Economy

'By definition a temporary shock:' Canadian economy likely set for sharp rebound, despite current panic – National Post

Published

5 years ago

March 16, 2020

OTTAWA — The Canadian economy could be headed for a sharp rebound by the end of the year or even earlier, economists say, despite a recent crash in stock markets that have generated apocalyptic fears around the globe.

The rapid spread of COVID-19 triggered a catastrophic selloff in recent weeks that has, by some measures, cut even deeper than the 2008 financial crisis, including the worst oil price shock seen in decades.

Economists say it is highly uncertain when markets might return to normal. But due to the fast-paced nature of pandemics, an eventual containment would spur a hasty recovery as consumer spending lurches upward and businesses fill the gaps in their supply chains.

“The virus itself, and how it’s evolving, is almost by definition a temporary shock that’s going to be reversed,” said Jean-François Perrault, chief economist at Scotiabank.

The comeback could begin as early as this summer, depending on whether governments can effectively contain the outbreak, economists say, while cautioning that a timeframe is especially hard to predict given the limited understanding of COVID-19.

Such a rebound would ease the significant political pressure now facing Prime Minister Justin Trudeau, who is being called upon to act fast as virus worries become elevated. The Liberal government has for years aggressively sought to take credit for any positive economic indicators in Canada, and the recent downturn has severely restricted one of its key talking points as it prepares to table its 2020 budget.

Fiscal measures expected to be announced soon by Finance Minister Bill Morneau will also help lift the economy out of a potential short-term recession, economists say. Morneau has already announced $10-billion in credit to small businesses to make up for lost cash flows. A surprise interest rate cut by the Bank of Canada on Friday, down to 0.75 per cent, will also fuel plenty of low-cost debt spending that will quickly spread through the economy.

“Once we go back to normal, all that stimulus is going to lead to some pretty strong growth,” Perrault said.

Still, economists caution Canada is likely headed for deep recession in the near term. And a failure to quickly contain the virus could add to the current turmoil, making it increasingly difficult for the global economy to limp back to health.

The Canadian economy is widely expected to grow at an average rate between 1.6 per cent and 1.8 per cent over the next five years. In the second quarter, by comparison, Bank of Montreal analysts see that number falling to a staggering negative six per cent. By the third quarter, they forecast that number to climb back to 4.5 per cent growth, or a roughly ten per cent swing.

“We could see some pretty extreme economic numbers in the coming months,” said Doug Porter, chief economist at BMO.

Porter said market fears are entirely justified, given the sheer precipitousness of the recent market crash. But like others, he sees recent market panic subsiding within a relatively short period.

“It’s almost like we’ve taken the 2008 situation and accelerated it to within a one-month timeframe,” he said.

“But I do think there is some tendency, when there are so many waves of tough headlines in such a short period, to lose sight of what’s just over top of the hill.”

All that stimulus is going to lead to some pretty strong growth

Brian DePratto, director of economics at Toronto Dominion Bank, estimates that total fiscal spending measures by the federal government could be around one per cent of GDP, or roughly $24 billion. Such spending is likely to offer a significant bridge for small companies and taxpayers as they wait for the spread of the virus to slow.

“You’ve got a whole lot of juice waiting to bring things back up to speed,” DePratto said.

However, that sharp return is not likely to be extended to the oil patch, where recoveries tend to take much longer to materialize. Canadian oil producers have been navigating low oil prices since 2014, which have been exacerbated by a lack of new pipeline capacity that has pummelled prices for Canadian crude.

“What we’ve learned in the past is the lingering impact on the Canadian oil sector, and investment there, could be quite long lived,” he said. “We were not even really recovered from the last shock at the point where this one came.”

New spending measures would add significant new sums to the federal deficit, which was already expected to come in at $26.6 billion this year, higher than an earlier estimate of $19.8 billion. But economists say Ottawa’s net debt as a percentage of GDP, currently around 30 per cent, remains among the lowest in developed countries, and at low interest rates is of minimal risk to federal coffers.

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Economy

S&P/TSX composite rises, U.S. markets also make gains Monday

Published

1 day ago

September 30, 2024

Anne Joseph

TORONTO – Canada’s main stock index posted modest gains Monday, while U.S. markets also rose near the end of the day to kick off the week in the green.

Stocks were down earlier in the afternoon in part because of comments from U.S. Federal Reserve chair Jerome Powell, said Anish Chopra, managing director at Portfolio Management Corp.

Powell said Monday that more interest rate cuts are coming, but not quickly.

“We’re looking at it as a process that will play out over some time,” he said at a conference in Nashville, Tenn.

“It’ll depend on the data, the speed at which we actually go.”

The Fed isn’t in a hurry to cut its key interest rate, said Chopra, as it weighs the upside risks to inflation and the downside risks to the job market.

