China’s State Council signaled the central bank could make more liquidity available to banks in order to boost lending to businesses, including by cutting the amount of money they have to keep in reserve. Bond yields fell.
Authorities “will use monetary policy tools, including a cut to the reserve requirement ratio at an appropriate timing to enhance financial support to the real economy, particularly to smaller businesses,” the government said in a statement Wednesday after a meeting of the State Council, the equivalent of a government cabinet, chaired by Premier Li Keqiang. That’s aimed at helping firms deal with the impact of rising commodity prices, it said.
China’s robust recovery from the pandemic has shown signs of faltering recently, with soaring commodities pushing factory-gate prices to a 13-year high in May and a gauge of activity in the services industry slowing sharply in June, partly because of virus outbreaks in some parts of the country.
The State Council’s shift may indicate the government expects disappointing data when it reports second-quarter gross domestic product and June activity figures next week. Economists surveyed by Bloomberg expect a slowdown in GDP growth to 8% in the second quarter from 18.3% in the previous three months.
“A shift to some kind of policy easing in the second half is no surprise,” Nomura Holdings Inc. economists led by Ting Lu said in a note. “But using a high-profile tool such as RRR cut is a big surprise to markets and us.” Nomura expects the central bank to most likely deliver a 50 basis-point universal RRR cut in coming weeks.
Bond Yields
China’s 10-year bond yields dropped three basis points to 3.03%. Futures for the benchmark gained as much as 42 ticks to its highest level since August.
“Beijing now wants to make further moves to boost the economy, support smaller enterprises and limit credit risks when external demand for Chinese goods peak,” said Tommy Xie, head of Greater China research at Oversea-Chinese Banking Corp. in Singapore. “This will offer an extra stimulus to bonds.”
Allowing banks to reduce their reserves would free up the flow of credit to the wider economy. However, it’s not definite that the central bank will follow through: the last time the State Council suggested cutting the RRR was in June last year, but the People’s Bank of China didn’t end up taking any action.
Even so, the mention of RRR cuts after more than a year was “notable and probably increases the chance of an actual implementation of the cut,” Goldman Sachs Group Inc. wrote in a note. The State Council’s statement had a clear “pro-growth” shift, focusing on the need to increase financial support to the real economy, the economists said.
What Bloomberg’s Economists Say…
The meeting may signal a turning point for liquidity conditions is approaching — the PBOC may marginally ease liquidity from a previously tight tilt to a neutral or marginal easing stance. But overall conditions are unlikely to allow the PBOC to reduce interest rates.
The PBOC hasn’t cut the official RRR since mid-2020, when it was trying to boost the economy after the lockdowns to contain the Covid-19 outbreak. The central bank has refrained from making any changes to its policy interest rates as well since cutting them early last year, choosing instead to guide credit growth lower to curb financial risks. The central bank said last week it will maintain a steady policy and prevent “external shocks” from overseas policy changes.
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The State Council’s comments came a day after a former PBOC official called for interest rates to be cut in the second half of the year to safeguard the recovery and create policy room to deal with the Federal Reserve’s future tightening.
Authorities are still wary of overstimulating the economy though, with the State Council saying it will refrain from flooding the economy with stimulus and maintain the stability and effectiveness of monetary policy.
China’s state media cited China Minsheng Banking economist Wen Bin as saying there could be a cut to the RRR for small and medium-sized financial institutions by the end of the third quarter.
A reserve-ratio cut, while not immediately lowering the cost of borrowing in China, is a rapid way of freeing up cheap funds to lend and has been a favored tool of the central bank’s efforts in recent years.
The bank can cut the ratios for different types of banks or for different types of lending at specified banks, such as the “inclusive financing” RRR cut, which it has done annually since 2017.
— With assistance by James Mayger, Yujing Liu, Enda Curran, Hwee Ann Tan, and Tian Chen
(Updates with additional comments, market reaction.)
OTTAWA – Canada’s unemployment rate held steady at 6.5 per cent last month as hiring remained weak across the economy.
Statistics Canada’s labour force survey on Friday said employment rose by a modest 15,000 jobs in October.
Business, building and support services saw the largest gain in employment.
Meanwhile, finance, insurance, real estate, rental and leasing experienced the largest decline.
Many economists see weakness in the job market continuing in the short term, before the Bank of Canada’s interest rate cuts spark a rebound in economic growth next year.
Despite ongoing softness in the labour market, however, strong wage growth has raged on in Canada. Average hourly wages in October grew 4.9 per cent from a year ago, reaching $35.76.
Friday’s report also shed some light on the financial health of households.
