(Bloomberg) — Japan’s economy avoided falling into a recession at the end of last year, helped by robust spending by businesses, an outcome that improves the optics for the central bank as it mulls the timing of its first interest rate hike since 2007.
Gross domestic product expanded at an annualized pace of 0.4% in the final three months of last year, the Cabinet Office said Monday, reversing a 0.4% retreat initially reported. While the upwardly revised data point to more resilience in the economy than initially thought ahead of next week’s Bank of Japan policy meeting, the figures also showed that consumers are continuing to spend less in real terms as inflation weighs.
Economists had forecast the updated figures would show growth of 1.1%.
The yen and bond yields rose on notions that the BOJ is edging closer to ending the world’s last negative interest rate, with market expectations ramping up for a move as early as this month.
Monday’s data support the BOJ’s view that the economy continues to recover moderately with companies optimistic enough to bump up investment and workers’ pay. Corporate capital investment was revised to a 2% advance, powering growth last quarter. Consumer spending, on the other hand, was revised to show a slightly deeper decline at 0.3%.
The weak spending data probably won’t deter the BOJ from making a move, according to Takashi Miwa, senior economist at Nomura Securities Co.
“The BOJ’s outlook reports in October and January suggested that the bank wasn’t to too concerned about a decline in spending,” Miwa said. “The bank has consistently assessed that the virtuous cycle between wages and price is strengthening,” and the GDP data probably won’t change that view.
Nobuyasu Atago, chief economist at Rakuten Securities Economic Research Institute, said the figures were weaker than expected, with domestic demand hit by rising prices. Still, he expects the BOJ to make a policy move this month.
“If they don’t move in March even with strong results from the wage talks, that could send the yen lower and risk damaging consumers further with higher import costs,” Atago said. “It’s a big dilemma for the BOJ to wait until April.”
A majority of economists expects the BOJ to scrap the negative interest rate in March or April. Encouraging signs of wage growth this year have increased bets on the rate hike coming on March 19, when the bank concludes its next policy meeting.
Inflation has continued to outpace wage gains this year, putting a burden on household budgets and crimping outlays. Early data indicate the weakness is carrying over into 2024. Household spending declined by 6.3% in January from a year earlier, the biggest drop since February of 2021.
The yen initially extended gains after the data before retracing that move, while volatile overnight swaps that signal rate expectations showed a 65% change of the BOJ hiking in March, also largely unmoved. Yields on benchmark government bonds continued to rise.
The focus is now on annual pay negotiations between companies and labor unions, which will culminate with results from the biggest union group, Rengo, on March 15, the last business day before the BOJ starts its two-day gathering. The constituents of the union federation have demanded on average the biggest pay hike since 1993, at 5.85%, compared with demands for a 4.49% increase a year ago.
BOJ Governor Kazuo Ueda has repeatedly cited the importance of the wage negotiations as a catalyst for a virtuous wage-price cycle that would signal its price goal is achieved, and enable the bank to normalize its policy settings. Board member Hajime Takata said the price target is “finally” coming into sight, boosting market bets on a March move.
What Bloomberg Economics Says…
“All in all, the GDP report depicts an economy that’s probably not strong enough to convince the Bank of Japan that it’s safe to end its negative interest rate policy at next week’s meeting.”
— Taro Kimura, economist
For the full report, click here.
Prime Minister Fumio Kishida is monitoring trends in consumption and wages as a key to judging whether the country has finally overcome deflation. The premier reportedly plans to meet with business leaders and union leaders this week for a final push.
The approval rating for Kishida’s government fell 4.4 percentage points to a fresh low of 20.1% in a Kyodo News survey published Sunday.
The BOJ’s window for normalizing policy may not stay open for too much longer, Atago said. “The longer they wait, the harder it will become for them to end the negative rate.”
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.
