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Bank of Canada March interest rate hike a done deal, say economists: Reuters poll

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The Bank of Canada will raise interest rates by 25 basis points on March 2, earlier than previously thought and ahead of the U.S. Federal Reserve, according to economists surveyed in a Reuters poll, which also showed expectations that rates will be higher by year-end than previously thought.

Just one month ago, economists predicted the BoC would wait until the second quarter to hike rates. But persistently higher inflation, which accelerated to a 30-year peak in January, prompted them to bring forward expectations.

Other major central banks, including the Fed and the Bank of England, are also expected to raise rates in March to tackle inflation which is at multi-decade highs, with some economists calling for an aggressive 50 basis-point move by the Fed.

The poll, which was conducted Feb. 17-23, found only a 20% median probability of a 50 basis-point rate rise at the BoC’s March meeting, with all 25 economists predicting a 25 basis-point hike to 0.50%.

“I would say they’re not behind the curve because inflation expectations are well-anchored,” said Andrew Kelvin, chief Canada strategist at TD Securities. “I think that’s probably the best way of framing this. But it is imperative they do hike rates now because if they wait any longer, they will be behind the curve.”

 

GRAPHIC: Bank of Canada monetary policy outlook – https://fingfx.thomsonreuters.com/gfx/polling/gkplgamrxvb/Reuters%20Poll%20-%20BoC%20monetary%20policy%20outlook.png

 

BoC Deputy Governor Timothy Lane said last week there was a risk inflation could continue to be more persistent than forecast, adding that the central bank would be nimble and potentially “forceful” in tackling it. This would set the stage for a possible aggressive campaign of interest rate hikes.

Median forecasts in the poll showed the BoC would raise its key interest rate by 50 basis points to 1.00% next quarter and end the year with the rate at 1.25%, higher than an end-year prediction of 1.00% in a January poll but lower than current financial market expectations.

The median forecast showed the central bank would take interest rates higher by another 50 basis points in the second quarter followed by another 25 basis points in the third quarter, but economists were split on their views.

For the second quarter, 11 of 24 economists predicted a 25 basis-point rate rise and the rest expected rates to rise by at least 50 bps. The same number said rates would climb to 1.00% in the third quarter, while seven predicted rates to reach 1.25% and six said 1.50%.

While the fourth-quarter median showed rates at 1.25%, 11 of 24 respondents said rates would be at least 1.50%, including one who said 2.00%.

All 14 economists who responded to an extra question said the bank would start reducing the size of its balance sheet this year, with a majority saying in April. The others were split between March and June.

Unlike the Fed, the BoC – which owns about 42% of Canada’s sovereign debt – has never previously attempted to shrink its balance sheet, a process known as quantitative tightening (QT).

“The Bank will begin QT in April, shortly after its first rate hike in the prior month, and start to shrink its balance sheet by allowing maturing bonds to roll off without reinvesting the funds,” said Tony Stillo, director of Canada economics at Oxford Economics.

Nearly 55% of respondents, or seven of 13, who answered a separate question said inflation would not fall to the BoC’s 2% target until the second half of next year or later. Six said it would in the first half of 2023.

Respondents also expected this to be a short interest rate cycle as they put both the terminal rate and their estimated neutral rate at 2.00%, according to median forecasts from additional questions.

“The tightening cycle is playing out fast, with markets expecting an increasing and front-loaded number of rate hikes. However, household and corporate imbalances remain elevated,” said Dominique Lapointe, economist at Laurentian Bank.

“Combined with anticipated risk aversion and tighter overall financial conditions, we believe this will prevent the BoC and other central banks from hiking as much as the market currently predicts.”

(For other stories from the Reuters global economic poll:)

 

(Reporting and polling by Shrutee Sarkar in Bengaluru; Editing by Ross Finley and Matthew Lewis)

Economy

P.E.I. business group sets goals to boost economy — but first it needs workers – CBC.ca

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High-speed internet for all communities on P.E.I., increased wages and support for entrepreneurs — particularly women, Indigenous people and newcomers — were part of a new ​​five-year plan announced Wednesday to boost P.E.I.’s economy.

The Partnership for Growth formed in 2019, and over the last few years received input from more than 200 businesses.

