Connect with us

Business

Canada risks housing-related recession if interest rate hikes get too aggressive – Financial Post

Published

 on


Bank of Canada’s increasingly hawkish tone on inflation could potentially set home sales into tailspin, Capital Economics says

Article content

Canada could be at risk of a recession induced by a rapidly correcting housing market if the Bank of Canada gets too aggressive with its rate hikes, according to a report from an economist at Capital Economics.

Advertisement 2

Article content

In a Tuesday update, senior Canada economist Stephen Brown noted the central bank seemed unfazed by a double-digit drop in home sales in May — the second consecutive such monthly drop — and that it was adopting an increasingly hawkish tone on inflation.

“This raises the chance of the bank enacting a larger interest rate hike at its meeting in July and leaves us concerned that it will take a more aggressive approach to policy tightening than is ultimately required, driving house prices sharply lower and risking a major recession,” he said.

National home sales fell 12 per cent on a month-over-month basis in May, following a 14 per cent drop in April. While Brown suggested the declines would bring sales closer in-line to the pre-pandemic norm, the balancing of supply and demand gave him more reason for concern.

Advertisement 3

Article content

Furthermore, data from the firm found that the falling sales-to-new listings ratio in major markets such as Toronto, Montreal, Vancouver and Calgary implies home price inflation could drop from 18 per cent in April to zero by the end of the year.

Home prices are already dropping, according to Capital Economics data, sliding 0.6 per cent month over month across the country. Toronto saw its prices fall even faster by over three per cent for the second month in a row in May.

Brown noted Canada’s housing sector took up little space in the bank’s policy statement accompanying its decision to raise interest rates by 50 basis points on June 1, saying only that “housing market activity is moderating from exceptionally high levels.”

Advertisement 4

Article content

The bank will be delivering its 2022 Financial System Review on June 9, where it may go into more details about the moderating housing market.

As inflation runs at multi-decade highs — the Canadian price index surged 6.8 per cent in April — the bank has signalled it was ready get tough on rising consumer prices with stronger rate hikes. Bank of Canada governor Tiff Macklem suggested in April that the central bank could temporarily move the overnight rate above the neutral range of two to three per cent, which would neither help nor hinder economic growth.

Deputy Governor Paul Beaudry echoed this sentiment in a June 2 speech a day after the latest policy rate decision, saying the bank would need to lift its benchmark interest rate to at least three per cent to tame inflation.

Advertisement 5

Article content

  1. Growth was expected to decelerate sharply in Latin America and the Caribbean, reaching just 2.5 per cent this year and slowing further to 1.9 per cent in 2023.

    World Bank slashes global forecast by almost a third, warns many countries now face recession

  2. JPMorgan Chase CEO Jamie Dimon said this week to expect an economic

    ‘You better brace yourself’: Corporate America sounds the alarm on the economy

  3. A home for sale in Toronto.

    Toronto home prices drop for third straight month as interest rates rise

  4. The Bank of Canada on June 1 raised its benchmark interest rate a half point to 1.5 per cent, the highest since 2019.

    Bank of Canada’s Paul Beaudry suggests benchmark rate could top 3%

However, Brown argued the danger is the bank will misjudge the impact of its aggressive policy tightening and potentially send home sales into a tailspin.

“If the bank raised its policy rate to 3.5 per cent … then the housing market would face the most dramatic hit to affordability since the early 1980s Volcker Shock,” Brown said, referring to the period when Federal Reserve Chair Paul Volcker aggressively raised rates.

Brown added that by his firm’s estimates, a policy rate of 3.5 per cent would bring the average five-year fixed rate mortgage rate up to 4.5 per cent and the average variable rate to 4.9 per cent. Despite the accelerated wage growth this year, Capital Economics estimates these mortgage rates would reduce the maximum home price buyers could afford by 23 per cent, which Brown estimates to have four timez as large an impact as the prior three tightening cycles.

• Email: shughes@postmedia.com | Twitter:

Advertisement

Comments

Postmedia is committed to maintaining a lively but civil forum for discussion and encourage all readers to share their views on our articles. Comments may take up to an hour for moderation before appearing on the site. We ask you to keep your comments relevant and respectful. We have enabled email notifications—you will now receive an email if you receive a reply to your comment, there is an update to a comment thread you follow or if a user you follow comments. Visit our Community Guidelines for more information and details on how to adjust your email settings.

