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Canadian economy grew through Omicron wave, boosting chance of Bank of Canada rate hike Wednesday – The Globe and Mail



Framers work on a new house under construction in Airdrie, Alta., on Jan. 28, 2022. Real GDP growth was driven by businesses building up new inventories as supply chain disruptions eased, as well as by increased investment in both residential and nonresidential structures.Jeff McIntosh/The Canadian Press

The Canadian economy continued to grow through the Omicron wave of the COVID-19 pandemic, beating analyst expectations and increasing the likelihood that the Bank of Canada will raise interest rates on Wednesday for the first time since 2018.

Despite another round of health restrictions, preliminary estimates show that Canada’s GDP grew by 0.2 per cent month-over-month in January, Statistics Canada said Tuesday. While economic growth slowed in December, the Canadian economy ended last year on a solid footing, with GDP growing 6.7 per cent on an annualized basis in the fourth quarter.

This data reinforces the overwhelming consensus among economists that the Bank of Canada will hike its policy interest rate on Wednesday. The rate of inflation has been running at a three-decade high in recent months, and central bank officials have been explicit that ultra-low interest rates are no longer appropriate.

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Russia’s invasion of Ukraine adds uncertainty to the global economic outlook, making it harder for central bankers to make monetary policy decisions. From a Canadian perspective, however, the war is likely to add to inflationary pressures as global energy and grain prices spike in response to supply disruptions.

The price of West Texas Intermediate (WTI) crude oil was up 10 per cent Tuesday morning, hitting US$105 per barrel for the first time since 2014. Economic analysis from the Bank of Montreal suggests that every US$10 increase in the price of oil adds around 0.4 percentage points to inflation in Canada and the United States.

The annual rate of consumer price growth in Canada hit 5.1 per cent in January. The central bank’s most recent forecast, from January, projects that inflation will remain close to 5 per cent until the middle of the year before declining to around 3 per cent by the end of the year. That forecast assumes WTI crude will cost US$75 a barrel – much lower than the current or projected price of oil.

Jason Daw, Royal Bank of Canada’s head of North American rates strategy, said that there is little justification for the Bank of Canada to hold off raising its policy interest rate to 0.5 per cent from 0.25 per cent on Wednesday.

“Uncertainty and volatility argues for a less aggressive path [of interest rate hikes], but there are very real inflation risks now and a positive terms of trade impact if the commodity price situation persists,” Mr. Daw wrote in a note to clients.

The Bank of Canada has held its policy rate near zero cent since March, 2020, to boost demand for credit and help support the economy through the pandemic. At the latest rate decision in January, bank Governor Tiff Macklem said that interest rates need to be on a rising path now that both economic output and employment has largely recovered from the pandemic-related recession.

The GDP numbers published Tuesday bolster that argument, with economic output exceeding the central bank’s fourth quarter projections.

Real GDP growth was driven by businesses building up new inventories as supply chain disruptions eased, as well as by increased investment in both residential and nonresidential structures. On the downside, higher international exports were overshadowed by larger increases in imports, while rising prices muted growth in consumer spending, StatsCan said.

“The new news here is that the economy had a bit more momentum than generally expected around the turn of the year and nominal GDP is on a tear,” Bank of Montreal chief economist Douglas Porter wrote in a note to clients. “On balance, this is just another green light for the Bank of Canada to proceed with rate hikes, despite the flashing amber from geopolitical events.”

Analysts and investors expect the central bank to hike its policy rate several times in quick succession, bringing the cost of borrowing back to pre-pandemic levels sometime next year. Before the pandemic, the Bank of Canada’s policy rate was at 1.75 per cent.

The central bank is also expected to provide more information on Wednesday about plans to shrink the size of its balance sheet. It bought hundreds of billions of dollars of Federal Government bonds during the first 18 months of the pandemic as part of a quantitative easing (QE) program, aimed at holding down interest rates. It ended QE in October, but it has not yet begun to shrink its holdings.

Bank officials have said they may start allowing bonds to mature and roll off the balance sheet after the first interest rate hike.

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Covid has hit China's economy harder than expected – CNN



Hong Kong (CNN Business)China has reported disappointing economic data for the month of April, underscoring the extensive damage Covid lockdowns have wreaked on the country.

The world’s second largest economy reported shocking drops in retail sales and factory production, widely missing market expectations.
Retail sales plunged 11.1% in April from a year ago, according to China’s National Bureau of Statistics on Monday. That was well below the 6.1% drop forecast in a Reuters survey of economists, and also much lower than the 3.5% decrease seen in March.
A man walks his dog through the nearly empty courtyard of the usually bustling Taikoo Li mall in Sanlitun after many retail stores were closed to help prevent the spread of COVID-19 on May 10, 2022 in Beijing, China.

A man walks his dog through the nearly empty courtyard of the usually bustling Taikoo Li mall in Sanlitun after many retail stores were closed to help prevent the spread of COVID-19 on May 10, 2022 in Beijing, China.

Industrial production fell 2.9% last month from a year earlier, reversing a 5% gain in March.
This marks the worst contraction in industrial production since February 2020, when China’s economy came to a near standstill during the initial coronavirus outbreak.
Unemployment also surged to the second highest level on record.
The urban jobless rate hit 6.1% in April, up from 5.8% in March — which was already at a 21-month high. The only time China’s jobless rate was higher was in February 2020.
Young people have been finding it especially hard to find jobs, the data showed, with the unemployment rate for those between 16 to 24 years of age rising to 18.2% — the highest ever.
Rising unemployment is a warning sign for the ruling Communist Party given the risk of social and political instability.
“After all, zero-Covid at the cost of surging unemployment is a hard sell politically,” said Larry Hu, chief China economist for Macquarie Capital.
The government expects the economy to rebound this month.
“Economic performance” in May will improve, said NBS spokesperson Fu Linghui on Monday.
“As the outbreaks are under control and people’s life return to normal, pent-up consumption will be gradually released,” he said.
Increased investment in infrastructure projects will also support the recovery, he added.

