Canada’s economy stalled to end 2022, new data shows, but some economists say strong underlying demand could keep a recession at bay for longer or skirt the downturn entirely.
Statistics Canada said Tuesday that real gross domestic product (GDP) was “nearly unchanged” in the final quarter of last year, snapping a streak of growth for the preceding five quarters.
The actual GDP figures were a surprise to many economists, with the consensus expecting growth of 1.6 per cent in the fourth quarter. The Bank of Canada had expected growth of 1.3 per cent last quarter.
“It was a little bit shocking when we saw that,” says James Orlando, senior economist with TD Bank.
Orlando tells Global News that while flat growth might sound grim — he called it a “thud” of an economic release in a note to clients Tuesday — the details reveal more strength in the economy than the headline number suggests.
For instance, lower inventory accumulations were the main drag on GDP last quarter, StatCan said, following record growth for this segment in the second and third quarters of 2022.
Orlando says this is mostly an aftershock from the COVID-19 pandemic still reverberating through the economy. Businesses rushed to build their inventories back up after pandemic restrictions lifted — hence the record quarters — but pumped the brakes on production towards the end of the year when fears of a recession started to show on the horizon.
“For a business, you don’t want to be stuck with a lot of inventory if the economy slows down,” Orlando says.
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StatCan said businesses’ investments in machinery, equipment and housing declined in the final months of 2022, though Orlando says that was roughly in line with what economists expected.
Hidden in the flat GDP reading was solid consumer demand, Orlando noted, with spending here up two per cent annually.
“You’ve got to look past the inventories to see the underlying decent fundamentals in the economy, specifically on the consumer side,” he says.
Economic rebound to start 2023?
While Statistics Canada said real GDP declined by 0.1 per cent in December, the agency also said early indications suggest growth of 0.3 per cent month-to-month in January.
A few economic readings support the strong start to the year, Orlando notes. TD’s credit card tracker suggests Canadians kept spending in January despite expectations of an economic slowdown; a blockbuster jobs report for the month also supports continued demand from consumers.
Despite the Q4 “thud,” TD Bank expects growth in the first quarter of 2023 will rebound to 0.3 per cent annualized.
This pushes against thinking that Canada could start the new year in a recession, Orlando says. While TD is expecting an economic slowdown with negative growth in the third quarter, the bank is not currently calling for a recession in 2023.
Orlando says the strong jobs figures – the economy added 150,000 positions in January – are backing continued spending from Canadian households, which can in turn buoy GDP growth and push economic activity higher overall this year.
“It goes against the narrative of the hard landing,” he says.
“Everyone is expecting the slowdown in spending, the slowdown in the labour market, but the impact of the good data we’ve got could keep carrying through and keep this momentum going for a little while longer.”
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Not all economists are sure that a strong start to 2023 is enough to skirt a recession this year.
Stephen Brown, deputy chief North America economist at Capital Economics, acknowledges that the economy will probably grow “marginally” in the first quarter of 2023, but he doesn’t expect that momentum to last.
He points to the “temporary” nature of some of the factors fuelling the strong advance numbers for January, including relatively warmer weather across the country, which tends to be favourable for consumer spending.
Leading indicators such as business sentiment surveys suggest GDP is set to stagnate or outright decline through the middle of the year, Brown says.
“I think the risks of recession are still real and we are still forecasting a recession over the second and third quarters.”
Brown notes, however, that he doesn’t expect a large rise in overall unemployment in Canada during the downturn, as some sectors, such as high-touch services including travel and dining out, continue their long recovery from the pandemic.
The latest provincial outlook from The Conference Board of Canada released Tuesday meanwhile predicts the country will see very little improvement in the economy this year and at least one quarter of negative economic growth.
But the think tank also says the worst-case scenarios of a protracted recession or highly destabilized labour and capital markets are becoming less likely.
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Among the provinces, the report says Newfoundland and Labrador will have the fastest-growing economy this year as the Terra Nova offshore oil platform returns to production.
The Conference Board says the Alberta and Saskatchewan economies will also perform well in the near term, powered by the oil and gas sector and favourable outlooks in agriculture.
On the other end of the spectrum, the report says the economies of Quebec and New Brunswick will be nearly flat this year before returning to growth in 2024.
What does this mean for the Bank of Canada?
Orlando said the central bank’s governing council likely “feels vindicated” about its plans for a conditional pause in interest rate increases to assess whether their hikes to date have been effective enough in cooling down the economy and, by extension, inflation.
“The Bank of Canada doesn’t really have to do anything,” he says.
“Obviously, they’re going to be sitting, watching, making sure that things don’t really start to surge too much. But I think they’re going to be pretty content being where they are and just watching the incoming data.”
Brown says the Bank of Canada, which is set to announce its next interest rate decision March 8, finds itself in a distinct position from its peers in central banking. Price pressures are proving “a bit stickier than expected” in the U.S. and Europe he says, while the inflation outlook in Canada is “quite encouraging,” coming in lower than expected at annual rate of 5.9 per cent last month.
“Coupled with GDP being weaker than expected, that’s all consistent with the bank remaining comfortable with this conditional pause that it told us about in January,” he says.
The Bank’s policymakers are likely to remain cagey on timing for interest rate cuts, Brown says, with the upside risks to inflation keeping odds closer to additional hikes than reductions in the months ahead.
