By Julie Gordon
OTTAWA (Reuters) – Canada‘s Liberal government will deliver on its promise to spend big when it presents its first budget in two years next week amid a fast-rising third wave of COVID-19 infections and ahead of an election expected in coming months.
Finance Minister Chrystia Freeland has pledged to do “whatever it takes” to support Canadians, and in November promised up to C$100 billion ($79.8 billion) in stimulus over three years to “jump-start” an economic recovery in what is likely to be a crucial year for her party.
Prime Minister Justin Trudeau’s Liberals depend on the support of at least one opposition group to pass laws, and senior party members have said an election is likely within months as it seeks a clear majority and a free hand to legislate.
Furthermore, by September, all Canadians who want to be vaccinated will be, Trudeau has said.
Freeland has said the pandemic created a “window” of opportunity for a national childcare plan, and that will be reflected in next Monday’s budget along with spending to accelerate Canada‘s shift toward a more sustainable economy.
“It will be a green and innovative recovery plan aimed at creating jobs,” said a government source who declined to comment on specific measures. The budget will aim to help those “who have suffered most” the effects of the pandemic, the source said.
Critics say the government would be better to hold off on blockbuster spending because the economy has shown it is poised to bounce back, and to prevent the country from racking up too much debt.
“Clearly a garden-variety stimulus package is the last thing we need. This is pile-on debt,” said Don Drummond, an economist at Ontario’s Queen’s University.
“The risk is that at some point interest rates are going to go up and we’re going to be in trouble,” he said, pointing to the mid-1990s when Canada‘s debt-to-GDP ratio skyrocketed, leading to rating agency downgrades and years of austerity.
The Bank of Canada cut its benchmark interest rate to 0.25% to counter the economic fallout of the COVID-19 crisis and has said rates will not rise until labor market slack is absorbed, currently forecast for into 2023. That may change when it releases new projections on April 21.
More than 3 million Canadians lost their jobs to the pandemic. As of March, before a third wave forced new lockdowns, only 296,000 remained unemployed because of COVID.
Despite still-high unemployment levels in hard-hit service sectors, the economy has expanded for nine straight months even as provinces have adjusted health restrictions to counter waves of infections.
“Once we see sustained reopening, we do think that the recovery will have quite a bit of momentum on its own,” said Josh Nye, a senior economist at RBC Economics.
“We think Canada‘s economy will be operating pretty close to full capacity by this time next year,” he said.
Economists surveyed by Reuters expect Freeland to project a deficit in the range of C$133 billion to C$175 billion for fiscal 2021/22, up from the C$121.2 billion ($96.7 billion)
deficit forecast in November. https://tmsnrt.rs/3wSJPcm
The deficit for fiscal 2020/21 ended in March is forecast by the government to top a historic C$381.6 billion ($304.5 billion).
Canada announced on Monday a C$5.9 billion ($4.7 billion) aid package for the country’s largest airline carrier, Air Canada, and said talks were ongoing with No. 2 carrier WestJet Airlines Ltd and others.
(Reporting by Julie Gordon in Ottawa; Additional reporting by Fergal Smith in Toronto; Editing by Steve Scherer and Peter Cooney)
Canada posts hefty job losses in April as third wave bites
By Julie Gordon
Some 207,100 jobs were lost in April, more than the average analyst prediction for a loss of 175,000. The unemployment rate climbed to 8.1%, missing analyst expectations of 7.8%. Employment is now 2.6% below pre-pandemic levels.
“This episode seemed to be a little more impactful in that it led to a big decline in full-time jobs and specifically in private-sector employment,” said Doug Porter, chief economist at BMO Capital Markets.
“There were some heavy hits in education and culture and recreation. So it seems like the third wave bit into other sectors a little bit more deeply than the second wave.”
Full-time employment was down by 129,400 while part-time employment fell by 77,800 positions.
With many retailers shuttered in April and the restrictions also hitting hotels, food services and entertainment, service sector employment plunged by 195,400 jobs. Employment in the goods sector fell by 11,800.
As COVID-19 infections surged in April, a number of Canadian provinces imposed fresh restrictions, including shuttering or limiting non-essential businesses and closing schools. Cases are beginning to decline, but reopening is still weeks away and economists expect further job losses in May.