Adblock test (Why?)



Source link

Continue Reading

Business

'Every dollar counts': Ontario's gas and fuel tax cut goes into effect – CBC.ca

Published

 on


Ontario drivers experienced some relief from record-setting prices at the pump on Friday as the province’s gas tax cut came into effect.

The Ontario government cut the gas tax by 5.7 cents per litre until the end of the year, though Premier Doug Ford said he would consider an extension if inflation remains high.

Drivers noticed the impact Friday at gas stations in the Toronto-area, where prices dropped around 11 cents overnight to $1.93 — only partly attributable to the tax cut.

“Every dollar counts,” said Matthew Johnston as he filled up a cargo van at a downtown Toronto gas station. “This will actually help a bit.”

Gas prices in Toronto are up nearly 40 per cent since the start of the year, reaching a record high $2.15 per litre in early June before ending the month around $2.00 per litre.

Cut also applies to diesel

Johnston, who runs an upstart catering business and works at a winery, says the soaring price of gas paired with inflation has forced him to cut back on spending.

“I haven’t been able to go out or do anything anymore. It’s honestly just all gone to gas, rent — you know, just the cost of living,” he said.

He usually puts $60 in the tank to make his near-daily commute to the Niagara area. On Friday, he opted to try a $40-fill-up. 

The tax cut is expected to cost the province $645 million while it’s in effect. Analysts note Ford may face a tough decision in December when the measure expires and with prices likely to rise again before Christmas.

The legislation passed this spring will also cut fuel tax, which covers diesel, by 5.3 cents per litre until Dec. 31.

Hermain Kazmi called the tax cut a move in the right direction as he pumped gas into his car. He said high gas prices recently pushed him to use more public transit, but he expected to return to his previous driving habits if prices came down.

Kazmi was “100 per cent” in support of the government extending the tax cut into 2023, even expressing the hope it could lead to more financial relief.

“I don’t think a 10 cent drop would make a huge impact. It’s a good change but I think it needs to come down lower depending on how much inflation is and how salaries have not matched how inflation has gone up,” he said.

Price tied to increased demand, invasion of Ukraine

The soaring price of gas, a key driver of inflation, is tied to an increased demand for oil as the economy reopens after the COVID-19 pandemic. The situation has also been exacerbated by a global supply crunch caused in part by Russia’s invasion of Ukraine.

Ali Avali stopped to fill up his SUV on the way to a park outside Toronto, with his dog, an Alaskan Malamute, perched in the backseat.

“The only reason I drive is because of this guy. I take him out to do a bit of running in the country,” he said.

Once the loan is paid off on the SUV, Alavi said he plans to switch to an electric vehicle. He said he opposed a gas tax cut, suggesting that if prices continued to go up, more people may also be inclined to make the switch. 

“When I see gas prices going up, it doesn’t really piss me off,” he said. 

Adblock test (Why?)



Source link

Continue Reading

Business

LILLEY: Trudeau government tries to deny responsibility for Canada's air travel delays – Toronto Sun

Published

 on


Article content

Our airports are a disaster and somehow the Trudeau government and their supporters think they can just say, “but it’s bad in other places too!”

Advertisement 2

Article content

Is that really a good enough answer for Canadians?

It shouldn’t be.

The truth of the matter is that our delays have been going on since the end of March. Airports like Charles de Gaulle in Paris are experiencing problems now due to a strike.

On Thursday, Air Canada was the most delayed airline in the world with 74% of flights not leaving or arriving on time, according to Flight Aware. WestJet was the third most delayed airline globally with 59% of flights delayed.

The discount brand for both carriers, Jazz and WestJet Encore, weren’t far behind them on the list.

Is this due to problems globally or here at home?

You know the answer, but let me give you some more statistics. Canada had three airports in the list of the 20 most delayed airports in the world for departing flights on Thursday – Toronto, Montreal and Ottawa. We had five of the top 20 most delayed airports for arriving flights because Vancouver and Calgary made the list along with the other three.