— with files from The Canadian Press
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TOKYO (AP) — Japanese technology group SoftBank swung back to profitability in the July-September quarter, boosted by positive results in its Vision Fund investments.
Tokyo-based SoftBank Group Corp. reported Tuesday a fiscal second quarter profit of nearly 1.18 trillion yen ($7.7 billion), compared with a 931 billion yen loss in the year-earlier period.
Quarterly sales edged up about 6% to nearly 1.77 trillion yen ($11.5 billion).
SoftBank credited income from royalties and licensing related to its holdings in Arm, a computer chip-designing company, whose business spans smartphones, data centers, networking equipment, automotive, consumer electronic devices, and AI applications.
The results were also helped by the absence of losses related to SoftBank’s investment in office-space sharing venture WeWork, which hit the previous fiscal year.
WeWork, which filed for Chapter 11 bankruptcy protection in 2023, emerged from Chapter 11 in June.
SoftBank has benefitted in recent months from rising share prices in some investment, such as U.S.-based e-commerce company Coupang, Chinese mobility provider DiDi Global and Bytedance, the Chinese developer of TikTok.
SoftBank’s financial results tend to swing wildly, partly because of its sprawling investment portfolio that includes search engine Yahoo, Chinese retailer Alibaba, and artificial intelligence company Nvidia.
SoftBank makes investments in a variety of companies that it groups together in a series of Vision Funds.
The company’s founder, Masayoshi Son, is a pioneer in technology investment in Japan. SoftBank Group does not give earnings forecasts.
Shopify Inc. executives brushed off concerns that incoming U.S. President Donald Trump will be a major detriment to many of the company’s merchants.
“There’s nothing in what we’ve heard from Trump, nor would there have been anything from (Democratic candidate) Kamala (Harris), which we think impacts the overall state of new business formation and entrepreneurship,” Shopify’s chief financial officer Jeff Hoffmeister told analysts on a call Tuesday.
“We still feel really good about all the merchants out there, all the entrepreneurs that want to start new businesses and that’s obviously not going to change with the administration.”
Hoffmeister’s comments come a week after Trump, a Republican businessman, trounced Harris in an election that will soon return him to the Oval Office.
On the campaign trail, he threatened to impose tariffs of 60 per cent on imports from China and roughly 10 per cent to 20 per cent on goods from all other countries.
If the president-elect makes good on the promise, many worry the cost of operating will soar for companies, including customers of Shopify, which sells e-commerce software to small businesses but also brands as big as Kylie Cosmetics and Victoria’s Secret.
These merchants may feel they have no choice but to pass on the increases to customers, perhaps sparking more inflation.
If Trump’s tariffs do come to fruition, Shopify’s president Harley Finkelstein pointed out China is “not a huge area” for Shopify.
However, “we can’t anticipate what every presidential administration is going to do,” he cautioned.
He likened the uncertainty facing the business community to the COVID-19 pandemic where Shopify had to help companies migrate online.
“Our job is no matter what comes the way of our merchants, we provide them with tools and service and support for them to navigate it really well,” he said.
Finkelstein was questioned about the forthcoming U.S. leadership change on a call meant to delve into Shopify’s latest earnings, which sent shares soaring 27 per cent to $158.63 shortly after Tuesday’s market open.
The Ottawa-based company, which keeps its books in U.S. dollars, reported US$828 million in net income for its third quarter, up from US$718 million in the same quarter last year, as its revenue rose 26 per cent.
Revenue for the period ended Sept. 30 totalled US$2.16 billion, up from US$1.71 billion a year earlier.
Subscription solutions revenue reached US$610 million, up from US$486 million in the same quarter last year.
Merchant solutions revenue amounted to US$1.55 billion, up from US$1.23 billion.
Shopify’s net income excluding the impact of equity investments totalled US$344 million for the quarter, up from US$173 million in the same quarter last year.
Daniel Chan, a TD Cowen analyst, said the results show Shopify has a leadership position in the e-commerce world and “a continued ability to gain market share.”
In its outlook for its fourth quarter of 2024, the company said it expects revenue to grow at a mid-to-high-twenties percentage rate on a year-over-year basis.
“Q4 guidance suggests Shopify will finish the year strong, with better-than-expected revenue growth and operating margin,” Chan pointed out in a note to investors.
This report by The Canadian Press was first published Nov. 12, 2024.
TORONTO – RioCan Real Estate Investment Trust says it has cut almost 10 per cent of its staff as it deals with a slowdown in the condo market and overall pushes for greater efficiency.
The company says the cuts, which amount to around 60 employees based on its last annual filing, will mean about $9 million in restructuring charges and should translate to about $8 million in annualized cash savings.
The job cuts come as RioCan and others scale back condo development plans as the market softens, but chief executive Jonathan Gitlin says the reductions were from a companywide efficiency effort.
RioCan says it doesn’t plan to start any new construction of mixed-use properties this year and well into 2025 as it adjusts to the shifting market demand.
The company reported a net income of $96.9 million in the third quarter, up from a loss of $73.5 million last year, as it saw a $159 million boost from a favourable change in the fair value of investment properties.
RioCan reported what it says is a record-breaking 97.8 per cent occupancy rate in the quarter including retail committed occupancy of 98.6 per cent.
This report by The Canadian Press was first published Nov. 12, 2024.