“Inflation could go up, it could go down, but they believe that if the data remains consistent with what they’ve seen, there will be two more rate cuts coming, but they will be smaller,” said Chopra.

Though the central bank has already signalled it expects to make two more quarter-percentage-point cuts this year, market watchers had been hoping for another outsized cut before the end of the year, he said.

“So I think Powell’s comments from this afternoon disappointed the markets and investors in the sense that if they were anticipating bigger rate cuts, that’s not the news they got.”

In New York, the Dow Jones industrial average was up 17.15 points at 42,330.15. The S&P 500 index was up 24.31 points at 5,762.48, while the Nasdaq composite was up 69.58 points at 18,189.17.

The S&P/TSX composite index closed up 41.31 points at 23,998.13.

At the end of this week, markets will get the latest report on the U.S. labour market, perhaps the most closely watched economic data right now after a couple of softer-than-expected reports prompted fears that higher rates were having too hard an impact on jobs.

If the report is weaker than expected this time, that could change the Fed’s thinking around its interest rate trajectory, said Chopra.

However, the Fed’s next rate decision is in November, he noted, so there’s still another labour report after this week’s release for the central bank to weigh.

Overseas, Asian markets had a frenzied start to the week, with Japanese markets down 4.8 per cent while stocks in China saw their best day in almost 16 years.

Japanese markets sank because investors are questioning whether the new government will be supportive of higher interest rates, said Chopra.

Meanwhile, Chinese markets rallied on the news of more stimulus to the country’s economy, he said.

The Canadian dollar traded for 73.93 cents US, according to XE.com, compared with 74.08 cents US on Friday.

The November crude oil contract was down a penny at US$68.17 per barrel and the November natural gas contract was up two cents at US$2.92 per mmBTU.

The December gold contract was down US$8.70 at US$2,659.40 an ounceand the December copper contract was down five cents at US$4.55 a pound.

— With files from The Associated Press

This report by The Canadian Press was first published Sept. 30, 2024.

Companies in this story: (TSX:GSPTSE, TSX:CADUSD)

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Economy

S&P/TSX composite down as base metal stocks fall, U.S. stock markets mixed

Published

2 days ago

September 30, 2024

Anne Joseph

TORONTO – Canada’s main stock index fell in late-morning trading, weighed down by losses in base metal stocks, while U.S. stock markets were mixed to start the trading week.

The S&P/TSX composite index was down 44.33 points at 23,912.49.

In New York, the Dow Jones industrial average was down 101.56 points at 42,211.44. The S&P 500 index was down 0.67 points at 5,737.50, while the Nasdaq composite was up 3.97 points at 18,123.56.

The Canadian dollar traded for 74.04 cents US compared with 74.08 cents US on Friday.

The November crude oil contract was up 66 cents at US$68.84 per barrel and the November natural gas contract was up two cents at US$2.93 per mmBTU.

The December gold contract was down US$14.90 at US$2,653.20 an ounce and the December copper contract was down seven cents at US$4.53 a pound.

This report by The Canadian Press was first published Sept. 30, 2024.

Companies in this story: (TSX:GSPTSE, TSX:CADUSD)

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Economy

Tentative deal reached in Metro Vancouver grain strike, federal minister says

Published

3 days ago

September 28, 2024

Anne Joseph

VANCOUVER – Canada’s labour minister says striking grain terminal workers in Metro Vancouver and their employers have reached a tentative labour deal.

Steven MacKinnon announced the agreement between Grain Workers Union Local 333 and the Vancouver Terminal Elevators’ Association in a post on social media platform X, but provided no other details.

The union confirmed the tentative deal in a statement on Facebook, saying its members will conduct the ratification vote by Oct. 4.

The notification from the union also says picket lines were to be removed Saturday and members will return to work pending ratification, ending the strike that had paralyzed grain shipments from Metro Vancouver’s port.

The dispute had previously led to picket lines going up at six Metro Vancouver grain terminals on Tuesday as about 600 workers went on strike.

Canadian grain producers had urged a resolution in the dispute, noting about 52 per cent of the country’s grains moved through Metro Vancouver terminals last year en route to being exported.

Farmers say the strike, happening during crop harvesting, would result in as much as $35 million per day in lost exports.

The Western Grain Elevator Association said on Friday that talks had stalled after two days of negotiations this week, with the employer saying it had increased its offers to settle “outstanding issues.”

The employers group had said they’ve reached the end of their “financial ability to conclude an agreement that industry can absorb” with the last offer, and it was up to the federally appointed mediator to report the results to MacKinnon for the next steps.

MacKinnon says in his tweet that both parties put in “the work necessary to get a deal done.”

This report by The Canadian Press was first published Sept. 28, 2024.

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