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Economy

Bank of Canada set to raise rates next year, snap election to have no material impact

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Bank of Canada expecting strong growth

The Bank of Canada is still on course to raise interest rates to 0.50% towards the end of next year, according to economists polled by Reuters, despite a surprise contraction in economic growth last quarter.

Respondents surveyed Aug. 30-Sept. 3 were almost evenly split on the risk that first interest rate hike in the post-pandemic cycle came earlier or later than they expected, with nine saying earlier and eight saying later.

Canadian policymakers were forecast to keep interest rates unchanged at the Sept. 8 meeting, according to all 34 economists in the wider poll.

The BoC is set to taper its relatively small C$2 billion per week asset purchases programme again – most likely in October by $C1 billion – said 16 of 19 economists. That is when the central bank provides its next quarterly update on its growth and inflation forecasts.

But policymakers are now in a trickier spot, at least in the near-term, with a surprise economic contraction of 1.1% reported for the second quarter, well below their expectation for 2.0% growth.

Still, the median view for a rate hike in Q4 2022 have held, with 16 of 19 common contributors expecting at least one hike by end-2022 in the latest poll, compared to 14 in a July survey.

An expected 0.4% economic contraction in July despite the economy reopening from pandemic lockdowns gives support for a cautious stance, and stands in contrast to a still very robust economic expansion south of the border.

“Inflation has firmed significantly and, despite the possibility of a brief period of soft growth, the overall economic recovery remains on track,” said Nick Bennenbroek, international economist at Wells Fargo.

“Against this backdrop the Bank of Canada is on course to shift to less accommodative monetary policy. Indeed, if growth or inflation were to surprise to the upside, an initial rate hike could come earlier than we currently expect.”

Canada has ramped up its coronavirus vaccination drive in recent months, with about 75% of its population having received at least one dose, reducing the chances of large-scale lockdowns due to new variants.

The country is headed for an early federal election on Sept. 20. But 90% of economists, 15 of 18, said the outcome would not have a material impact on their views on the Canadian economy and monetary policy in the medium-term.

Only three respondents said otherwise.

“You’re likely looking at a minority government, so they will not get everything they want, no matter who wins,” said Benjamin Reitzes, rates and macro strategist at BMO.

“It does look like there will be more spending almost no matter who wins, but again, we don’t really know what will go through, so won’t really be changing any forecasts, it’s just too close to call at this point.”

(For other stories from the Reuters global long-term economic outlook polls package:)

 

(Reporting by Mumal Rathore and Swathi Nair; Polling by Prerana Bhat and Manjul Paul; Editing by Ross Finley and Toby Chopra)

Economy

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

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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.

The Canadian Press. All rights reserved.

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Economy

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

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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.

The Canadian Press. All rights reserved.

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Economy

September merchandise trade deficit narrows to $1.3 billion: Statistics Canada

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OTTAWA – Statistics Canada says the country’s merchandise trade deficit narrowed to $1.3 billion in September as imports fell more than exports.

The result compared with a revised deficit of $1.5 billion for August. The initial estimate for August released last month had shown a deficit of $1.1 billion.

Statistics Canada says the results for September came as total exports edged down 0.1 per cent to $63.9 billion.

Exports of metal and non-metallic mineral products fell 5.4 per cent as exports of unwrought gold, silver, and platinum group metals, and their alloys, decreased 15.4 per cent. Exports of energy products dropped 2.6 per cent as lower prices weighed on crude oil exports.

Meanwhile, imports for September fell 0.4 per cent to $65.1 billion as imports of metal and non-metallic mineral products dropped 12.7 per cent.

In volume terms, total exports rose 1.4 per cent in September while total imports were essentially unchanged in September.

This report by The Canadian Press was first published Nov. 5, 2024.

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