A multi-family development under construction in Vancouver on May 13.DARRYL DYCK/The Globe and Mail
The Canadian economy posted robust growth in the second quarter, but there are mounting signs of a slowdown as consumers grapple with sky-high inflation and rising interest rates.
Real gross domestic product stalled in May, which was better than the initial estimate of a 0.2-per-cent drop, Statistics Canada said in a report on Friday. The economy eked out growth of 0.1 per cent in June, according to a preliminary estimate. Thanks to stronger growth in April, Canada’s economy is on track to expand by 1.1 per cent in the second quarter, or an annualized rate of 4.6 per cent.
For financial analysts on Bay Street, the report was a mixed bag. Economic growth in the April-to-June period was stronger than the Bank of Canada’s forecast of 4 per cent. It was also markedly better than in the United States, which has posted two consecutive quarters of declining GDP, sparking a hearty debate over whether the country is mired in a recession.
On the other hand, recent months have seen sluggish growth in Canada. Consumer and business confidence is tumbling. The real estate industry has turned cold. And some high-profile companies in the tech sector – such as Shopify Inc. – are announcing layoffs.
Stephen Brown, senior economist at Capital Economics, said he was surprised by the tepid estimate for June growth, given that hours worked that month jumped by 1.3 per cent. Moreover, he noted that Canada’s economic recovery from COVID-19 has lagged behind the U.S. pace, and therefore Canada’s better fortunes of late are not as impressive as they seem.
“The fact that we’re already seeing a slowdown is a bit concerning,” Mr. Brown said. “We’ve been fairly bearish on the outlook for Canada, just because of the housing sector, but it does seem that we’re getting broader weakness elsewhere than was maybe anticipated.”
Despite the shift, the Bank of Canada is widely expected to continue hiking interest rates as it looks to tamp down inflation that is running near a four-decade high. The bank has raised its policy rate to 2.5 per cent from a pandemic low of 0.25 per cent in less than five months.
“The Bank of Canada is still expected to deliver a further, non-standard, rate hike at its next meeting” in September, said Andrew Grantham, a senior economist at CIBC Capital Markets, in a note to clients. “However, we expect that the impact on disposable incomes of high inflation and rising interest rates will start to show up more widely in economic data for the second half of the year, allowing the Bank of Canada to pause with rates just above 3 per cent.”
Friday’s report showed a split between the goods and services sides of the economy, the latter of which is getting a boost from consumers embracing the travel and entertainment industries.
The transportation and warehousing sector rose 1.9 per cent in May. Despite well-publicized headaches at major airports, economic output in air transportation jumped 14.1 per cent.
The hospitality sector also rose 1.9 per cent, its fourth consecutive month of expansion. Restaurant sales grew quickly this spring, in spite of sticker shock on menus.
The goods side was undoubtedly weaker. Real GDP fell 1.7 per cent in manufacturing, the first decline in eight months. Statscan said auto production was hampered by the lingering semiconductor shortage, in addition to refurbishments of some assembly plants.
Output fell 1.6 per cent in construction, the industry’s second consecutive monthly drop. Statscan noted that many of Ontario’s unionized construction workers were on strike in May, leading to delays for various projects. Residential-building construction dropped in May, but activity was 11 per cent higher than at the outset of the pandemic.
“We’re seeing a downturn in renovations and improvements, which is linked to the housing market,” Mr. Brown said. “Obviously, to the extent fewer investors are flipping homes, that means they’re going to be putting less money into improving them.”
Mr. Brown also pointed to preconstruction home sales in Toronto, which have fallen sharply. “That suggests we’ll see a downturn in housing starts over the second half of the year, just because so many developers rely on those preconstruction sales to get the initial funding.”
The outlook for Canada’s economy is murky. Recession fears are rising, although very few economists are projecting a sustained downturn. The Bank of Canada forecasts growth will slow to an annualized rate of 2 per cent in the third quarter. It also expects the economy to grow 1.8 per cent in 2023 – a hefty downgrade from 3.2 per cent in a previous forecast.
“On balance, we look for growth to cool notably in the second half to below a 1-per-cent annualized clip, a marked slowdown, albeit firmer than U.S. trends,” Bank of Montreal chief economist Doug Porter wrote in a research note.
The country, he added, “can’t fully avoid the pull of a slowing U.S. economy and the Bank of Canada’s aggressive rate hike campaign.”
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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.
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