The group has created a plan for economic growth that sets specific goals it wants to see met by 2026, such as increasing the Island’s GDP, improving wages and making P.E.I. a bigger player on the global market. 

“It’s now more important than ever to take the long term view, we’re coming out of COVID-19 our focus has been very short term, now we need to look at what are our priorities to make sure that we got back on track,” said Rory Francis, interim chair for Partnership for Growth.

But first, there are short-term issues that need to be addressed, including a shortage of workers in many industries.

Premier Dennis King said it’s important to work with businesses to help attract and maintain those workers.

‘Good blueprint’

“We also have to be a leader in making sure we have the housing for those that we’re going to need to do here, the skills training, there’s just so many components to this where government can be a leader but also a follower, a supporter as well,” he said.

“Government does best when we take our leadership from others and to have a group that has come together like this across so many sectors of the economy I think this gives us a good blueprint for that.” 

The province will continue to focus on immigration and creating business incentives to improve wages, King said.

The partnership has formed a committee that will help businesses figure out how to achieve their goals.

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German economy dodges recession as war, pandemic weigh – Financial Post

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BERLIN — The German economy grew slightly in the first quarter from the previous one, data showed, with higher investments offset by the twin impacts of war in Ukraine and COVID-19 that experts predicted would weigh more heavily in the three months to June.

Europe’s largest economy grew an adjusted 0.2% quarter on quarter and 3.8% on the year, the Federal Statistics Office said on Wednesday. A Reuters poll had forecast 0.2% and 3.7%, respectively.

The reading meant that Germany skirted a recession, often defined as two quarters in a row of quarter-on-quarter contraction, after gross domestic product (GDP) fell by 0.3% at the end of 2021.

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While household and government spending remained mostly at the same level as in the previous quarter and exports were down at the start of the year, investments grew.

Construction investments, boosted by mild weather, were up 4.6% from the previous quarter, despite price increases, and machinery and equipment investments rose 2.5%.

German business morale rose unexpectedly in May as its economy showed resilience, according to an Ifo institute survey published this week that found no observable signs of a recession.

However, there is no upswing in sight either, and Sebastian Dullien, director of the Macroeconomic Policy Institute (IMK), predicted the effect of the war and pandemic-linked restrictions in China – Germany’s biggest trading partner last year, according to official data – would be much greater in the second quarter.

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ING economist Carsten Brzeski said he was sticking with his baseline scenario of a slight GDP contraction in the second quarter after Wednesday’s reading.

“The build-up of inventories and weak consumption in the first quarter, as well as very weak consumer confidence, clearly dampen the optimism that traditional leading indicators are currently conveying,” he said.

A consumer sentiment index by the GfK institute inched up slightly heading into June from an all-time low in May, with household spending burdened by inflation.

The government forecasts economic growth of 2.2% in 2022. (Reporting by Miranda Murray and Rene Wagner; Editing by Paul Carrel and John Stonestreet)

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5 reasons why the G20 needs a sustainable blue economy – World Economic Forum

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  • Ocean-based climate solutions should be a critical part of the G20’s COVID-19 recovery plans.
  • “The blue economy” can create jobs, spur economic growth, mitigate the impacts of climate change and help meet the food needs of a growing global population.
  • From sustainable fisheries to maritime renewable energies, there are five crucial areas where the G20 would benefit from investing in the ocean.

The G20 has vowed to rebuild the global economy in the aftermath of the COVID-19 pandemic and to fight climate change by investing in sustainable development. Yet one of the most powerful tools available to achieve these goals is largely missing from national economic recovery plans: ocean-based climate solutions.

The ocean has tremendous potential to spur economic growth, create jobs and mitigate some of the most severe climate impacts if we protect it and use its resources sustainably. This is often referred to as “the blue economy”.

For instance, it is estimated the world’s wetlands alone provide $47 trillion worth of ecological services annually, services such as coastal flood defences, carbon sequestration and breeding grounds for commercial fish, and support at least 1 billion jobs. But climate change, habitat destruction and plastic pollution – to name just a few problems – threaten to undermine their ecological integrity and destroy a remarkably effective buffer against some of the most severe climate change impacts.

