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Canada should prioritize fiscal support over debt management as economy recovers, OECD says – The Globe and Mail

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Policy makers in Canada need to keep supportive measures in place as the economy recovers from the COVID-19 pandemic before turning to debt management, the Organization for Economic Co-operation and Development said Thursday.

In a report, the Paris-based group said Canada’s growth prospects have brightened as vaccines are rolled out, although risks posed by the pandemic remain. The OECD has boosted Canada’s economic growth estimate for 2021 to 4.7 per cent from 3.5 per cent. Major domestic banks have pencilled in even stronger growth for this year.

Despite the rosier outlook, the OECD said continuing support through low interest rates and fiscal aid for households and businesses is needed until the recovery is well under way, and that rising government debt is a “secondary consideration” for now.

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One risk, the OECD said, is a potential widening of inequality owing to job losses that have disproportionately affected the young, women and racialized communities.

“A high priority on fiscal support should remain while the economy is fragile,” the OECD said. “Crisis-related fiscal support can be withdrawn as the economy recovers. Nevertheless, a clear and transparent road map for preventing a spiralling public debt burden is needed.”

The federal government will be closely watched this spring when it tables its first budget in more than two years. Ottawa has carried out the bulk of pandemic spending to help companies and households, resulting in a federal deficit that could hit nearly $400-billion in the 2020-21 fiscal year, based on the government’s upper estimate.

In its fall economic statement, Ottawa said the federal deficit would fall to $121-billion in the coming fiscal year, but that it would also spend up to $100-billion over three years in new stimulus to aid the recovery. Federal debt is poised to rise above $1-trillion for the first time.

The OECD said Thursday the deficit would naturally decline as the need for financial support weakens. It also recommended the government adjust its aid programs over time to direct funds to viable companies and sectors.

Some economists have criticized the business supports – and in particular, the wage-subsidy program – for merely delaying closings of companies that were already in precarious shape when the pandemic hit.

“Once economic recovery is on a solid path, debt-burden reduction should be prioritized,” the report said. “A policy road map for managing the debt is needed to head off risks to fiscal sustainability and to reassure markets.”

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In a recent mandate letter, Prime Minister Justin Trudeau instructed Finance Minister Chrystia Freeland to use “whatever fiscal firepower” is needed to support the recovery, but also said to “avoid creating new permanent spending” and present a new fiscal anchor. The federal government had previously targeted a reduction of the debt-to-GDP ratio, but jettisoned that to deal with the enormity of the health crisis.

Among other recommendations, the OECD said it was important to reduce barriers to internal trade, improve telecommunications services in rural areas, and confront money laundering in the real-estate market.

The group also flagged corporate and household debt as a potential concern. Over the pandemic, Canadians have reduced their non-mortgage debt (such as credit cards) but added billions more in mortgages at low rates.

“Continued vigilance on house prices and mortgage lending is needed as the economy recovers under continuing low borrowing costs,” the report said.

“Maintain a close watch on housing and corporate debt, and, if needs be, tighten macro-prudential rules.”

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Britain is ‘bouncing back’ into the same old economy – The Guardian

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Britain is ‘bouncing back’ into the same old economy  The Guardian



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CANADA STOCKS – TSX ends flat at 19,228.03

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* The Toronto Stock Exchange’s TSX falls 0.00 percent to 19,228.03

* Leading the index were Corus Entertainment Inc <CJRb.TO​>, up 7.0%, Methanex Corp​, up 6.4%, and Canaccord Genuity Group Inc​, higher by 5.5%.

* Lagging shares were Denison Mines Corp​​, down 7.0%, Trillium Therapeutics Inc​, down 7.0%, and Nexgen Energy Ltd​, lower by 5.7%.

* On the TSX 93 issues rose and 128 fell as a 0.7-to-1 ratio favored decliners. There were 26 new highs and no new lows, with total volume of 183.7 million shares.

* The most heavily traded shares by volume were Toronto-dominion Bank, Nutrien Ltd and Organigram Holdings Inc.

* The TSX’s energy group fell 1.61 points, or 1.4%, while the financials sector climbed 0.67 points, or 0.2%.

* West Texas Intermediate crude futures fell 0.44%, or $0.26, to $59.34 a barrel. Brent crude  fell 0.24%, or $0.15, to $63.05 [O/R]

* The TSX is up 10.3% for the year.

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Canadian dollar outshines G10 peers, boosted by jobs surge

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Canadian dollar

By Fergal Smith

TORONTO (Reuters) – The Canadian dollar advanced against its broadly stronger U.S. counterpart on Friday as data showing the economy added far more jobs than expected in March offset lower oil prices, with the loonie also gaining for the week.

Canada added 303,100 jobs in March, triple analyst expectations, driven by the recovery across sectors hit by shutdowns in December and January to curb the new coronavirus.

“The Canadian economy keeps beating expectations,” said Michael Goshko, corporate risk manager at Western Union Business Solutions. “It seems like the economy is adapting to these closures and restrictions.”

Stronger-than-expected economic growth could pull forward the timing of the first interest rate hike by the Bank of Canada, Goshko said.

The central bank has signaled that its benchmark rate will stay at a record low of 0.25% until 2023. It is due to update its economic forecasts on April 21, when some analysts expect it to cut bond purchases.

The Canadian dollar was trading 0.3% higher at 1.2530 to the greenback, or 79.81 U.S. cents, the biggest gain among G10 currencies. For the week, it was also up 0.3%.

Still, speculators have cut their bullish bets on the Canadian dollar to the lowest since December, data from the U.S. Commodity Futures Trading Commission showed. As of April 6, net long positions had fallen to 2,690 contracts from 6,518 in the prior week.

The price of oil, one of Canada‘s major exports, was pressured by rising supplies from major producers. U.S. crude prices settled 0.5% lower at $59.32 a barrel, while the U.S. dollar gained ground against a basket of major currencies, supported by higher U.S. Treasury yields.

Canadian government bond yields also climbed and the curve steepened, with the 10-year up 4.1 basis points at 1.502%.

 

(Reporting by Fergal Smith; Editing by Andrea Ricci)

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