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Risk of a housing slump, rising loonie mar good news for Canadian economy – CBC.ca

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Bank of Canada governor Tiff Macklem had some optimistic comments when he met with reporters Wednesday following his latest Monetary Policy Report. But, as usual, the risks for the economy make far more interesting reading.

One of those risks could begin showing itself in real estate data expected later today. 

When the Canadian Real Estate Association releases its latest price and sales numbers for resale homes, there may be early signs that a moderate decline in demand for housing could change into what the bank has warned could become a “pronounced slowing.”

As usual, as smart as they may be, the clever people who advise Canada’s top central banker can only make educated estimates about what the future holds for the domestic and global economy, based on the data they collect now.

But overall, a newly announced cut in bond-buying stimulus by the Bank of Canada — from $3 billion to $2 billion a week — signals a growing confidence by Macklem and his advisers that the Canadian economy is on the mend.

Canadians more confident

“Canadians and Canadian businesses are more confident and that, we think, will be reflected in their spending and investment decisions,” Macklem told reporters Wednesday at the bank’s virtual news conference.

Effectively Macklem foresees a strong consumer-led economic boom — one that he said he had contributed to himself.

Asked whether he would suggest consumers should get out and shop, Macklem declined to give personal advice. Except by example. “I bought an exercise bike and I will admit it’s helped me get through this crisis,” he replied.

Part of Macklem’s optimism is the idea that an expected surge in consumer spending will help motivate businesses to invest to expand capacity. And a strong U.S. economy, where most Canadian exports go, means businesses here will be looking to gear up for external markets, too.

Bank of Canada governor Tiff Macklem says he is optimistic about the Canadian economy but it is not yet time for interest rate cuts. (Blair Gable/Reuters)

A sharp rise in inflation south of the border this week, hitting a new 13-year high of 5.4 per cent, is a sign the U.S. economy is struggling to fulfil demand in its own expanding economy.

Maybe Canada can help.

“It’s clear that the U.S. economy is experiencing some capacity constraints,” said Macklem. “We do expect the demand for our exports will be lifted by that strong U.S. economy.”

Like his U.S. counterpart, Fed Chair Jerome Powell, Macklem insisted once again that inflation remains temporary and is expected to snap back to two per cent by 2024 once pandemic-related disruptions are over.

But when reporters asked questions that implied doubts inflation would so easily disappear, Macklem revealed the Bank of Canada has uncertainties of its own.

In fact, the central bank’s monetary policy release, posted before Macklem spoke, made it clear how inflation remains a moving target.

Inflation still transitory

“The factors pushing up inflation are transitory, but their persistence and magnitude are uncertain and will be monitored closely,” it said.

A question that Macklem did not address directly was how inflationary wage pressure might be affected by the so-called transitory price increases. As previously discussed, even if they only last for a year or two, prices rising at rates of four and five per cent create sharp cuts in the spending power of wage earners. And whether individually or as part of a union, workers will be negotiating to get that spending power back.

Rather than addressing those future wage demands and their impact on the path of inflation, Macklem’s reply was retrospective. “To this point, wages are really quite subdued,” he said.

As mentioned, some of the most interesting parts of this week’s policy report were in the final section that itemized “risks to the inflation outlook.”

A few months ago, an unsold house in parts of Toronto would have been rare. But as we prepare for a post-pandemic reality, maybe people don’t need as much space. (Don Pittis/CBC)

 

Those risks could lead to inflation being higher than expected, including a stronger-than-expected burst of consumer spending, or longer-lasting supply bottlenecks for either parts or for labour that will add to costs.

On the gloomier side, things that could pull inflation below the bank’s current expectations include a new outbreak of COVID-19 infections, especially among the unvaccinated; weaker than expected exports, potentially worsened by a rising loonie; and a slump in global growth that the bank currently has pegged at seven per cent for this year.

But for many Canadians, one of the most worrying risks could be something the central bank also addressed in a May report on the country’s economic vulnerabilities: The price of houses.

While the central bank and many others would be pleased to see some of the fever come out of Canada’s notoriously red-hot real estate sector, the risk is that a decline could go too far.

