Businesses and consumers alike are trimming their spending plans as higher interest rates bite and a possible recession looms, according to new surveys from the Bank of Canada.
The central bank’s fourth-quarter surveys of business and consumer sentiments, published Monday, showed an overall dour outlook for 2023, with the majority of both polled cohorts indicating they expect a recession in the next 12 months.
Businesses are expecting sales to slow down for the fourth consecutive quarter, citing concerns about the impact of high interest rates on both their operations and consumers’ spending plans.
Still-high inflation, especially when it comes to food, is forcing Canadians to rein in household spending, the surveys showed.
High interest rates are especially hurting consumers with variable-rate mortgages or other kinds of debt, according to the Bank of Canada. Respondents to the survey indicated high rates were forcing them to put off larger purchases or cut down on recreational spending.
What do the surveys say about inflation expectations?
Inflation expectations from both consumers and businesses are still relatively high for the next year, with labour market pressures, the war in Ukraine and elevated energy prices fuelling that belief.
However, a majority of both consumers and businesses expect inflation to return to the Bank of Canada’s target of one-to-three per cent within five years, the surveys showed.
The central bank has said in its own forecasts it expects inflation to return to target by the end of 2024.
Businesses are reporting that two major source of inflations, global supply chain bottlenecks and labour shortages have shown signs of improvement in the past three months.
“Although still above pre-pandemic levels, the number of businesses reporting labour and supply chain bottlenecks as obstacles to meeting an unanticipated increase in demand has declined,” the bank wrote in its report. “This suggests that the gap between demand and supply is narrowing.”
Businesses expect slower price growth as global commodity prices and consumer demand drop.
The bank’s surveys suggest businesses expect they’ll be able to return to “pre-pandemic practices” for pricing.
“This includes reducing the size and frequency of price increases compared with the past 12 months,” the bank said in its report.
Businesses have faced pressure to raise wages in Canada’s tight labour market over recent months, but the bank’s surveys show that may be easing.
While wage growth expectations remain above pre-pandemic levels, fewer businesses than last quarter said they are raising wages faster to retain workers, according to the surveys. Hiring intentions have also moderated.
What does this mean for interest rates?
The central bank uses quarterly surveys of business and consumer sentiment, alongside other economic data, in deciding where to take its benchmark interest rate, which currently sits at 4.25 per cent after a cumulative increase of 400 basis points in 2022.
While the story for much of last year was not a question of if the central bank would raise rates, but how much, policymakers left the door open to a pause starting in 2023. Future interest rate decisions will be “data dependent,” the bank said in December.
Inflation expectations are as much a data input for the central bank as inflation itself, experts say.
Randall Bartlett, senior director of Canadian economics at Desjardins, told Global News in a recent interview that when the central bank sees easing growth expectations for both inflation and wages, that’s a sign it can consider pausing interest rate hikes.
“When all of those things start to come together, that’s when we’ll start to get a prolonged pause by the bank,” he said.
CIBC Executive Director of Economics Karyne Charbonneau said in a note to clients Monday morning that the expectations data in the Bank of Canada’s latest surveys should give policymakers some leeway at their next interest rate decision on Jan. 25.
“With no worsening of the situation on the expectations front, that leaves the Bank of Canada with the space to focus on incoming data in determining the path for interest rates,” she wrote.
Like many big bank economists in Canada, Charbonneau expects the central bank will raise rates another quarter of a percentage point next week. She added the caveat that unexpectedly high inflation readings on Tuesday or stronger than expected retail figures released Friday could push the Bank of Canada to take a larger step with its benchmark rate.
What does this mean for a recession?
In the same way that expectations for inflation can have a tangible impact on price growth itself, Bartlett added that believing a recession is coming can be a self-fulfilling prophecy.
Canadians have heard a growing chorus of economists, policymakers and other commentators in the media warn of a recession for months now, and that rhetoric can push consumers and businesses alike to rein in their spending plans, he said.
With businesses reducing their spending, investment and hiring plans in response to economic headwinds, the ingredients for a recession and a pronounced slowdown in gross domestic product (GDP) becomes all the more likely, according to Bartlett.
“As more constraint is shown by households and businesses in terms of investment and spending and that sort of thing, ultimately that tends to weigh on economic activity and reduce real GDP growth in a broad-based way,” he said.
Desjardins, like some other economic forecasters, has called for Canada to face a mild recession in 2023.
MEXICO CITY (AP) — Schools in Mexico will have six months to implement a government-sponsored ban on junk food or else face heavy fines, officials said Monday.
The rules, published on Sept. 30, target products that have become staples for two or three generations of Mexican schoolkids: sugary fruit drinks sold in triangular cardboard cartons, chips, artificial pork rinds and soy-encased, salty peanuts with chile. School administrators who violate the order will face fines equivalent to between $545 and $5,450, which could double for a second offense, amounting to nearly a year’s wages for some of them.
Mexico’s children have the highest consumption of junk food in Latin America and many get 40% of their total caloric intake from it, according to the U.N. Children’s Fund which labeled child obesity there an emergency.
The new ban targets products that have become staples for two or three generations of Mexican schoolkids: sugary fruit drinks sold in triangular cardboard cartons, chips, artificial pork rinds and soy-encased, salty peanuts with chile.
President Claudia Sheinbaum said Monday schools would have to offer water fountains and alternative snacks, like bean tacos.
“It is much better to eat a bean taco than a bag of potato chips,” Sheinbaum said. “It is much better to drink hibiscus flower water than soda.”
