Economy
Canada’s economy loses momentum as rate hikes take hold
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Shoppers at the Toronto Eaton Centre are seen in this file photo. Statistics Canada says GDP grew by 0.1 per cent November. The agency is forecasting flat growth for December.Fred Lum/the Globe and Mail
The Canadian economy is slowing quickly and risks a possible recession this year as the Bank of Canada hikes interest rates to tamp down excessive inflation.
Real gross domestic product rose 0.1 per cent in November, according to figures published Tuesday by Statistics Canada, with a preliminary estimate showing little change in December. All told, the economy grew at an annualized rate of 1.6 per cent in the fourth quarter, based on that estimate, which will be updated near the end of February.
Despite the slowdown, the economy is showing resilience as it faces mounting headwinds. Growth in the final months of 2022 was stronger than what the Bank of Canada and several financial analysts had predicted. Notably, employers continued to hire workers in droves, which kept the unemployment rate near an all-time low.
Also on Tuesday, the International Monetary Fund (IMF) projected the global economy would grow by 2.9 per cent in 2023, an upward revision from its previous estimate of 2.7 per cent. The IMF said its outlook was “less gloomy” than in October, citing “surprisingly resilient” demand in the United States and Europe, along with China’s reopening from strict COVID-19 measures. Global growth should accelerate next year, the IMF said.
In the interim, countries such as Canada are experiencing a loss of momentum. The Canadian economy grew at annualized rates of 3.2 per cent in the second quarter and 2.9 per cent in the third quarter, before its slide to an estimated 1.6 per cent in the final three months of 2022. That trend of slowing growth should continue.
The Bank of Canada expects the economy to stall during the first half of 2023. It has not ruled out a mild recession, an outcome that many analysts on Bay Street are expecting.
“It’s just as likely that we’ll have two or three quarters of slightly negative growth as slightly positive growth,” Bank of Canada Governor Tiff Macklem said at a news conference last week. “So yes, it could be a mild recession. It’s not a major contraction.”
In November, 14 of 20 industrial sectors managed to post growth. Transportation and warehousing rose 1 per cent for the month, boosted by a 4.6-per-cent surge for air transportation. The finance and insurance sector jumped by 0.5 per cent, after three consecutive monthly declines. The public sector expanded by 0.3 per cent.
At the same time, there was contraction in rate-sensitive industries. Construction fell 0.7 per cent in November as residential building and repairs hit a weak spot.
Retailers fared poorly in November as the industry dropped 0.6 per cent. The declines were particularly large at stores selling food, building materials and general merchandise.
Restaurants and bars also had a rough month, posting a 2.9-per-cent contraction.
“While the Canadian economy hasn’t cooled as quickly as we (and others) previously expected given the rapid rise in interest rates, there are growing signs of fragility,” Andrew Grantham, senior economist at CIBC Capital Markets, said in a note to clients.
He added: “The recovery in many services has slowed even with activity still well below pre-pandemic levels, and a dip in restaurant activity could be an early sign of consumers changing their behaviour in the face of inflationary pressures and rising interest rates.”
The Bank of Canada has raised interest rates at the fastest pace in a generation, taking its benchmark rate to 4.5 per cent from a pandemic low of 0.25 per cent in March, 2022. The central bank is intentionally trying to slow the economy and bring supply and demand into better balance to quell soaring rates of consumer price growth.
On that front, there has been recent progress. The annual rate of inflation has slowed to 6.3 per cent in December from a near four-decade high of 8.1 per cent in June. The central bank’s target is 2 per cent.
“Six-per-cent inflation is still way too high. Canadians are still feeling the pain of rapid increases in the cost of living,” Mr. Macklem said last week. “Economic developments have reinforced our confidence [that] inflation is coming down. But it’s going to take us a while to get there and the economy is going to be soft.”
After last week’s rate hike, the Bank of Canada is tentatively holding its benchmark rate at 4.5 per cent to assess whether its policies are restrictive enough to bring inflation back to target. It can take months, or even longer, for the full effects of higher interest rates to be felt. The bank cautioned that it would raise rates again if needed.
