The Bank of Canada, in Ottawa, on July 12, 2022.Sean Kilpatrick/The Canadian Press
One year after the Bank of Canada’s aggressive rate hike cycle began, economists widely expect the central bank will stick to its plan of holding its key interest rate steady at its next scheduled announcement.
In making its rate decision next week, the central bank likely feels assured about its move to pause rate hikes, said Karyne Charbonneau, given recent economic data showing inflation is trending downward and the economy has slowed.
“They wouldn’t want to announce a pause and then immediately not go through with (it),” said Charbonneau, CIBC’s executive director of economics.
Since last March, the central bank has raised its key rate from near-zero to 4.5 per cent, the highest it’s been since 2007.
While announcing its eighth consecutive rate hike in January, the Bank of Canada said it would take a conditional pause to allow the economy time to react to higher borrowing costs.
It stressed the pause was conditional, however, making it clear that it’ll be ready to jump back in and raise interest rates further if the economy keeps running hot or inflation doesn’t come down quickly enough.
The central bank’s next rate decision is set for Wednesday.
The most recent inflation data suggests the country is inching closer to normal price growth. Canada’s annual inflation rate slowed to 5.9 per cent in January, down from the peak of 8.1 per cent reached in the summer.
And recent monthly trends show inflation is heading much closer to the Bank of Canada’s two per cent target.
Meanwhile, higher borrowing costs are weighing on economic activity.
RBC assistant chief economist Nathan Janzen said higher interest rates, which are meant to take the steam out of the economy by encouraging people and businesses to pull back on spending, will eventually squeeze households more noticeably.
“(There’s) still good reason to think that consumer spending will start to slow … as debt payments rise this year,” he said.
Statistics Canada’s latest GDP report shows the Canadian economy was treading water in the fourth quarter, posting zero growth, but beneath the disappointing data was resilient consumer spending keeping the economy afloat.
While that report showed a much grimmer economy than forecasters were expecting, a preliminary estimate from the federal agency showed that the economy bounced back in January, posting 0.3 per cent growth.
Given the Bank of Canada’s last rate hike was just over a month ago, Charbonneau said the full effects on the economy will be felt “much later this year.”
Perhaps the one worrying figure for the Bank of Canada was the strong employment numbers for January. The economy added a whopping 150,000 jobs in the first month of the year, keeping the unemployment level at a low five per cent.
And while a strong labour market is good news for workers, Bank of Canada governor Tiff Macklem has said repeatedly that the tightness in the labour market is a symptom of an overheated economy that’s fuelling inflation.
If demand falters, businesses facing lower sales will likely alter their hiring plans, causing a rise in unemployment.
Heading into next week’s rate decision, both Charbonneau and Janzen believe the Bank of Canada has done enough to merit the pause in rate hiking.
However, the central bank was in a very different place last March, facing harsh criticism for waiting too long to restrain rising inflation.
“A year ago, at this time, it was starting to become pretty clear that central banks were behind the curve in terms of interest rate hikes,” Janzen said.
The U.S. Federal Reserve has raised its benchmark lending rate to 4.5 per cent to 4.75 per cent from close to zero at the start of 2022.
After the latest U.S. inflation reading, the Fed is widely expected to raise its key rate to at least 5.25 per cent by June.
The Fed’s latest increase was a quarter of a percentage point, but one Fed board member has publicly suggested going back to hikes of half a percentage point.
At a news conference after the Fed’s meeting ended Feb. 1, Chairman Jerome Powell had stressed that inflation in the U.S., while still too high, was gradually cooling. He also suggested that it was still possible that the Fed could quell inflation without raising rates so high as to cause widespread layoffs and a deep recession.
In Canada, with interest rates now at a 16-year high, most economists anticipate a mild recession some time this year.
But despite these forecasts, Charbonneau said the risks are still tilted toward interest rates not being high enough, making rate hikes more likely than cuts for the foreseeable future.
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.
OTTAWA – Statistics Canada says the country’s merchandise trade deficit narrowed to $1.3 billion in September as imports fell more than exports.
The result compared with a revised deficit of $1.5 billion for August. The initial estimate for August released last month had shown a deficit of $1.1 billion.
Statistics Canada says the results for September came as total exports edged down 0.1 per cent to $63.9 billion.
Exports of metal and non-metallic mineral products fell 5.4 per cent as exports of unwrought gold, silver, and platinum group metals, and their alloys, decreased 15.4 per cent. Exports of energy products dropped 2.6 per cent as lower prices weighed on crude oil exports.
Meanwhile, imports for September fell 0.4 per cent to $65.1 billion as imports of metal and non-metallic mineral products dropped 12.7 per cent.
In volume terms, total exports rose 1.4 per cent in September while total imports were essentially unchanged in September.
This report by The Canadian Press was first published Nov. 5, 2024.
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