However, the vast majority of Mexico’s 255,000 schools nationwide do not have free drinking water available to students. According to a report in 2020, the effort to install drinking fountains succeeded in only about 10,900 of the country’s schools, or about 4% of them. Many Schools are located in areas so poor or remote that they struggle to maintain acceptable bathrooms, internet connection or electricity.
Also the most common recipes for beans, refried beans, usually contain a significant dose of lard, which would violate rules against saturated fats.
Mexico instituted front-of-package warning labels for foods between 2010 and 2020, to advise consumers about high levels of salt, added sugar, excess calories and saturated fats. Some snack foods carry all four of the black, octagonal warning labels.
But under the new rules, schools will have to phase out any product containing even a single warning label from school snack stands. It wasn’t immediately clear how the government would enforce the ban on the sidewalks outside schools, where vendors usually set up tables of goods to sell to kids at recess.
Mexican authorities say the country has the worst childhood obesity problem in the world, with about one-third of children overweight or obese.
NEW YORK – Florida Panthers centre Sam Reinhart was named NHL first star of the week on Monday after leading all players with nine points over four games last week.
Reinhart had four goals, five assists and a plus-seven rating to help the Stanley Cup champions post a 3-0-1 record on the week and move into first place in the Atlantic Division.
New York Rangers left-winger Artemi Panarin took the second star and Minnesota Wild goaltenderFilip Gustavsson was the third star.
Panarin had eight points (4-4) over three games.
Gustavsson became the 15th goalie in NHL history to score a goal and had a 1.00 goals-against average and .962 save percentage over a pair of victories.
This report by The Canadian Press was first published Oct. 21, 2024.
CLEVELAND (AP) — Deshaun Watson won’t finish the season as Cleveland’s starting quarterback for the second straight year.
He’s injured again, and the Browns have new problems.
Watson ruptured his right Achilles tendon in the first half of Sunday’s loss to Cincinnati, collapsing as he began to run and leading some Browns fans to cheer while the divisive QB laid on the ground writhing in pain.
The team feared Watson’s year was over and tests done Monday confirmed the rupture. The Browns said Watson will have surgery and miss the rest of the season but “a full recovery is expected.”
It’s the second significant injury in two seasons for Watson, who broke the glenoid (socket) bone in his throwing shoulder last year after just six starts.
The 29-year-old went down Sunday without being touched on a draw play late in the first half. His right leg buckled and Watson crumpled to the turf. TV replays showed his calf rippling, consistent with an Achilles injury.
He immediately put his hands on his helmet, clearly aware of the severity of an injury similar to the one Jets quarterback Aaron Rodgers sustained last year.
As he was being assisted by the team’s medical staff and backup Dorian Thompson-Robinson grabbed a ball to begin warming up, there was some derisive cheers and boos from the stands in Huntington Bank Field.
Cleveland fans have been split over Watson, who has been accused of being sexually inappropriate with women.
The reaction didn’t sit well with several Watson’s teammates, including star end Myles Garrett, the NFL’s reigning Defensive Player of the Year, who was appalled by the fans’ behavior.
“We should be ashamed of ourselves as Browns and as fans to boo anyone and their downfall. To be season-altering, career-altering injury,” Garrett said. “Man’s not perfect. He doesn’t need to be. None of us are expected to be perfect. Can’t judge him for what he does off the field or on the field because I can’t throw stones for my glass house.
“Ultimately everyone’s human and they’re disappointed just like we are, but we have to be better than that as people. There’s levels to this. At the end of the day, it’s just a game and you don’t boo anybody being injured and you don’t celebrate anyone’s downfall.”
Backup quarterback Jameis Winston also admonished the uncomfortable celebration.
“I am very upset with the reaction to a man that has had the world against him for the past four years, and he put his body and life on the line for this city every single day,” he said. “The way I was raised, I will never pull on a man when he’s down, but I will be the person to lift him up.
“I know you love this game. When I first got here, I knew these were some amazing fans, but Deshaun was treated badly and now he has to overcome another obstacle. So I’m going to support him, I’m going to lift him up and I’m going to be there for him.”
The injury is yet another twist in Watson’s tumultuous time with the Browns.
Cleveland traded three first-round draft picks and five overall to Houston in 2022 to get him, with owners Dee and Jimmy Haslam approving the team giving Watson a fully guaranteed, five-year $230 million contract.
With a solid roster, the Browns were desperate to find a QB who could help them compete against the top AFC teams.
The Browns had moved on from Baker Mayfield despite drafting him No. 1 overall in 2018 and making the playoffs two seasons later.
But Watson has not played up to expectations — fans have been pushing for him to be benched this season — and Cleveland’s move to get him has been labeled an abject failure with the team still on the hook to pay him $46 million in each of the next two seasons.
Watson’s arrival in Cleveland also came amid accusations by more than two dozen women of sexual assault and harassment during massage therapy sessions while he played for the Texans. Two grand juries declined to indict him and he has settled civil lawsuits in all but one of the cases.
Watson was suspended by the NFL for his first 11 games and fined $5 million for violating the league’s personal conduct policy before he took his first snap with the Browns. The long layoff — he sat out the 2021 season in a contract dispute — led to struggles once he got on the field, and Watson made just six starts last season before hurting his shoulder.
Cleveland signed veteran Joe Flacco, who went 4-1 as a starter and led the Browns to the playoffs.
Before Watson got hurt this year, he didn’t play much better. He was one of the league’s lowest-rated passers for a Cleveland team that hasn’t scored 20 points in a game and is back in search of a franchise QB.
