Central banks pride themselves on their ability to keep their eyes on the horizon, no matter the distraction.
The Bank of Canada stayed true to that form on Sept. 9, acknowledging the rebound from the economic collapse that followed the COVID-19 lockdowns was better than expected, while sticking to its story that the recovery will ultimately be bumpy and drawn out.
“The bank continues to expect this strong reopening phase to be followed by a protracted and uneven recuperation phase, which will be heavily reliant on policy support,” the central bank
said
in a revised policy statement. “The pace of the recovery remains highly dependent on the path of the COVID-19 pandemic and the evolution of social distancing measures required to contain its spread.”
The strength of recent indicators had some investors wondering if the Bank of Canada might reconsider its whatever-it-takes approach to stimulus.
A couple of hours before the central bank’s latest statement, Canada Mortgage and Housing Corp.
reported
that contractors started work on new dwellings at a rate that would generate about 262,400 units over a year, the fastest pace since September 2007, according to Royal Bank of Canada. The figures were the latest evidence that early comparisons between the COVID crisis and the Great Depression are nonsense, since this recession will turn out to be one of the shortest ever.
But the climb back to where we were at the end of 2019 is another matter.
Tiff Macklem, Bank of Canada governor, and his deputies on the Governing Council left the benchmark lending rate at 0.25 per cent, its lowest-ever setting, and restated their commitment to purchase at least $5-billion worth of government bonds per week with newly created money, a strategy known as quantitative easing, or QE.
Those two policies form the core of the central bank’s pledge to keep borrowing costs uncommonly low until the recovery is “well underway.” The Bank of Canada is also purchasing a handful of other financial assets, including provincial debt and corporate bonds, to keep key funding markets from freezing due to the number of private buyers spooked by the crisis. The value of
the central bank’s balance sheet
has increased by more than 200 per cent since the end of February.
Policy-makers reiterated that the benchmark lending rate will remain pinned near zero until the central bank’s two-per-cent inflation target is “sustainably achieved,” an unusually explicit promise meant to give businesses and households confidence that they needn’t worry about a surprise jump in borrowing costs. They added that asset purchases will be “calibrated” to keep market interest rates at levels that “support the recovery and achieve the (Bank of Canada’s) inflation objective.”
The new language perhaps hints at a possible taper in the future, though there is no sign of an imminent change,
Simon Deeley, a strategist at RBC Dominion Securities
The part about calibrating QE got Bay Street’s attention, since it was substantively different enough from previous policy statement language to indicate an iteration in the central bank’s thinking. The value of the Bank of Canada’s portfolio peaked at almost $547 billion at the end of July, and had dropped to about $537 billion by the beginning of September, as some short-term assets matured and the central bank saw less need to replace them.
It’s possible the Bank of Canada wanted to let market participants know they shouldn’t be alarmed if it decides to buy fewer assets in the near future. Ben Bernanke, the former chair of the U.S. Federal Reserve,
infamously induced a global panic in 2013
by innocently stating the Fed’s QE program could be tapered as economic conditions improved. Traders hadn’t been conditioned for that possibility, and their rushed buying and selling caused interest rates to spike and stock markets to plunge.
“The new language perhaps hints at a possible taper in the future, though there is no sign of an imminent change,” Simon Deeley, a strategist at RBC Dominion Securities Inc., said in a note to clients. “We continue to see any lowering of the (federal government) bond purchase level in the near term as premature.”
Ultimately, the Bank of Canada’s only job is to keep inflation around two per cent, and current readings suggest the central bank will have to let the economy run hot for a while to fulfil its mandate.
The Consumer Price Index (CPI) increased only 0.1 per cent in July from a year earlier, and the Bank of Canada’s latest projections imply it will be at least a couple of years before the economy gains enough strength to put sustained upward pressure on prices. “CPI inflation is close to zero, with downward pressure from energy prices and travel services, and is expected to remain well below target in the near term,” the statement said.
To be sure, the Bank of Canada’s forecast specialists were conservative in July when they helped their bosses construct a “central scenario” of how Canada’s economy might recover from an epic collapse. The summer Monetary Policy Report assumed that gross domestic product free fell at an annual rate of 43 per cent in the second quarter, and would rebound at a rate of about 31 per cent in the third quarter.
GDP actually dropped at an annual rate of about 39 per cent between April and June, Statistics Canada
reported
on Aug. 28. The extraordinary level of government support for households appears to have offset a significant amount of the immediate damage resulting from effectively closing the economy for most of the spring. That should mean a stronger “reopening” phase as lockdown measures were eased heading into the summer.
The Bank of Nova Scotia’s “nowcast,” which estimates the current quarter’s growth rate by assembling key indicators in real time, suggests the economy is currently growing at an annual rate of about 49 per cent, significantly better than the central bank’s July estimate.
Few, if any, economists expect that pace will be sustained. Aid programs are scheduled to be reduced or ended during the autumn and elevated levels of joblessness and bankruptcies will dent the economy’s ability to generate wealth. The virus will continue to weigh on confidence until a vaccine is discovered and produced at scale.