Hefty blow

China’s economy was off to a solid start in 2022, recording 4.8% growth for the first quarter.
But Beijing’s efforts to curb its worst Covid outbreak in two years have dealt a hefty blow to activity since March, and economists now expect GDP to shrink this quarter.
So far, at least 31 cities in the country remain under full or partial lockdown, according to CNN’s latest calculations. Shanghai, the country’s financial center and a manufacturing hub, has been under lockdown for more than six weeks. During this period, many companies have been forced to suspend operations, including automakers Tesla (TSLA)and Volkswagen (VLKAF) and iPhone assembler Pegatron.
“We think Q2 GDP growth will likely turn negative,” said Zhiwei Zhang, president and chief economist for Pinpoint Asset Management, on Monday.
“The government faces mounting pressure to launch new stimulus to stabilize the economy,” Zhang said.
The leadership in China is aware of the economic pains and has taken some steps recently to bring relief.
The People’s Bank of China announced Sunday that it would cut the mortgage rate for first-time homebuyers, in a move to lift the ailing property market.
Separately, the Shanghai government said the city will gradually open shops, restaurants, and salons from Monday, which will be a relief for its 25 million residents.
The government has also recently pledged to prop up the economy through more infrastructure spending and targeted monetary easing to support small businesses.
Monday’s data showed investments in manufacturing increased 12.2% from a year ago. Infrastructure investment, meanwhile, rose 6.5%.
But “the risks to the outlook are tilted to the downside, as the effectiveness of policy stimulus will largely depend on the scale of future Covid outbreaks and lockdowns,” said Tommy Wu, lead China economist for Oxford Economics, on Monday.
“We forecast GDP to grow 4% this year, with a quarterly contraction in the second quarter before returning to growth in the second half.”
— CNN’s Beijing bureau contributed to this report.

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US Recession Risk, Wheat Watch, Chinese Economy Jolt: Eco Day – Bloomberg



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US Recession Risk, Wheat Watch, Chinese Economy Jolt: Eco Day  Bloomberg

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Rural development grants to spark Nicola Valley economy – Global News



The province announced on Friday a series of rural development grants in the Nicola Valley to support economic development and diversification.

This is the next step in the StrongerBC Economic Plan and the ongoing recovery efforts in Merritt following the floods in November last year.

“People in Merritt have been through a lot in the past year, and they know how important business recovery is for community rebuilding,” said parliamentary secretary for rural and regional development Roly Russell in a press release.

The provincial government is providing a $1-million rural development grant to the Small-Scale Meat Producers Association to build a community abattoir in the Merritt area.

Read more:

B.C. announces $228M to help farmers, ranchers impacted by floods

This will provide meat processing and cut-and-wrap services to local farmers and ranchers.

“This project represents significant job and economic opportunities for the region, while ensuring local ranches, abattoirs and businesses are part of a strong, resilient B.C. food system,” said minister of agriculture and food Lana Popham in a press release.

“With the recent changes to B.C.’s meat-licensing system and investments in facilities like the Nicola Valley community abattoir, this revitalization of the small-scale meat industry makes it easier to produce, buy and sell B.C. meat in our rural communities, and helps strengthen our food security and food resiliency.”

The abattoir will be a government-inspected licensed facility with a full range of services to process red meat.

According to the province, local producers have been impacted by the lack of processing capacity. Julia Smith who is a pork and beef producer in Merrit is hopeful this new facility will help her business as well as other local producers.

“My partner and I moved to the Nicola Valley in 2016 planning to expand our business to meet the growing demand for well-raised, local meat. But we soon found that the processors we relied upon were not able to keep up with our production and we had to scale the business back instead of growing it.”

Click to play video: 'More than 900 people still displaced following Merritt flooding last fall'

More than 900 people still displaced following Merritt flooding last fall

More than 900 people still displaced following Merritt flooding last fall – Feb 25, 2022

“We were on the verge of giving up. But now we are ready to press on, because this facility will allow us, and other local family farms and ranches, to grow and thrive while providing greater food security for the community.”

The province is providing a $1-million rural development grant to the Scw’exmx Tribal Council toward Gateway 286 in Merritt.

“After an unbelievable year of fires, floods, and a pandemic, we welcome the B.C. government’s $1-million grant that will bolster our rural community, support good-paying jobs and much-needed economic development,” said Spayum Holdings LP director and Scw’exmx Tribal Council Terrence (Lee) Spahan in a press release.

“The Gateway 286 project is a 30-plus-year vision of past and present Nicola Valley Indigenous Chiefs and these monies will take our commercial and tourism development one more step closer to reality. This project will enhance the experience of the [traveling] public by providing much-needed services, and it will provide good-paying jobs and entrepreneurial opportunities for the residents of the Nicola Valley.”

Meanwhile, the City of Merritt is receiving a $500,000 grant related to economic recovery for communities that were affected by the flooding. The grant will go towards completing economic development projects and initiatives to support long-term economic recovery.

This is in addition to $329,000 in provincial funding for the City of Merritt to update flood-hazard mapping and develop new flood-mitigation plans.

Click to play video: 'Anger grows over Merritt evacuations'

Anger grows over Merritt evacuations

Anger grows over Merritt evacuations – Nov 28, 2021

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