Whether in today’s CREA numbers or in coming months, many expect to see that prices and sales have begun to moderate.

People don’t need as much house

“The base-case projection includes a gradual moderation in housing market activity,” said this week’s MPR. “There is a risk that adjustment could be faster or more pronounced.”

A reversal of that kind, said Macklem, could be the product of otherwise benign economic forces, as families are no longer driven to scale up their living space because that’s where most of their lives happened, from work to school to recreation.

“Now that we can go to a restaurant, do you still want a bigger kitchen?” Macklem asked rhetorically, by way of explanation.

WATCH | The economic dangers of skyrocketing home prices:

Housing sales and prices hit year-over-year record highs in the Greater Toronto Area and experts warn it is a dangerous pattern across the country, threatening the overall economy. 2:04

“A rapid adjustment in the housing market could also have adverse effects on consumption, and these could be made even worse if house prices were to decline,” warned the policy report.

In an economy where housing plays such a big role, that could be a big setback, especially while total employment and business investment are still running significantly below pre-pandemic capacity.

That’s one of the reasons that while moving slowly to reduce stimulus in the form of bond purchases, the Bank of Canada insists it is far from ready to begin raising interest rates.

Instead Macklem has chosen a midpoint between pumping up the economy and letting out a little air.


Follow Don Pittis on Twitter @don_pittis

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RCMP end latest N.B. search regarding teenage girl who went missing in 2021

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BATHURST, N.B. – RCMP in New Brunswick say a weekend ground search for evidence related to the disappearance of a teenage girl in 2021 didn’t reveal any new information.

In an emailed statement, the RCMP said 20 people participated in the search for evidence in the case of Madison Roy-Boudreau of Bathurst.

The release said the search occurred in the Middle River area, just south of the girl’s hometown.

Police have said the 14-year-old’s disappearance is being treated as a homicide investigation.

The RCMP said the search “did not reveal any new information regarding the circumstances of her disappearance.”

There are no plans for another search until police receive a tip or a lead pointing to a new search area.

This report by The Canadian Press was first published Oct. 21, 2024.

The Canadian Press. All rights reserved.

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Man Tasered after trespassing in Victoria school, forcing lockdown

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VICTORIA – A middle school in Victoria was forced into a lockdown after a man entered the building without permission, and police say they had to use a stun gun to make an arrest.

Victoria police say officers received multiple calls around noon on Monday of an unknown male entering Central Middle School, leading staff to set off emergency procedures that put the building under lockdown.

Police say its emergency response team arrived within minutes and found the suspect, who “appeared to be in a drug-induced state,” in the school’s library.

A statement from police says the suspect resisted arrest, and officers had to use a Taser to subdue the man.

He’s being held by police and has been assessed by emergency medical staff.

Police say the man was not armed and there were no continuing safety concerns for students and staff following the arrest.

This report by The Canadian Press was first published Oct. 21, 2024.

The Canadian Press. All rights reserved.

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B.C. Greens’ ex- leader Weaver thinks minority deal with NDP less likely than in 2017

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VANCOUVER – Former B.C. Green leader Andrew Weaver knows what it’s like to form a minority government with the NDP, but says such a deal to create the province’s next administration is less likely this time than seven years ago.

Weaver struck a power-sharing agreement that resulted in John Horgan’s NDP minority government in 2017, but said in an interview Monday there is now more animosity between the two parties.

Neither the NDP nor the B.C. Conservatives secured a majority in Saturday’s election, raising the prospect of a minority NDP government if Leader David Eby can get the support of two Green legislators.

Manual recounts in two ridings could also play an important role in the outcome, which will not be known for about a week.

Weaver, who is no longer a member of the Greens, endorsed a Conservative candidate in his home riding.

He said Eby would be in a better position to negotiate if Furstenau, who lost her seat, stepped aside as party leader.

“I think Mr. Eby would be able to have fresh discussions with fresh new faces around the table, (after) four years of political sniping … between Sonia and the NDP in the B.C. legislature,” he said.