Canada has so far fully vaccinated just over 3% of its nearly 38 million residents, while more than 36% have received a first dose. By the end of June, Canada expects to have received 40 million doses.
Long-term unemployment increased by 4.6% to 486,000 people, which suggests some labor market scarring is beginning to show, said Leah Nord, a senior director at the Canadian Chamber of Commerce.
“The job prospects for displaced workers grow slimmer with every month in lockdown as more businesses throw in the towel,” she said in a statement.
Total hours worked fell 2.7% in April, while the number of people working less than half their usual hours jumped 27.2% to 288,000.
“The hours worked numbers were I think weaker than had been expected,” said Andrew Kelvin, chief Canada strategists at TD Securities. “I think it suggests a weaker April than the Bank of Canada would have had penciled in.”
The Bank of Canada in April sharply boosted its outlook for the Canadian economy and signaled interest rates could start to rise in 2022.
The Canadian dollar was trading 0.3% lower at 1.2187 to the greenback, or 82.05 U.S. cents, after touching on Thursday its strongest level in 3-1/2 years at 1.2141.
(Reporting by Julie Gordon in Ottawa; additional reporting by Steve Scherer, Fergal Smith and Nichola Saminather, Editing by Hugh Lawson, Mark Heinrich and Nick Zieminski)
Ivey PMI shows activity expanding at a slower pace in April
TORONTO (Reuters) – Canadian economic activity expanded in April but the pace slowed from a 10-year high the previous month, Ivey Purchasing Managers Index (PMI) data showed on Friday.
The seasonally adjusted index fell to 60.6 from 72.9 in March. The March reading was the highest since March 2011 and the second highest since the PMI was launched in 2000.
Economic restrictions were tightened in some Canadian provinces in April to tackle a third wave of the coronavirus pandemic.
The Ivey PMI measures the month-to-month variation in economic activity as indicated by a panel of purchasing managers in the public and private sectors from across Canada. A reading above 50 indicates an increase in activity.
The gauge of employment fell to an adjusted 58.0 from 62.7 in March, while the supplier deliveries index was at 37.8, down from 39.6, indicating companies are having greater difficulty meeting increased demand.
The unadjusted PMI fell to 59.9 from 67.3.
(Reporting by Fergal Smith; Editing by Chizu Nomiyama)
Canadian dollar rises for sixth straight week despite jobs decline
By Fergal Smith
TORONTO (Reuters) – The Canadian dollar was little changed against the greenback on Friday as jobs data for both Canada and the United States fell short of estimates, with the loonie holding near its strongest level in 3-1/2 years and extending a weekly win streak.
Canada lost 207,100 jobs in April as fresh restrictions to contain a variant-driven third wave of COVID-19 weighed on employers, Statistics Canada data showed. Analysts had forecast a decline of 175,000.
In the United States, data for the same month showed employers hiring far fewer workers than expected, likely frustrated by labor shortages.
“You have this unhealthy environment where growth goals are struggling to be met but unfortunately inflation is picking up everywhere,” said Avi Hooper, a senior portfolio manager at Invesco.
Supportive of the loonie, one cause of inflation has been a surge in the prices of some of the commodities that Canada produces.
Copper surged to a record peak on Friday, fueled by speculators and industrial buyers as Western economies recover from the pandemic, while oil settled 0.3% higher at $64.90 a barrel.
“A higher oil price from current levels, we think, will be the catalyst for the next leg of Canadian dollar strength,” Hooper said.
The loonie was nearly unchanged at 1.2145 to the greenback, or 82.34 U.S. cents, having touched its strongest intraday level since September 2017 at 1.2125. For the week, it was up 1.2%, its sixth straight weekly advance.
The currency has been on a tear since the Bank of Canada last month signaled it could begin hiking interest rates in late 2022 and cut the pace of its bond purchases.
Canadian government bond yields fell across the curve. The 5-year touched its lowest since March 5 at 0.841% before bouncing to 0.878%, down 3.8 basis points on the day.
(Reporting by Fergal Smith; editing by Jonathan Oatis)
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