It’s no longer the place to work…wherever you get work done is where you work,” said Montesano during a panel discussion on the Future of Work. “What we want to do is reimagine the office as a place for communication, collaboration, brainstorming, reconnecting, and having that ability to maybe have a deeper conversation that you just can’t achieve online.”Spanish high-end apparel brand Desigual introduced a four-day work week at its headquarters in Barcelona last month, raising expectations in the business and political arena in Europe, where some other pilot trials have been launched.No employee works on Friday and they can choose to work remotely any of the four working days. The company has subsidized half the cost of the 13% reduction in working hours, with employees overwhelmingly agreeing to a 6.5% paycut. At a time of concern about the resignation of millions of workers from their jobs, a trend known as The Great Resignation, all three executives agreed that their policies are serving to attract new talent.Reconciling the needs of customer service, or face-to-face shifts in factories or shops, were some of the main challenges facing the women entrepreneurs.But Coral Alcaraz, Chief People Officer at Desigual, said it was critical to address them: “The future of work is not the future any more.” More