Economists say the latest GDP data from Statistics Canada showing a contraction in the economy suggests the Bank of Canada’s rate hiking campaign may be coming to an end.
The Canadian economy appeared to stall in the second quarter as investment in housing continued to fall, led by drop in new construction. The economy contracted at an annualized rate of 0.2 per cent in the second quarter, Statistics Canada reported, far weaker than forecasters had expected.
The decline in the second quarter came as housing investment fell 2.1 per cent to post its fifth consecutive quarterly decrease. New construction dropped 8.2 per cent in the quarter, while renovation spending fell 4.3 per cent.
The drop in spending came as Canadians face higher borrowing costs fuelled by interest rate hikes by the Bank of Canada, which is trying to bring inflation back to its target of two per cent.
Tu Nguyen, an economist with accounting and consultancy firm RSM Canada, said the cooling economy should be enough evidence for the central bank to forgo further rate hikes unless there is another major external shock that sends inflation upward.
“The bank’s goal is eventually to restore price stability, to taper an overheated economy. Their goal is not to incur a recession. So it looks like the bank is achieving their goal,” she said.
“They’re certainly going to continue monitoring the data because there has been quite a lot of noise. The reason why I’m fairly confident that this is the end of it is we don’t expect spending to really go up towards the end of the year.”
Nguyen said this is the first time since the early days of the pandemic that spending on services did not grow, which she noted is a powerful signal of a cooling economy. This, despite household savings going up, suggests “people actually have more money in their pockets but they’re choosing to save it and not spend it because they’re anticipating a recession.”
The Bank of Canada’s next interest rate decision is set for next week.
The central bank raised its key interest rate by a quarter of a percentage point to five per cent in July as it said it remained concerned that progress toward its two per cent inflation target could stall.
Nguyen predicted the Bank of Canada likely won’t cut rates until at least April 2024.
“The bank needs to see sustained evidence of inflation going at least towards two per cent. It probably won’t get to two per cent until 2025 but it needs to stay below three per cent for long enough,” she said.
“If the bank cuts rates too early, it’s encouraging businesses and households to go out and borrow again, sort of heating up the economy again, and we really need a period of cooling down.”
Statistics Canada also revised its reading for growth in the first quarter to an annual pace of 2.6 per cent, down from 3.1 per cent.
“The surprise contraction in second-quarter GDP leaves little doubt that the Bank of Canada will keep interest rates unchanged next week,” wrote Stephen Brown, deputy chief North America economist for Capital Economics, in a note to clients.
“With the fall in monthly GDP in June and the apparent stagnation in July setting a weak foundation for the third quarter, the Canadian economy may already have fallen into a modest recession.”
The weakness in the second quarter was also attributed to lower inventory accumulations, as well as slower growth in exports and household spending.
Exports of goods and services crept up 0.1 per cent in the second quarter compared with a 2.5 per cent increase in the first quarter.
Growth in real household spending slowed to 0.1 per cent in the second quarter compared with 1.2 per cent in the first quarter.
Meanwhile, business investment in non-residential structures gained 2.4 per cent in the second quarter, boosted by a 3.3 per cent gain in spending on engineering structures.
The overall pullback in the second quarter came as the economy contracted by 0.2 per cent in June.
Services-producing industries dropped 0.2 per cent in June, while goods-producing industries contracted 0.4 per cent for the month.
Statistics Canada also said its early estimate for July suggested real GDP was essentially unchanged for the month, though it cautioned the figure would be updated.
VANCOUVER – Contract negotiations resume today in Vancouver in a labour dispute that has paralyzed container cargo shipping at British Columbia’s ports since Monday.
The BC Maritime Employers Association and International Longshore and Warehouse Union Local 514 are scheduled to meet for the next three days in mediated talks to try to break a deadlock in negotiations.
The union, which represents more than 700 longshore supervisors at ports, including Vancouver, Prince Rupert and Nanaimo, has been without a contract since March last year.
The latest talks come after employers locked out workers in response to what it said was “strike activity” by union members.
The start of the lockout was then followed by several days of no engagement between the two parties, prompting federal Labour Minister Steven MacKinnon to speak with leaders on both sides, asking them to restart talks.
