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Economy

Canada’s economy stalls in August, seen slipping into recession in Q3

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OTTAWA, Oct 31 (Reuters) – The Canadian economy stalled in August and likely slipped into a shallow recession in the third quarter, data showed on Tuesday, a sign the central bank’s 10 interest rate hikes since last year are weighing on growth.

With the economy stumbling along slower than the Bank of Canada forecast just last week, analysts said there is no need to raise rates again from 5.0%, a 22-year high. The Canadian dollar was trading lower, near its weakest level in a year.

The August result was slightly lower than 0.1% month-over-month rise forecast by analysts polled by Reuters. July GDP was revised to being marginally negative from an initial report of zero growth, Statistics Canada said.

In a flash estimate, the economy was likely also unchanged in September, and Statscan officials said that translated into an annualized 0.1% decline in the third quarter, marking a second consecutive quarter of negative growth after a 0.2% decrease in the previous quarter.

“Whether or not the economy is already in recession is less important than the fact that the lagged impacts of monetary policy are likely to materially depress economic activity moving forward,” said Tiago Figueiredo, an economist at Desjardins, in a note.

“As a result, we expect the economy to more clearly enter a recession in 2024. This data reaffirms our view that the Bank of Canada is done raising rates for this cycle,” Figueiredo said.

The statistics agency said high interest rates, inflation, forest fires and drought conditions hurt growth in August. The central bank has said its previous rate hikes are sinking in.

The projected contraction in third-quarter annualized growth is far lower than the Bank of Canada (BoC) forecast last week. The BoC forecast GDP growth would expand 0.8% in the third quarter, down from 1.5% projected in July.

BoC Governor Tiff Macklem said after last week’s rate decision that there may not be a need for another rate increase if inflation cools in line with the central bank’s expectations.

“Given the fact that Canada has yet to feel the full impact of prior rate hikes, there’s still more downside risk ahead for the economy,” Benjamin Reitzes, macro strategist at BMO Capital Markets, said in a note.

“This is yet one more crystal clear sign that the Bank of Canada should be done hiking,” Reitzes said.

Money markets see a roughly 90% chance the central bank will leave interest rates on hold at its next policy announcement in December, while the Canadian dollar was trading 0.3% lower at 1.3865 to the greenback, or 72.12 U.S. cents.

Canada’s goods-producing sector contracted 0.2%, dragged down by the third consecutive month of declines in the manufacturing sector.

The service-producing sector posted a 0.1% rise, in part helped by the wholesale trade and the transportation and warehousing subsectors.

Reporting by Ismail Shakil and Steve Scherer in Ottawa; additional reporting by Dale Smith; editing by Jonathan Oatis

Our Standards: The Thomson Reuters Trust Principles.

 

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Economy

Energy stocks help lift S&P/TSX composite, U.S. stock markets also up

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TORONTO – Canada’s main stock index was higher in late-morning trading, helped by strength in energy stocks, while U.S. stock markets also moved up.

The S&P/TSX composite index was up 34.91 points at 23,736.98.

In New York, the Dow Jones industrial average was up 178.05 points at 41,800.13. The S&P 500 index was up 28.38 points at 5,661.47, while the Nasdaq composite was up 133.17 points at 17,725.30.

The Canadian dollar traded for 73.56 cents US compared with 73.57 cents US on Monday.

The November crude oil contract was up 68 cents at US$69.70 per barrel and the October natural gas contract was up three cents at US$2.40 per mmBTU.

The December gold contract was down US$7.80 at US$2,601.10 an ounce and the December copper contract was up a penny at US$4.28 a pound.

This report by The Canadian Press was first published Sept. 17, 2024.

Companies in this story: (TSX:GSPTSE, TSX:CADUSD)

The Canadian Press. All rights reserved.

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Economy

Canada’s inflation rate hits 2% target, reaches lowest level in more than three years

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OTTAWA – Canada’s inflation rate fell to two per cent last month, finally hitting the Bank of Canada’s target after a tumultuous battle with skyrocketing price growth.

The annual inflation rate fell from 2.5 per cent in July to reach the lowest level since February 2021.

Statistics Canada’s consumer price index report on Tuesday attributed the slowdown in part to lower gasoline prices.

Clothing and footwear prices also decreased on a month-over-month basis, marking the first decline in the month of August since 1971 as retailers offered larger discounts to entice shoppers amid slowing demand.

The Bank of Canada’s preferred core measures of inflation, which strip out volatility in prices, also edged down in August.

The marked slowdown in price growth last month was steeper than the 2.1 per cent annual increase forecasters were expecting ahead of Tuesday’s release and will likely spark speculation of a larger interest rate cut next month from the Bank of Canada.

“Inflation remains unthreatening and the Bank of Canada should now focus on trying to stimulate the economy and halting the upward climb in the unemployment rate,” wrote CIBC senior economist Andrew Grantham.

Benjamin Reitzes, managing director of Canadian rates and macro strategist at BMO, said Tuesday’s figures “tilt the scales” slightly in favour of more aggressive cuts, though he noted the Bank of Canada will have one more inflation reading before its October rate announcement.

“If we get another big downside surprise, calls for a 50 basis-point cut will only grow louder,” wrote Reitzes in a client note.

The central bank began rapidly hiking interest rates in March 2022 in response to runaway inflation, which peaked at a whopping 8.1 per cent that summer.

The central bank increased its key lending rate to five per cent and held it at that level until June 2024, when it delivered its first rate cut in four years.

A combination of recovered global supply chains and high interest rates have helped cool price growth in Canada and around the world.

Bank of Canada governor Tiff Macklem recently signalled that the central bank is ready to increase the size of its interest rate cuts, if inflation or the economy slow by more than expected.

Its key lending rate currently stands at 4.25 per cent.

CIBC is forecasting the central bank will cut its key rate by two percentage points between now and the middle of next year.

The U.S. Federal Reserve is also expected on Wednesday to deliver its first interest rate cut in four years.

This report by The Canadian Press was first published Sept. 17, 2024.

The Canadian Press. All rights reserved.

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Economy

Federal money and sales taxes help pump up New Brunswick budget surplus

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FREDERICTON – New Brunswick‘s finance minister says the province recorded a surplus of $500.8 million for the fiscal year that ended in March.

Ernie Steeves says the amount — more than 10 times higher than the province’s original $40.3-million budget projection for the 2023-24 fiscal year — was largely the result of a strong economy and population growth.

The report of a big surplus comes as the province prepares for an election campaign, which will officially start on Thursday and end with a vote on Oct. 21.

Steeves says growth of the surplus was fed by revenue from the Harmonized Sales Tax and federal money, especially for health-care funding.

Progressive Conservative Premier Blaine Higgs has promised to reduce the HST by two percentage points to 13 per cent if the party is elected to govern next month.

Meanwhile, the province’s net debt, according to the audited consolidated financial statements, has dropped from $12.3 billion in 2022-23 to $11.8 billion in the most recent fiscal year.

Liberal critic René Legacy says having a stronger balance sheet does not eliminate issues in health care, housing and education.

This report by The Canadian Press was first published Sept. 16, 2024.

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