According to the agency, 28.8 per cent of Canadians aged 15 or older were living in a household that had difficulty meeting financial needs – like food and housing – in the previous four weeks.
That was down from 33.1 per cent in October 2023 and 35.5 per cent in October 2022, but still above the 20.4 per cent figure recorded in October 2020.
People living in a rented home were more likely to report difficulty meeting financial needs, with nearly four in 10 reporting that was the case.
That compares with just under a quarter of those living in an owned home by a household member.
Immigrants were also more likely to report facing financial strain last month, with about four out of 10 immigrants who landed in the last year doing so.
That compares with about three in 10 more established immigrants and one in four of people born in Canada.
This report by The Canadian Press was first published Nov. 8, 2024.
The Canadian Institute for Health Information says health-care spending in Canada is projected to reach a new high in 2024.
The annual report released Thursday says total health spending is expected to hit $372 billion, or $9,054 per Canadian.
CIHI’s national analysis predicts expenditures will rise by 5.7 per cent in 2024, compared to 4.5 per cent in 2023 and 1.7 per cent in 2022.
This year’s health spending is estimated to represent 12.4 per cent of Canada’s gross domestic product. Excluding two years of the pandemic, it would be the highest ratio in the country’s history.
While it’s not unusual for health expenditures to outpace economic growth, the report says this could be the case for the next several years due to Canada’s growing population and its aging demographic.
Canada’s per capita spending on health care in 2022 was among the highest in the world, but still less than countries such as the United States and Sweden.
The report notes that the Canadian dental and pharmacare plans could push health-care spending even further as more people who previously couldn’t afford these services start using them.
This report by The Canadian Press was first published Nov. 7, 2024.
Canadian Press health coverage receives support through a partnership with the Canadian Medical Association. CP is solely responsible for this content.
As Canadians wake up to news that Donald Trump will return to the White House, the president-elect’s protectionist stance is casting a spotlight on what effect his second term will have on Canada-U.S. economic ties.
Some Canadian business leaders have expressed worry over Trump’s promise to introduce a universal 10 per cent tariff on all American imports.
A Canadian Chamber of Commerce report released last month suggested those tariffs would shrink the Canadian economy, resulting in around $30 billion per year in economic costs.
More than 77 per cent of Canadian exports go to the U.S.
Canada’s manufacturing sector faces the biggest risk should Trump push forward on imposing broad tariffs, said Canadian Manufacturers and Exporters president and CEO Dennis Darby. He said the sector is the “most trade-exposed” within Canada.
“It’s in the U.S.’s best interest, it’s in our best interest, but most importantly for consumers across North America, that we’re able to trade goods, materials, ingredients, as we have under the trade agreements,” Darby said in an interview.
“It’s a more complex or complicated outcome than it would have been with the Democrats, but we’ve had to deal with this before and we’re going to do our best to deal with it again.”
American economists have also warned Trump’s plan could cause inflation and possibly a recession, which could have ripple effects in Canada.
It’s consumers who will ultimately feel the burden of any inflationary effect caused by broad tariffs, said Darby.
“A tariff tends to raise costs, and it ultimately raises prices, so that’s something that we have to be prepared for,” he said.
“It could tilt production mandates. A tariff makes goods more expensive, but on the same token, it also will make inputs for the U.S. more expensive.”
A report last month by TD economist Marc Ercolao said research shows a full-scale implementation of Trump’s tariff plan could lead to a near-five per cent reduction in Canadian export volumes to the U.S. by early-2027, relative to current baseline forecasts.
Retaliation by Canada would also increase costs for domestic producers, and push import volumes lower in the process.
“Slowing import activity mitigates some of the negative net trade impact on total GDP enough to avoid a technical recession, but still produces a period of extended stagnation through 2025 and 2026,” Ercolao said.
Since the Canada-United States-Mexico Agreement came into effect in 2020, trade between Canada and the U.S. has surged by 46 per cent, according to the Toronto Region Board of Trade.
With that deal is up for review in 2026, Canadian Chamber of Commerce president and CEO Candace Laing said the Canadian government “must collaborate effectively with the Trump administration to preserve and strengthen our bilateral economic partnership.”
“With an impressive $3.6 billion in daily trade, Canada and the United States are each other’s closest international partners. The secure and efficient flow of goods and people across our border … remains essential for the economies of both countries,” she said in a statement.
“By resisting tariffs and trade barriers that will only raise prices and hurt consumers in both countries, Canada and the United States can strengthen resilient cross-border supply chains that enhance our shared economic security.”
This report by The Canadian Press was first published Nov. 6, 2024.
