Economy
Bank of Canada rosy on rebound, sees hot inflation in near term
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The Bank of Canada on Wednesday took a mostly optimistic stance on the country’s economy, saying the threat of the COVID-19 pandemic had largely passed while warning inflation would remain hot in the near-term.
The central bank held its key interest rate at a record low 0.25% and cut its weekly net purchases of Canadian government bonds to a target of C$2 billion, expressing confidence growth would rebound strongly and this time be more durable.
“The reopening of the economy and the strong progress on vaccinations have given us reason to be more optimistic about the direction of the economy,” Governor Tiff Macklem told reporters after the rate decision.
“But we are not there yet, and we are mindful that the process is likely to be bumpy, and some scars will remain.”
Earlier, the bank said that while the third pandemic wave had slowed Canada’s economic growth in the first half of 2021, it should pick up in the third quarter.
The central bank said Canada’s economy is now expected to grow 6.0% in 2021, down from the April forecast of 6.5%, while it revised up its 2022 growth estimate to 4.6% from 3.7%.
“The downside risks associated with the pandemic have significantly diminished,” the bank said in its summer monetary policy report.
Inflation is expected to remain at or above 3% – the top of the bank’s 1%-3% control range – through the rest of 2021, easing back to the 2% target by 2022.
Macklem made clear the pressure on inflation is seen as transitory, reiterating that economic slack would be fully absorbed in the second half of 2022.
“There’s no indication that these strong inflation readings are forcing the bank to reevaluate their monetary policy,” said Josh Nye, senior economist at Royal Bank of Canada.
The central bank is expected to further trim its bond-buying program this year, setting the stage for a rate hike as soon as late 2022. But higher rates could come sooner, said Doug Porter, chief economist at BMO Economics.
“The ‘later’ risks would be driven by the virus, while the ‘sooner’ risks could arise if inflation remains stubbornly high and/or if growth is juiced more than expected by well-supported consumers,” he said in a note.
On employment, which lags pre-pandemic levels by roughly 500,000 jobs, a strong rebound is expected over the coming months and the central bank hinted that despite high long-term unemployment, scarring may not be as bad as initially thought.
“The workers most affected by the pandemic – namely, young people and workers with fewer skills – may face less risk of skills erosion,” the bank said.
The Canadian dollar was little changed on Wednesday, trading at 1.2510 to the greenback, or 79.93 U.S. cents.
(Additional reporting by Steve Scherer in Ottawa and Nia Williams in Calgary;Editing by Paul Simao and Steve Orlofsky)
(Bloomberg) — German business sentiment improved to its highest level in a year — reinforcing recent signs that Europe’s largest economy is exiting two years of struggles.
An expectations gauge by the Ifo institute rose to 89.9. in April from a revised 87.7 the previous month. That exceeds the 88.9 median forecast in a Bloomberg survey. A measure of current conditions also advanced.
“Sentiment has improved at companies in Germany,” Ifo President Clemens Fuest said. “Companies were more satisfied with their current business. Their expectations also brightened. The economy is stabilizing, especially thanks to service providers.”
A stronger global economy and the prospect of looser monetary policy in the euro zone are helping drag Germany out of the malaise that set in following Russia’s attack on Ukraine. European Central Bank President Christine Lagarde said last week that the country may have “turned the corner,” while Chancellor Olaf Scholz has also expressed optimism, citing record employment and retreating inflation.
There’s been a particular shift in the data in recent weeks, with the Bundesbank now estimating that output rose in the first quarter, having only a month ago foreseen a contraction that would have ushered in a first recession since the pandemic.
Even so, the start of the year “didn’t go great,” according to Fuest.
“What we’re seeing at the moment confirms the forecasts, which are saying that growth will be weak in Germany, but at least it won’t be negative,” he told Bloomberg Television. “So this is the stabilization we expected. It’s not a complete recovery. But at least it’s a start.”
Monthly purchasing managers’ surveys for April brought more cheer this week as Germany returned to expansion for the first time since June 2023. Weak spots remain, however — notably in industry, which is still mired in a slump that’s being offset by a surge in services activity.
“We see an improving worldwide economy,” Fuest said. “But this doesn’t seem to reach German manufacturing, which is puzzling in a way.”
Germany, which was the only Group of Seven economy to shrink last year and has been weighing on the wider region, helped private-sector output in the 20-nation euro area strengthen this month, S&P Global said.
–With assistance from Joel Rinneby, Kristian Siedenburg and Francine Lacqua.
(Updates with more comments from Fuest starting in sixth paragraph.)
©2024 Bloomberg L.P.
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When Moscow resident Zoya, 62, was planning a trip to Italy to visit her daughter last August, she saw the perfect opportunity to buy the Apple Watch she had long dreamed of owning.
Officially, Apple does not sell its products in Russia.
The California-based tech giant was one of the first companies to announce it would exit the country in response to Russian President Vladimir Putin’s full-scale invasion of Ukraine on February 24, 2022.
But the week before her trip, Zoya made a surprise discovery while browsing Yandex.Market, one of several Russian answers to Amazon, where she regularly shops.
Not only was the Apple Watch available for sale on the website, it was cheaper than in Italy.
Zoya bought the watch without a moment’s delay.
The serial code on the watch that was delivered to her home confirmed that it was manufactured by Apple in 2022 and intended for sale in the United States.
“In the store, they explained to me that these are genuine Apple products entering Russia through parallel imports,” Zoya, who asked to be only referred to by her first name, told Al Jazeera.
“I thought it was much easier to buy online than searching for a store in an unfamiliar country.”
Nearly 1,400 companies, including many of the most internationally recognisable brands, have since February 2022 announced that they would cease or dial back their operations in Russia in protest of Moscow’s military aggression against Ukraine.
But two years after the invasion, many of these companies’ products are still widely sold in Russia, in many cases in violation of Western-led sanctions, a months-long investigation by Al Jazeera has found.
Aided by the Russian government’s legalisation of parallel imports, Russian businesses have established a network of alternative supply chains to import restricted goods through third countries.
The companies that make the products have been either unwilling or unable to clamp down on these unofficial distribution networks.
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