While growth could be sluggish to start the year, the Bank of Canada projects real GDP to expand 1 per cent in 2023. The IMF is projecting growth of 1.5 per cent in Canada, about the same as the United States.
With a report from Reuters
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China’s world-beating electric vehicle industry, at the heart of growing trade tensions with the US and Europe, is set to receive a big boost from the government’s latest effort to accelerate growth.
That’s one takeaway from what Beijing has revealed about its plan for incentives that will encourage Chinese businesses and households to adopt cleaner technologies. It’s widely expected to be one of this year’s main stimulus programs, though question-marks remain — including how much the government will spend.
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German business sentiment improved to its highest level in a year — reinforcing recent signs that Europe’s largest economy is exiting two years of struggles.
An expectations gauge by the Ifo institute rose to 89.9. in April from a revised 87.7 the previous month. That exceeds the 88.9 median forecast in a Bloomberg survey. A measure of current conditions also advanced.
“Sentiment has improved at companies in Germany,” Ifo President Clemens Fuest said. “Companies were more satisfied with their current business. Their expectations also brightened. The economy is stabilizing, especially thanks to service providers.”
A stronger global economy and the prospect of looser monetary policy in the euro zone are helping drag Germany out of the malaise that set in following Russia’s attack on Ukraine. European Central Bank President Christine Lagarde said last week that the country may have “turned the corner,” while Chancellor Olaf Scholz has also expressed optimism, citing record employment and retreating inflation.
There’s been a particular shift in the data in recent weeks, with the Bundesbank now estimating that output rose in the first quarter, having only a month ago foreseen a contraction that would have ushered in a first recession since the pandemic.
Even so, the start of the year “didn’t go great,” according to Fuest.
“What we’re seeing at the moment confirms the forecasts, which are saying that growth will be weak in Germany, but at least it won’t be negative,” he told Bloomberg Television. “So this is the stabilization we expected. It’s not a complete recovery. But at least it’s a start.”
Monthly purchasing managers’ surveys for April brought more cheer this week as Germany returned to expansion for the first time since June 2023. Weak spots remain, however — notably in industry, which is still mired in a slump that’s being offset by a surge in services activity.
“We see an improving worldwide economy,” Fuest said. “But this doesn’t seem to reach German manufacturing, which is puzzling in a way.”
Germany, which was the only Group of Seven economy to shrink last year and has been weighing on the wider region, helped private-sector output in the 20-nation euro area strengthen this month, S&P Global said.
–With assistance from Joel Rinneby, Kristian Siedenburg and Francine Lacqua.
(Updates with more comments from Fuest starting in sixth paragraph.)
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When Moscow resident Zoya, 62, was planning a trip to Italy to visit her daughter last August, she saw the perfect opportunity to buy the Apple Watch she had long dreamed of owning.
Officially, Apple does not sell its products in Russia.
The California-based tech giant was one of the first companies to announce it would exit the country in response to Russian President Vladimir Putin’s full-scale invasion of Ukraine on February 24, 2022.
But the week before her trip, Zoya made a surprise discovery while browsing Yandex.Market, one of several Russian answers to Amazon, where she regularly shops.
Not only was the Apple Watch available for sale on the website, it was cheaper than in Italy.
Zoya bought the watch without a moment’s delay.
The serial code on the watch that was delivered to her home confirmed that it was manufactured by Apple in 2022 and intended for sale in the United States.
“In the store, they explained to me that these are genuine Apple products entering Russia through parallel imports,” Zoya, who asked to be only referred to by her first name, told Al Jazeera.
“I thought it was much easier to buy online than searching for a store in an unfamiliar country.”
Nearly 1,400 companies, including many of the most internationally recognisable brands, have since February 2022 announced that they would cease or dial back their operations in Russia in protest of Moscow’s military aggression against Ukraine.
But two years after the invasion, many of these companies’ products are still widely sold in Russia, in many cases in violation of Western-led sanctions, a months-long investigation by Al Jazeera has found.
Aided by the Russian government’s legalisation of parallel imports, Russian businesses have established a network of alternative supply chains to import restricted goods through third countries.
The companies that make the products have been either unwilling or unable to clamp down on these unofficial distribution networks.
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