Economy

Bank of Canada line up to taper emergency stimulus

Published

4 years ago

April 28, 2021

LONDON (Reuters) – The Bank of Canada set the taper ball rolling last week, becoming the first major central bank to cut back on pandemic-era money-printing stimulus programmes. So who’s next?

The big guns of central banking – the U.S. Federal Reserve, European Central Bank and the Bank of Japan – won’t officially pare stimulus for a while, a message the BOJ reinforced on Tuesday and one the Fed is expected to reiterate on Wednesday.

Yet the Bank of Canada‘s C$1 billion ($806 million) cut to its weekly bond-buying programme may remind investors that the next phase in 2021 will be the taper phase, John Briggs, global head of strategy at NatWest Markets, told clients.

With economic data confirming a brighter outlook, Bank of America estimates central bank asset purchases in the United States, Japan, the euro zone and Britain will slide to about $3.4 trillion this year from almost $9 trillion in 2020.

For 2022, the U.S. bank predicts purchases of just $400 billion.

Here’s a look at who is tapering, who may raise interest rates and who might be the last to call time on pandemic-era monetary stimulus.

For a graphic on major cbanks:

https://fingfx.thomsonreuters.com/gfx/mkt/gjnvwdormpw/major%20cbanks.JPG

1/ NORWAY

Norges Bank is at the vanguard in terms of signalling a retreat, having flagged last month that a rate rise may be coming in the second half of 2021. That has made the crown this year’s best performing G10 currency.

The central bank doesn’t intervene in bond markets, so the taper debate is not applicable.

2/ CANADA

Having announced tapering, Canada has signalled that its key interest rate could rise from 0.25% late in 2022.

For a graphic on Canada‘s bond market takes tapering in its stride:

https://fingfx.thomsonreuters.com/gfx/mkt/dgkvlyzyrpb/canada2604.png

3/ UNITED STATES

The Fed plans to keep borrowing costs near 0% and maintain monthly asset purchases worth $120 billion until it sees “substantial further progress” towards full employment and its 2% flexible inflation target.

But with the economy expected to grow by more than 6% this year and inflation to be a “little higher” – according to Fed boss Jerome Powell – markets are pricing in a rate rise in 2023 and many analysts expect tapering to start this year.

The Fed faces a delicate balancing act, ensuring that tapering at a time of massive U.S. government borrowing does not push up Treasury yields too much.

Pictet Wealth senior economist Thomas Costerg expects tapering to start by early next year and proceed at a monthly pace of $10 billion. He said that means the process would last about a year – “enough to keep expectations for the first rate hike well in the distance”.

For a graphic on Central bank holdings of government bonds:

https://fingfx.thomsonreuters.com/gfx/mkt/yxmvjdwyevr/CBANKS2704.PNG

4/ BRITAIN

The departure of Andy Haldane, the Bank of England’s hawkish chief economist, has raised expectations that the central bank’s 895 billion pound ($1.2 trillion) bond-buying scheme won’t be reduced any time soon. The BoE expects inflation will be running at 1.9% by the end of this year but says the rise is likely to be capped over the medium term by labour market weakness.

Still, NatWest analysts believe the BoE could announce a 4 billion pound reduction in its so-called quantitative easing (QE) in May, trimming it to 14 billion pounds a month.

Money markets see a 56% chance of a quarter-point interest rate rise by the end of 2022.

5/ EURO ZONE

Anemic long-term inflationary pressures mean euro area rates are unlikely to rise for years. But tapering may come sooner, especially within the European Central Bank’s 1.85 trillion euro ($2.2 trillion) pandemic emergency purchase programme (PEPP).

Technically, this runs until March 2022 but some officials are already advocating reducing bond purchases as the economy strengthens.

Danske Bank analysts reckon the ECB will end up using only 1.65 trillion euros of the total PEPP stimulus package.

“For all we know at this stage, PEPP is coming to an end in March next year, so if you think about the slowdown from the current pace, that could come as soon as June,” said Andreas Billmeier, European economist at Western Asset.

For a graphic on When will the ECB slow the pace of its emergency bond buys?

https://fingfx.thomsonreuters.com/gfx/mkt/xklpyyrjmpg/ECB2704.PNG

6/ AUSTRALIA

Australia’s economic rebound has surpassed expectations and is set for an “above trend” expansion, the Reserve Bank of Australia said in April. But the bank, which has underscored its dovish credentials by adopting yield curve control, could be among the last to tighten policy.

It wants unemployment slashed and inflation within its 2% to 3% target before shifting tack, but doesn’t see either happening until 2024. Economists expect rates to stay on hold until then and reckon the RBA could even extend asset purchases by another A$75 billion to A$100 billion ($58 bln to $77 bln).

7/ NEW ZEALAND

New Zealand’s strong recovery and red-hot property markets have raised speculation that a rate rise may come sooner than expected.

While its key interest rate is expected to stay at 0.25% this year, some analysts predict a rise in the second half of 2022. The central bank meanwhile appears to be in no hurry to taper its NZ$100 billion ($72 billion) QE programme.

8/ SWEDEN

Swedish inflation is approaching the Riksbank’s 2% target but it has said interest rates would stay at 0% for years. However, its 700 billion crowns ($84 billion) asset purchase programme will wind down this year as planned.

9/ JAPAN

The BOJ pledged this week to maintain stimulus using a yield target and purchases of government bonds and equities.

It has been accused of “stealth tapering” because its bond-buying has slowed since yield curve control (YCC) was adopted in 2016, though purchases have picked up slightly in the past year.

In March, they were about 22.2 trillion yen ($204 billion)above levels a year ago. But that’s still a quarter of the 81.96 trillion yen year-on-year increase in August 2016, just before YCC came in.

For a graphic on BOJ steadily ‘stealth’ tapering its JGB buying:

https://graphics.reuters.com/GLOBAL-CENTRALBANKS/TAPER/bdwpkbmllvm/chart.png

10/ SWITZERLAND

The Swiss National Bank does not intervene in domestic bond markets, instead capping the Swiss franc through interventions which came to nearly 110 billion francs ($120 billion) in 2020. The proceeds are used to purchase foreign bonds and equities.

The franc is less over-valued than before but the SNB shows no signs of departing from its interventionist policy and its minus 0.75% interest rate won’t rise any time soon.

(Reporting by Sujata Rao, Tommy Wilkes, Saikat Chatterjee and Dhara Ranasinghe in London and Leika Kihara and Daniel Leussink in Tokyo; Editing by David Clarke)

Economy

Canada’s unemployment rate holds steady at 6.5% in October, economy adds 15,000 jobs

Published

1 day ago

November 8, 2024

Anne Joseph

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.

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Economy

Health-care spending expected to outpace economy and reach $372 billion in 2024: CIHI

Published

3 days ago

November 6, 2024

Anne Joseph

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.

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Economy

Trump’s victory sparks concerns over ripple effect on Canadian economy

Published

3 days ago

November 6, 2024

Anne Joseph

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.

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