“While recent data during the reopening phase is encouraging, the bank continues to expect the recuperation phase to be slow and choppy as the economy copes with ongoing uncertainty and structural challenges,” policy-makers said.
OTTAWA – Statistics Canada says wholesale sales, excluding petroleum, petroleum products, and other hydrocarbons and excluding oilseed and grain, rose 0.4 per cent to $82.7 billion in July.
The increase came as sales in the miscellaneous subsector gained three per cent to reach $10.5 billion in July, helped by strength in the agriculture supplies industry group, which rose 9.2 per cent.
The food, beverage and tobacco subsector added 1.7 per cent to total $15 billion in July.
The personal and household goods subsector fell 2.5 per cent to $12.1 billion.
In volume terms, overall wholesale sales rose 0.5 per cent in July.
Statistics Canada started including oilseed and grain as well as the petroleum and petroleum products subsector as part of wholesale trade last year, but is excluding the data from monthly analysis until there is enough historical data.
This report by The Canadian Press was first published Sept. 13, 2024.
VICTORIA – British Columbia is forecasting a record budget deficit and a rising debt of almost $129 billion less than two weeks before the start of a provincial election campaign where economic stability and future progress are expected to be major issues.
Finance Minister Katrine Conroy, who has announced her retirement and will not seek re-election in the Oct. 19 vote, said Tuesday her final budget update as minister predicts a deficit of $8.9 billion, up $1.1 billion from a forecast she made earlier this year.
Conroy said she acknowledges “challenges” facing B.C., including three consecutive deficit budgets, but expected improved economic growth where the province will start to “turn a corner.”
The $8.9 billion deficit forecast for 2024-2025 is followed by annual deficit projections of $6.7 billion and $6.1 billion in 2026-2027, Conroy said at a news conference outlining the government’s first quarterly financial update.
Conroy said lower corporate income tax and natural resource revenues and the increased cost of fighting wildfires have had some of the largest impacts on the budget.
“I want to acknowledge the economic uncertainties,” she said. “While global inflation is showing signs of easing and we’ve seen cuts to the Bank of Canada interest rates, we know that the challenges are not over.”
Conroy said wildfire response costs are expected to total $886 million this year, more than $650 million higher than originally forecast.
Corporate income tax revenue is forecast to be $638 million lower as a result of federal government updates and natural resource revenues are down $299 million due to lower prices for natural gas, lumber and electricity, she said.
Debt-servicing costs are also forecast to be $344 million higher due to the larger debt balance, the current interest rate and accelerated borrowing to ensure services and capital projects are maintained through the province’s election period, said Conroy.
B.C.’s economic growth is expected to strengthen over the next three years, but the timing of a return to a balanced budget will fall to another minister, said Conroy, who was addressing what likely would be her last news conference as Minister of Finance.
The election is expected to be called on Sept. 21, with the vote set for Oct. 19.
“While we are a strong province, people are facing challenges,” she said. “We have never shied away from taking those challenges head on, because we want to keep British Columbians secure and help them build good lives now and for the long term. With the investments we’re making and the actions we’re taking to support people and build a stronger economy, we’ve started to turn a corner.”
Premier David Eby said before the fiscal forecast was released Tuesday that the New Democrat government remains committed to providing services and supports for people in British Columbia and cuts are not on his agenda.
Eby said people have been hurt by high interest costs and the province is facing budget pressures connected to low resource prices, high wildfire costs and struggling global economies.
The premier said that now is not the time to reduce supports and services for people.
Last month’s year-end report for the 2023-2024 budget saw the province post a budget deficit of $5.035 billion, down from the previous forecast of $5.9 billion.
Eby said he expects government financial priorities to become a major issue during the upcoming election, with the NDP pledging to continue to fund services and the B.C. Conservatives looking to make cuts.
This report by The Canadian Press was first published Sept. 10, 2024.
Note to readers: This is a corrected story. A previous version said the debt would be going up to more than $129 billion. In fact, it will be almost $129 billion.
NANAIMO, B.C. – Former Bank of Canada governor Mark Carney says he’ll be advising the Liberal party to flip some the challenges posed by an increasingly divided and dangerous world into an economic opportunity for Canada.
But he won’t say what his specific advice will be on economic issues that are politically divisive in Canada, like the carbon tax.
He presented his vision for the Liberals’ economic policy at the party’s caucus retreat in Nanaimo, B.C. today, after he agreed to help the party prepare for the next election as chair of a Liberal task force on economic growth.
Carney has been touted as a possible leadership contender to replace Justin Trudeau, who has said he has tried to coax Carney into politics for years.
Carney says if the prime minister asks him to do something he will do it to the best of his ability, but won’t elaborate on whether the new adviser role could lead to him adding his name to a ballot in the next election.
Finance Minister Chrystia Freeland says she has been taking advice from Carney for years, and that his new position won’t infringe on her role.
This report by The Canadian Press was first published Sept. 10, 2024.
