Economics in the News – July 3-9, 2023
Economics impacts our lives every day. Below are some of the top storylines from this past week related to economics.
o Financing new or existing business expansions in rural America is becoming more difficult because of a widening gap between real estate appraisals and construction costs. Appraisals do not account for a project’s potential impact. Instead, they provide banks with the value of the property if they had to sell it. Low property values and decades of disinvestment make it difficult for appraised values to support the construction costs.
Appraisal gaps are common in rural communities because of the small pool of comparable businesses or properties appraisers need to draw upon when reaching a value. Rising construction costs have also played a role, with prices for building materials climbing by as much as 20 percent annually over the past three years. [The Wall Street Journal]
o Military spending is rising across Europe at its fastest rate since the end of the Cold War. Last year, according to Stockholm International Peace Research Institute, defense spending across the continent rose 13 percent to $345 billion. The European Union is reliant on American defense companies for everything from F-35 fighter jets to air-defense systems. The agreement is a backbone of the North Atlantic Treaty Organization.
Opinions are shifting whether the EU would be best served to import American. French President Emmanuel Macron is proposing that Europe supply its own defense based on America’s priorities shift to the Pacific or the upcoming presidential elections. However, those who oppose Macron believe that the high cost for US weaponry is a price worth paying for security guarantees from the United States. [The Wall Steet Journal]
o Finnish company Nokian Tyres altered its business strategy after Russia’s invasion of Ukraine and the ongoing Ukraine War. Political threats loom much larger than before. Prior to the Ukraine War, 80 percent of Nokian Tyres were manufactured in Russia, along with 20 percent of its sales. After the war’s start and with the European Union’s adding rubber to its list of sanctions, the company had to move production elsewhere. Public sentiment in Finland plunged, as did the share price on the Nasdaq Helsinki from €34 in January 2022 to its current price of €8.25.
Their decision is one faced by many companies, which now must weigh geopolitical risks in weighing difficult choices about offices, supply chains, investments and sales. Consulting firm EY found in a survey that 97 percent of 1,200 global chief executives surveyed altered their strategic investment strategies because of current geopolitical tensions. [The New York Times]
o The wildfires in Canada are impacting many industries and could strain households across the country. The fires have burned 20 million acres and raised health concerns in both US and Canadian cities. The fires have upended oil and gas operations, reduced the availability of timber harvests, and has negatively impacted the tourism industry. Early data from consulting firm Oxford Economics suggests that this year’s fires could knock between 0.3 and 0.6 percentage points off Canada’s economic growth in the third quarter. Although, it is too early to tell and there are several more months of the fire season remain.
Globally, countries are feeling pressures of the economic cost caused by more frequent extreme weather. The Canadian Climate Institute estimated that climate-related costs in Canada would be C$25 billion by 2025, severely impacting economic growth. The Institute suggests that climate change by midcentury could cost 500,000 jobs due to excessive heat that lowers labor productivity and causes premature death. [The New York Times]
o Meta, the parent company of Facebook, unveiled its new social media app Threads which gained millions of signups during its first week. The app aims to compete with Twitter, which has undergone several unpopular changes since Elon Musk purchased it. Meta CEO Mark Zuckerberg said that 30 million people have signed up for the app in the 24 hours since it launched Wednesday. It debuted in the United States and 10 other countries, including Britain, Australia, Canada and Japan.
Threads has options to like, repost, reply to or quote a thread, and users can see the number of interactions a post receives. Posts are limited to 500 characters, which is nearly double the 280-character limit that Twitter has. It can include links, photos and videos up to five minutes long. The new app has raised data privacy concerns, as the Threads has not been rolled out in the European Union due to regularity uncertainty. [Associated Press]