He said Furstenau’s loss put the two elected Greens in an awkward position because parties “need the leader in the legislature.”

Furstenau could resign as leader or one of the elected Greens could step down and let her run in a byelection in their riding, he said.

“They need to resolve that issue sooner rather than later,” he said.

The Green victories went to Rob Botterell in Saanich North and the Islands and Jeremy Valeriote in West Vancouver-Sea to Sky.

Neither Botterell nor Valeriote have held seats in the legislature before, Weaver noted.

“It’s not like in 2017 when, you know, I had been in the (legislature) for four years already,” Weaver said, adding that “the learning curve is steep.”

Sanjay Jeram, chair of undergraduate studies in political science at Simon Fraser University, said he doesn’t think it’ll be an “easygoing relationship between (the NDP and Greens) this time around.”

“I don’t know if Eby and Furstenau have the same relationship — or the potential to have the same relationship — as Horgan and Weaver did,” he said. “I think their demands will be a little more strict and it’ll be a little more of a cold alliance than it was in 2017 if they do form an alliance.”

Horgan and Weaver shook hands on a confidence-and-supply agreement before attending a rugby match, where they were spotted sitting together before the deal became public knowledge.

Eby said in his election-night speech that he had already reached out to Furstenau and suggested common “progressive values” between their parties.

Furstenau said in her concession speech that her party was poised to play a “pivotal role” in the legislature.

Botterell said in an election-night interview that he was “totally supportive of Sonia” and he would “do everything I can to support her and the path forward that she chooses to take because that’s her decision.”

The Green Party of Canada issued a news release Monday, congratulating the candidates on their victories, noting Valeriote’s win is the first time that a Green MLA has been elected outside of Vancouver Island.

“Now, like all British Columbians we await the final seat count to know which party will have the best chance to form government. Let’s hope that the Green caucus has a pivotal role,” the release said, echoing Furstenau’s turn of phrase.

The final results of the election won’t be known until at least next week.

Elections BC says manual recounts will be held on Oct. 26 to 28 in two ridings where NDP candidates led B.C. Conservatives by fewer than 100 votes after the initial count ended on Sunday.

The outcomes in Surrey City Centre and Juan de Fuca-Malahat could determine who forms government.

The election’s initial results have the NDP elected or leading in 46 ridings, and the B.C. Conservatives in 45, both short of the 47 majority mark in B.C.’s 93-seat legislature.

If the Conservatives win both of the recount ridings and win all other ridings where they lead, Rustad will win with a one-seat majority.

If the NDP holds onto at least one of the ridings where there are recounts, wins the other races it leads, and strikes a deal with the Greens, they would have enough numbers to form a minority government.

But another election could also be on the cards, since the winner will have to nominate a Speaker, reducing the government’s numbers in the legislature by one vote.

Elections BC says it will also be counting about 49,000 absentee and mail-in ballots from Oct. 26 to 28.

The NDP went into the election with 55 ridings, representing a comfortable majority in what was then an 87-seat legislature.

Jeram, with Simon Fraser University, said though the counts aren’t finalized, the Conservatives were the big winners in the election.

“They weren’t really a not much of a formal party until not that long ago, and to go from two per cent of the vote to winning 45 or more seats in the B.C. provincial election is just incredible,” he said in an interview Monday.

Jeram said people had expected Eby to call an election after he took over from John Horgan in 2022, and if he had, he doesn’t think there would have been the same result.

He said the B.C. Conservative’s popularity grew as a result of the decision of the BC Liberals to rebrand as BC United and later drop out.

“Had Eby called an election before that really shook out, and maybe especially before (Pierre) Poilievre, kind of really had the wind in his sails and started to grow, I think he could have won the majority for sure.”

He said he wasn’t surprised by the results of the election, saying polls were fairly accurate.

“Ultimately, it really was a result that we saw coming for a while, since the moment that BC United withdrew and put their support behind the conservatives, I think this was the outcome that was expected.”

— With files from Darryl Greer

This report by The Canadian Press was first published Oct. 21, 2024.

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