MacKinnon had said that the talks were “progressing at an insufficient pace, indicating a concerning absence of urgency from the parties involved” — a sentiment echoed by several business groups across Canada.
In a joint letter, more than 100 organizations, including the Canadian Chamber of Commerce, Business Council of Canada and associations representing industries from automotive and fertilizer to retail and mining, urged the government to do whatever it takes to end the work stoppage.
“While we acknowledge efforts to continue with mediation, parties have not been able to come to a negotiated agreement,” the letter says. “So, the federal government must take decisive action, using every tool at its disposal to resolve this dispute and limit the damage caused by this disruption.
“We simply cannot afford to once again put Canadian businesses at risk, which in turn puts Canadian livelihoods at risk.”
In the meantime, the union says it has filed a complaint to the Canada Industrial Relations Board against the employers, alleging the association threatened to pull existing conditions out of the last contract in direct contact with its members.
“The BCMEA is trying to undermine the union by attempting to turn members against its democratically elected leadership and bargaining committee — despite the fact that the BCMEA knows full well we received a 96 per cent mandate to take job action if needed,” union president Frank Morena said in a statement.
The employers have responded by calling the complaint “another meritless claim,” adding the final offer to the union that includes a 19.2 per cent wage increase over a four-year term remains on the table.
“The final offer has been on the table for over a week and represents a fair and balanced proposal for employees, and if accepted would end this dispute,” the employers’ statement says. “The offer does not require any concessions from the union.”
The union says the offer does not address the key issue of staffing requirement at the terminals as the port introduces more automation to cargo loading and unloading, which could potentially require fewer workers to operate than older systems.
The Port of Vancouver is the largest in Canada and has seen a number of labour disruptions, including two instances involving the rail and grain storage sectors earlier this year.
A 13-day strike by another group of workers at the port last year resulted in the disruption of a significant amount of shipping and trade.
This report by The Canadian Press was first published Nov. 9, 2024.
The Royal Canadian Legion says a new partnership with e-commerce giant Amazon is helping boost its veterans’ fund, and will hopefully expand its donor base in the digital world.
Since the Oct. 25 launch of its Amazon.ca storefront, the legion says it has received nearly 10,000 orders for poppies.
Online shoppers can order lapel poppies on Amazon in exchange for donations or buy items such as “We Remember” lawn signs, Remembrance Day pins and other accessories, with all proceeds going to the legion’s Poppy Trust Fund for Canadian veterans and their families.
Nujma Bond, the legion’s national spokesperson, said the organization sees this move as keeping up with modern purchasing habits.
“As the world around us evolves we have been looking at different ways to distribute poppies and to make it easier for people to access them,” she said in an interview.
“This is definitely a way to reach a wider number of Canadians of all ages. And certainly younger Canadians are much more active on the web, on social media in general, so we’re also engaging in that way.”
Al Plume, a member of a legion branch in Trenton, Ont., said the online store can also help with outreach to veterans who are far from home.
“For veterans that are overseas and are away, (or) can’t get to a store they can order them online, it’s Amazon.” Plume said.
Plume spent 35 years in the military with the Royal Engineers, and retired eight years ago. He said making sure veterans are looked after is his passion.
“I’ve seen the struggles that our veterans have had with Veterans Affairs … and that’s why I got involved, with making sure that the people get to them and help the veterans with their paperwork.”
But the message about the Amazon storefront didn’t appear to reach all of the legion’s locations, with volunteers at Branch 179 on Vancouver’s Commercial Drive saying they hadn’t heard about the online push.
Holly Paddon, the branch’s poppy campaign co-ordinator and bartender, said the Amazon partnership never came up in meetings with other legion volunteers and officials.
“I work at the legion, I work with the Vancouver poppy office and I go to the meetings for the Vancouver poppy campaign — which includes all the legions in Vancouver — and not once has this been mentioned,” she said.
Paddon said the initiative is a great idea, but she would like to have known more about it.
The legion also sells a larger collection of items at poppystore.ca.
This report by The Canadian Press was first published Nov. 9, 2024.