Advertisement 3

Article content

We apologize, but this video has failed to load.

We don’t have the busiest airports in the world, just the most delayed, but somehow we’re expected to believe that government policies don’t have anything to do with this.

Not a single American airport is in the top 20 for having the most delays, but five Canadian airports are. Chinese airports like Shenzhen, Shanghai and Hangzhou dominate the list in large part because of that’s country’s COVID Zero policies.

“Our policies are so powerful that they’re impacting the entire world,” a senior Liberal messaged me after a recent column on how the Trudeau government’s policies are part of the problem.

They sent links to stories of airport delays in Amsterdam, England and elsewhere.

It’s all true that air travel is a problem elsewhere and staffing issues, including for airlines, is part of that problem, but so are government policies. And to deny that, or minimize it, is to ignore the problem.

Advertisement 4

Article content

We apologize, but this video has failed to load.

“On our end, we have done everything we can,” Transportation Minister Omar Alghabra said earlier this week.

He said the problems at airports are due to airlines scheduling, staffing issues, etc. Yet people are still needing to show up for their flights hours ahead of time to ensure they make it through security on time. Passengers are still being delayed and held back on planes once they land because the customs area is too busy and can’t hold any more people.

Those are issues the government is directly responsible for, not the airlines or airports.

The Trudeau government just extended a number of COVID travel measures until Sept. 30, including mandatory use of the ArriveCan app. According to customs officers, the app has increased the time it takes to process passengers by 400%.

Yet Alghabra wants you to think they have done all they can to alleviate the situation.

Other countries and other airports outside of Canada are experiencing problems but none as long or persistent as what we have been dealing with here in Canada. Instead of blaming passengers or airlines as Alghabra has done, he needs to work with all parties to find a solution.

That includes the government fixing the problematic areas they are responsible for at Canada’s airports.

blilley@postmedia.com

Advertisement 1

Comments

Postmedia is committed to maintaining a lively but civil forum for discussion and encourage all readers to share their views on our articles. Comments may take up to an hour for moderation before appearing on the site. We ask you to keep your comments relevant and respectful. We have enabled email notifications—you will now receive an email if you receive a reply to your comment, there is an update to a comment thread you follow or if a user you follow comments. Visit our Community Guidelines for more information and details on how to adjust your email settings.

Adblock test (Why?)



Source link

Continue Reading

Business

95,000 GM vehicles unfinished in storage due to chip shortage – CBC News

Published

 on


The global shortage of computer chips and other parts has forced General Motors to build 95,000 vehicles without certain components during the second quarter.

The Detroit automaker said in a regulatory filing Friday that most of the incomplete vehicles were built in June, and it expects most of them to be finished and sold to dealers before the end of the year.

The unsold vehicles amounted to 16 per cent of GM’s total sales from April through June. The company said Friday it sold more than 582,000 vehicles during the quarter, down more than 15 per cent from a year ago.

In a statement to CBC News, a spokesperson said only a small percentage of those vehicles, to be completed at a later date, were reserved for Canadian dealers.

The company reaffirmed its full-year net income guidance of $9.6 billion US to $11.2 billion with pretax earnings of $13 billion to $15 billion. For the first time, the company predicted it would make $2.3 billion to $2.6 billion before taxes in the second quarter. That fell short of analyst estimates of $3.97 billion, according to FactSet.

The chip shortage has vexed automakers around the globe since 2020, forcing many automakers to temporarily close factories and trim production. The shortage has limited the supply of new vehicles on dealer lots in the U.S. to around 1 million, when in normal years it’s about 4 million at any given time.

That has pushed prices to record levels and limited vehicle selection, but it’s also led to strong profits for most automakers.

In a prepared statement, GM said its North American production has been relatively stable since the third quarter of last year, but short-term parts disruptions are continuing.

“We are actively working with our suppliers to resolve issues as they arise to meet pent-up customer demand for our vehicles,” the statement said.

Most automakers have predicted minor improvement in the chip shortage during the first half of the year, with far better supplies from July through December.

GM shares fell slightly to $31.69 in Friday morning trading, after the filing was made public.

Adblock test (Why?)



Source link

Continue Reading

Trending