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World Bank: Global growth set for a three-year slide

Jan. 14: Flagging global growth, JP Morgan and the cost of the Forex scandal, plus, your vintage typewriter retailer goes public


 

MORNING-PLAYBOOK-STORY

This is a big-picture kind of day for the economy, following new comments by the Bank of Canada on the impact of falling oil prices, and a revised forecast by the World Bank for global growth. Oil is just above $45 today, and the drop is again taking a toll on the TSX/S&P Composite Index, which suffered another drop yesterday, although not as significant as Monday’s triple-digit fall. Markets in New York also fell on oil yesterday, despite another indication of a strong labour market: Openings for jobs are at a 14-year high.

Today also sees first-quarter earnings from Shaw and, in the U.S., the beginning of banks earning season, starting with J.P. Morgan. There aren’t many numbers being released at home today, but, to the south, there are retail and import numbers for December, and the release of the “Beige Book,” an anecdotal summary of interviews around the country intended to take the pulse of the American economy.

In Europe, more numbers on inflation—this time, from France and Italy—reflect general concern over deflation in the eurozone as a whole, with French inflation for December coming in 0.1 per cent, the lowest in five years. (To be fair, it was expected to be even lower.) The ruble is also looking shaky this morning; it’s already fallen by 1.8 per cent. 

Global growth will be lower than expected in 2015—and two years afterward. So says the World Bank, which, yesterday, lowered its forecast for the next two years over slowing growth around the world. The Bank said this year would see growth of 3 per cent, down from a 3.4 per cent forecast they made in the spring, with forecasts dropping to 3.3 per cent for 2016 and 3.2 per cent in 2017.
They noted that low oil prices are, on average, a gain for the global economy, as they are expected to spur consumer spending, but the economic picture we’re facing is highly uneven: As oil economies get battered, growth in China, Japan and the eurozone is tepid, they noted, and Brazil and Russia are falling particularly hard. In the mean time, the U.K. and—of course—the U.S. are the rare bright spots, but that’s not necessarily a good thing. “The global economy is running on a single engine, . . . the American one,” Kaushik Basu, the Bank’s chief economist, told the New York Times. “This does not make for a rosy outlook for the world.”

The Bank of Canada confirms low oil prices are a problem. They may be a net gain for much of the world, but the next year will be bumpy for the Canadian economy, the Bank said. In a speech yesterday, deputy governor Timothy Lane said low prices should benefit consumers and manufacturing, but noted that falling oil prices are “likely, on the whole, to be bad for Canada” as revenue and job losses in the energy sector work their way through the broader economy. This was echoed as Suncor, the oil-patch giant, announced it was cutting 1,000 jobs and downgrading its budget by $1 billion.

Big banks to report profits, after seeing major fines. This week kickstarts first-quarter earning season for six major banks, including Citigroup and Goldman Sachs. JP Morgan starts the season off today, and they’re expected to have done just fine, profits-wise. But the big question is how big of a dent the “forex” scandal will make on the balance sheet. Out of six banks levied with a collective $3.4 billion for manipulating foreign currency markets, JP Morgan has already paid $660 million for their fine, as well as settling a civil suit for $100 million last week.

How much is a Google engineer worth? An anti-trust dispute over hiring practices at big Silicon Valley tech companies has wrapped up, after a judge said the collective settlement originally proposed for the employees who brought the class-action lawsuit—$324.5 million—was not enough. The suit is over claims that companies, including Google, Apple, and Adobe, conspired not to poach each other’s employees, including those all-important engineers, and so forced salary prices down.

Handmade goes public. The web retailer Etsy—famous for selling handmade knitwear, jewellery and furnishings from independent designers and retailers—is launching an I.P.O. Bloomberg says the offering could be a boon for New York’s tech scene, as the biggest offering to come out of the East Coast (specifically, Brooklyn) since 1999. The offering hopes to raise $300 million and is said to be working with Morgan Stanley and Goldman Sachs—big business for a website also known for selling vintage typewriters.

Need to know:
TSX: 14,187.16, (-77.85), Tuesday
loonie: 83.65, (+0.09 cents), Tuesday
Oil (WTI): $45.32, Wednesday morning


 
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