Bank of Canada Governor Tiff Macklem walks outside the Bank of Canada building in Ottawa, on June 22, 2020.
BLAIR GABLE/Reuters
The Bank of Canada has pledged to keep its key interest rate near zero throughout the economy’s recovery from the COVID-19 pandemic, which it said will be protracted and uneven.
In its interest-rate decision on Wednesday, the central bank held its key rate steady at 0.25 per cent, reiterating that it considers this effectively to be the bottom. But it added a promise to keep it there “until economic slack is absorbed” so that inflation can be sustainably maintained at 2 per cent, the target the bank uses to guide its interest-rate policy.
“We recognize that households and businesses are facing an unusual amount of uncertainty,” Bank of Canada Governor Tiff Macklem said in a news conference. “Against that background, we are being unusually clear that interest rates are going to be low for a long time.”
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The bank also reaffirmed that it would continue its other major approach to economic stimulus – its minimum weekly purchase of $5-billion worth of government of Canada bonds – “until the recovery is well under way.”
The explicit commitment on rates – a policy strategy known in central banking as “forward guidance” – came as the bank released its first economic forecasts since the COVID-19 crisis began. It estimated that the economy shrank by 15 per cent in the first half of the year, and projected that even with the sharp postlockdown rebound, the economy will decline by 7.8 per cent for 2020 as a whole.
“Our message is that it’s going to be a long climb back, and the Bank of Canada is going to be there through the full length of the recovery, until economic slack is absorbed,” Mr. Macklem said.
People who have a mortgage or are considering a major purchase, or businesses thinking about making an investment can be confident interest rates will be low for a long time, he said. “Low interest rates make spending and investment more affordable, and spending and investment will support the recovery.”
Arlene Kish, director of Canadian economics at research firm IHS Markit, said in a commentary that Mr. Macklem’s forward guidance “points to interest rates remaining unchanged until 2023.”
The news conference followed the publication of the bank’s quarterly Monetary Policy Report (MPR) – Mr. Macklem’s first as head of the bank. He succeeded Stephen Poloz just six weeks ago. The bank usually updates its economic forecasts in each MPR, but Mr. Poloz opted against specific projections in April, citing extreme uncertainty at the height of the crisis.
In the report, the bank estimated that real gross domestic product plunged 13.1 per cent in the second quarter, on top of a 2.1-per-cent contraction in the first quarter. It expects a bounce-back of 7.1 per cent in the third quarter, reflecting the rapid return of activity as more containment restrictions are lifted. The forecast assumes that “about 40 per cent” of the drop in output in the first half of the year will be recouped in the third quarter.
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However, it cautioned that it expects this initial rebound to be followed “by a more prolonged recuperation phase, which will be uneven across regions and sectors.” It forecast that the economy would grow by 5.1 per cent in 2021 and 3.7 per cent in 2022 as the impact of the crisis dissipates – but it doesn’t see economic output returning to prepandemic levels until well into 2022.
The bank called its new outlook a “central scenario,” rather than a projection, emphasizing the continued uncertainty surrounding the numbers. The central scenario assumes no widespread second wave of COVID-19 in Canada or globally, and that the pandemic will have run its course by mid-2022.
“There are a multitude of scenarios both stronger and weaker than the central one presented here,” the bank said. Yet it cautioned that, over all, the bigger risks in the alternative scenarios appear to be an even weaker recovery, largely because of the potential for a second wave of the virus.
It estimated that the inflation rate – a key measure for the bank – fell to -0.1 per cent in the second quarter. The bank forecast that even as the economy reopens, inflation would be a thin 0.4 per cent in the third quarter, and just 0.6 per cent for the year as a whole, before picking up modestly to 1.2 per cent in 2021 and 1.7 per cent in 2022.
“The dramatic decline in [energy] prices in March and April will hold inflation down until early 2021. After that, the inflation outlook depends primarily on the speed and strength at which demand and supply recover,” the bank said. “Firms report that capacity could return quickly as the economy reopens and containment measures are lifted. They expect the recovery in demand to be more muted, especially in the services and energy sectors.”
In his short time on the job, Mr. Macklem has generally struck a more cautious tone than his predecessor Mr. Poloz, who was relatively optimistic about the potential for the economy to recover. Wednesday’s rate-decision statement, Monetary Policy Report and news conference reflected that subtle shift under the new leader, although the bank broadly remained consistent with the crisis-fighting policy stand Mr. Poloz put in place in his final months in office, which included deep rate cuts and the introduction of large-scale bond purchases.
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But Charles St-Arnaud, chief economist at Alberta Central, the province’s credit-union association, said Mr. Macklem’s call for Canadians to rely on a long period of low rates to finance consumption seemed at odds with the bank’s long-standing concerns about elevated consumer debt.
“I find it interesting that missing from that statement is the risk of pushing already extremely leveraged households and businesses to even more extreme levels,” he said. “It feels a bit like the BoC is somewhat contradicting itself.”
The Bank of Canada is holding its key interest rate at 0.25 per cent in response to what it calls the ‘extremely uncertain’ economic outlook from the COVID-19 pandemic.The Canadian Press
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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.