A similar story is playing out on the ocean’s coral reefs and in our global fisheries. So-called “blue” food (food from the ocean and other aquatic sources) offers immense potential to help meet the food needs of a growing population in a way that is nutritious, sustainable, equitable and affordable. To do so successfully requires a concerted effort from the global community to ensure that fishing is sustainable.

The G20, which comprises 45% of the world’s coastline and 21% of its exclusive economic zones, has a special obligation to protect marine ecosystems and is well-positioned to deploy ocean-based climate solutions as the world continues its post-pandemic recovery.

Creating a blue economy

There are five crucial areas where the G20 would benefit from investments in ocean-based climate action to create a blue economy:

1. Maritime renewable energy sources, such as offshore wind, floating solar arrays and wave and tidal power, hold enormous promise to build energy independence and help countries meet their emissions reduction commitments under the Paris Climate Change Agreement.

2. We must decarbonize global shipping. If this industrial sector were a country, it would be the world’s eighth-largest in terms of carbon emissions. The good news is that emerging technologies can vastly reduce emissions from vessels and port facilities. The international community needs to set new standards to ensure best practices are implemented evenly around the world.

Our ocean covers 70% of the world’s surface and accounts for 80% of the planet’s biodiversity. We can’t have a healthy future without a healthy ocean – but it’s more vulnerable than ever because of climate change and pollution.

Tackling the grave threats to our ocean means working with leaders across sectors, from business to government to academia.

The World Economic Forum, in collaboration with the World Resources Institute, convenes the Friends of Ocean Action, a coalition of leaders working together to protect the seas. From a programme with the Indonesian government to cut plastic waste entering the sea to a global plan to track illegal fishing, the Friends are pushing for new solutions.

Climate change is an inextricable part of the threat to our oceans, with rising temperatures and acidification disrupting fragile ecosystems. The Forum runs a number of initiatives to support the shift to a low-carbon economy, including hosting the Alliance of CEO Climate Leaders, who have cut emissions in their companies by 9%.

Is your organization interested in working with the World Economic Forum? Find out more here.

3. Coastal wetlands and ecosystems – such as salt marshes, seagrass meadows, coral reefs and mangrove forests – need urgent protection in order to maintain their critical environmental services. It is estimated that these ecosystems sequester as much as five times the amount of carbon as terrestrial forests per unit area while shielding coastal populations from increasingly powerful storms and sea-level rise.

4. Investing in sustainable fisheries and, in particular, aquaculture will create well-paid jobs and help promote food security and economic fairness, especially in developing countries.

5. Sustainable and regenerative tourism can form a critical building block in ensuring a lasting economic recovery for coastal nations in a way that supports the ocean and nature – and the countless people who depend on them.

A 2021 report by the High Level Panel for a Sustainable Ocean Economy found that ocean-based climate and nature-based solutions such as these could collectively reduce around 4 billion tonnes of greenhouse gas emissions annually by 2030 and more than 11 billion tonnes by 2050 – equivalent to closing all the world’s coal-fired power plants for a year.

"lazy", :class=>"", :alt=>"Mangrove Conservation and Restoration: Protecting Indonesia’s “Climate Guardians”"}” use_picture=”true”>Mangrove Conservation and Restoration: Protecting Indonesia’s “Climate Guardians”

As the G20 president, Indonesia must work to restore mangroves and wetlands

Image: World Bank

Even modest investments in these solutions to create a sustainable blue economy would go a long way toward achieving UN Sustainable Development Goal 14 (life below water), including gender equity and fair access to the economic benefits of the world’s marine resources.

As this year’s G20 president and host of the group’s next leaders’ summit in November, Indonesia must lead by example, making major investments in marine and coastal ecosystem governance, promoting equal economic access, reducing marine debris, and working to restore and conserve mangrove and other wetlands.

Indonesia, Australia and all other G20 countries must expand these efforts and increase collaboration, to further strengthen and implement a robust and sustainable global blue economy that benefits everyone.

General (Ret.) Luhut Binsar Pandjaitan is Coordinating Minister for Maritime Affairs and Investment for Indonesia, which is this year’s G20 President and host of the group’s 17th Heads of State and Government Summit in November.

Dr Andrew Forrest AO is Founder and Chair of the Minderoo Foundation, Australia, and a Member of Friends of Ocean Action at the World Economic Forum.

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