The one per cent is big right now. Big as in wealthier than ever before – according to an Oxfam study released yesterday – and big on making headlines, kicking off policy speeches, and spurring economic forums, bestsellers and new tax policies.
The World Economic Forum kicks off in Davos, Switzerland, tomorrow, and economic inequality is expected to be one of the hottest issues on the table. But in the meantime, the IMF has downgraded its economic forecast for the next few years – citing a level of growth managing director Christine Lagarde has called “too low, too brittle, and too lopsided.”
Today, U.S. President Barack Obama makes his State of the Union address, during which he’s expected to talk tax policy for the super-rich. Markets in the U.S. are also back today after a national holiday yesterday. The Bank of Japan meets today, and major companies including Unilever and IBM will be reporting their earnings.
The IMF downgrades growth predictions for the world – and Canada. Another day, another sign that global growth is slowing. This morning, the International Monetary Fund downgraded their global forecast for the next two years – including Canada’s – saying that cheap oil prices, expected to be a net gain for many countries, would not be enough to offset slowing growth. The slowpokes are well-known: the eurozone and Japan are battling deflation, but economies from Brazil to Russia to China are also either seeing slowing domestic growth or getting battered by low oil prices. The U.S. is the rare exception, and only one of the few countries to see their growth forecast upgraded.
The IMF forecast growth of 3.5 per cent for this year and 3.7 per cent for 2016 – both seeing downgrades of 0.3 per cent from earlier forecasts. Canada’s forecast was also down 0.1 per cent, to 2.3 per cent this year. Last week, the World Bank also downgraded global growth for the next three years, highlighting the uneven picture between American growth and the rest of the world.
How big is the gap between America’s rich and poor? The U.S. may be the world’s one per cent, but the question of economic inequality is one of the major questions going into Obama’s State of the Union address today. The centrepiece is a set of new tax proposals, which aim to bring in more than $300 billion, to close a tax loophole for inheritance as well as a new tax on major financial institutions. The capital gains tax, in particular, would look a lot more like Canada’s. The focus on economic inequality comes amidst worry that a U.S. recovery is not lifting all boats, and while job growth has been strong, wages don’t seem to be rising apace. And it’s well-documented that the financial crisis had a lasting effect on the wealth gap: a study by the Pew Centre last month found that the gap between the country’s wealthiest families was more than seven times the wealth of middle-income families (almost half of all families) – the largest in 30 years, when these records began.
China’s rate of growth is at an almost quarter-century low. Last year’s growth was 7.4 per cent, the slowest rate since the country was facing international sanctions over Tiananmen Square. That rate is below the Communist Party’s growth target, but it’s still an extraordinary rate of growth – and actually beat many analysts’ expectations. The FT notes that the size of the Chinese economy and the scale of growth means that even seven per cent growth is the same as 10 per cent growth just a few years ago, and retail and industrial production numbers for last month were both above expectations. But the numbers point towards forecasts of a long-term slowdown: the IMF’s forecast this morning has China at 6.3 per cent growth for next year.
The Swiss currency surprise is still hurting. Heavily leveraged currency brokers in London are still feeling the impact after the Swiss central bank unpegged the franc from the beleaguered euro last week, with one well-known broker going under. Meanwhile, the Danish national bank has cut their interest rate, attempting to dodge worries the euro-pegged krone could be the next safe-haven target.
Vancouver’s $3-million homes. Speaking of the one per cent, the number of high-priced houses in Vancouver ($3 million and up) went up by a third last year alone, according to local real estate numbers. The number of one million dollar homes went up by a quarter. So, yes, buying in Vancouver really is as expensive as it seems.
Need to know:
TSX: 14,312.5 (+3.09), Monday
Loonie: 83.7 cents (+0.14 cents), Monday
Oil (WTI): 47.69, Tuesday morning