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Canadian economy stands to get boost from supercharged U.S. recovery – The Globe and Mail

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Kathryn Boeker works at a coffee shop as the state of Texas lifts its mask mandate and allows businesses to reopen at full capacity in Houston on March 10, 2021.

CALLAGHAN O’HARE/Reuters

The U.S. is set to supercharge its economic recovery with another dose of stimulus and post its strongest growth in decades, giving a lift to Canada’s own rebound from the COVID-19 pandemic.

On Thursday, President Joe Biden signed into law a US$1.9-trillion stimulus package that will send US$1,400 cheques to millions of Americans and extend a US$300 weekly top-up in jobless aid, along with a raft of other efforts to aid the recovery.

Economists have been ripping up their U.S. forecasts to account for the latest round of stimulus, along with a rapid pace of vaccinations and macroeconomic results that frequently top expectations. The median estimate is that the world’s largest economy will grow 5.5 per cent this year, the fastest pace since 1984.

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Research firm Oxford Economics says the U.S. will contribute more to global economic growth this year than China – a first since 2005.

The brighter U.S. outlook has led to a chorus of voices on how Canada stands to benefit, notably through stronger U.S. demand for Canadian products, along with support for commodity prices that have rallied strongly over several months.

At the same time, several analysts have pulled forward the start date for rate hikes from the Federal Reserve and the Bank of Canada into 2022 – a timeline at odds with recent messaging from both central banks.

“There are signs that the [U.S.] recovery is already starting to give us a bit of a lift,” said Dennis Darby, president and chief executive officer of Canadian Manufacturers & Exporters. The association is projecting the new U.S. stimulus will add half a percentage point to Canada’s economic growth. “So it’s not insignificant,” Mr. Darby added.

On the trade front, Canada received surprising results last week. Exports to the U.S. jumped 11.3 per cent to $37.2-billion in January, partly owing to one-off factors, but also higher prices for crude oil and lumber. That was the strongest month for exports to the U.S. since September, 2019. At $6.2-billion, Canada’s goods surplus with the U.S. was the largest since 2008.

“The U.S. story is definitely great news for Canada, but maybe a shade less than excellent,” said Avery Shenfeld, chief economist at CIBC Capital Markets. That’s because, as health restrictions ease, Americans will ramp up spending on services – something that Canadian companies are less able to take advantage of.

When services are included, Canada’s trade balance has been “artificially improved,” Mr. Shenfeld said, owing to continuing travel restrictions. As those rules are phased out, “a few more Americans will come to ski here or attend a concert. But that will be swamped by Canadians spending money abroad.”

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The Biden administration has also signalled its desire for an ambitious infrastructure plan. That would bring added “stimulus effects” into Canada, said Derek Holt, head of capital markets economics at Scotiabank, in a client note.

But a key need for Canada, Mr. Darby said, is to ensure it’s exempted from ‘Buy American’ provisions. Shortly after his inauguration, Mr. Biden signed an executive order that aims to limit opportunities for foreign companies in government contracts.

“There are some hindrances that make it hard for us to benefit completely from the rebound,” Mr. Darby said.

In recent days, several banks have raised their outlooks for Canadian growth. Beyond the U.S. impact, Canada is seeing its vaccination drive improve and recent economic data is coming in stronger than expected. Royal Bank of Canada upgraded its estimate for 2021 growth to 6.3 per cent (from 5 per cent), while Scotiabank has pencilled in 6.2 per cent.

With growth on a faster track, many economists and investors now think the Federal Reserve and Bank of Canada will begin to raise interest rates in 2022. (The most recent messaging from those central banks is that the Fed will keep its policy rate at a record low until 2024, and the BoC until 2023.) An accelerated timeline would mean a quicker economic recovery. In that scenario, higher interest rates would curb investments in housing and capital, Mr. Shenfeld said.

“If fiscal policy overheats the economy, it’s not necessarily that you end up with inflation,” he said. “But you do end up with a higher interest-rate environment as an offset, and that squeezes out some other growth.”

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Economy

Canada’s budget to include pandemic and childcare supports, luxury tax

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By Steve Scherer

OTTAWA (Reuters) – Canada will present a budget on Monday with billions of dollars for pandemic recovery measures as COVID-19 infections skyrocket, C$2 billion ($1.6 billion) toward national childcare, and new taxes on luxury goods.

Liberal Prime Minister Justin Trudeau’s first budget in two years will also set aside C$12 billion ($9.6 billion) to extend wage and rent subsidy programs to the autumn, the Toronto Star reported on Sunday.

Finance Minister Chrystia Freeland is due to present the budget at about 4 p.m. (2000 GMT).

The document promises in excess of C$2 billion as a “starting point” for a national childcare program, the Canadian Broadcasting Corp said, adding that the 2020-2021 federal deficit had come in under C$400 billion.

In November, the government forecast a deficit of C$381.6 billion, which would be its highest level since World War Two. [https://tmsnrt.rs/3wSJPcm]

The budget will also include a luxury tax effective from 2022 on new cars and private aircraft valued at more than C$100,000 ($79,970), and boats worth over C$250,000, government sources familiar with the document told Reuters.

There will be a sales tax for online platforms and e-commerce warehouses from July, and a digital services tax for Web giants like Alphabet Inc’s Google and Facebook Inc from 2022.

Freeland promised in November up to C$100 billion in stimulus over three years to “jump-start” an economic recovery during what is likely to be an election year, and the government so far not backed away from that commitment.

Environment Minister Jonathan Wilkinson, speaking to the CBC, confirmed that the budget would be “ambitious” and that the government would “invest for jobs and growth to rebuild this economy,” although he added there would be “fiscal guardrails” to put spending on a “sustainable track.”

Amid a spiking third wave of infections, Ontario, Canada‘s most-populous province, announced new public health restrictions on Friday, including closing the province’s borders to non-essential domestic travel.

Canada has been ramping up its vaccination campaign but still has a smaller percentage of its population inoculated than dozens of other countries, including the United States and Britain.

($1 = 1.2514 Canadian dollars)

 

(Reporting by Steve Scherer; Editing by Nick Zieminski and Peter Cooney)

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Economy

TSX extends gains as gold prices rise, set to rise for third week

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(Reuters) -Canada’s main stock index extended its rise on Friday after hitting a record high a day earlier as gold prices advanced, and was set to gain for a third straight week.

* At 9:40 a.m. ET (13:38 GMT), the Toronto Stock Exchange‘s S&P/TSX composite index was up 24.24 points, or 0.1%, at 19,326.16.

* The Canadian economy is likely to grow at a slower pace in this quarter and the next than previously expected, but tighter lockdown restrictions from another wave of coronavirus were unlikely to derail the economic recovery, a Reuters poll showed.

* The energy sector climbed 0.6% even as U.S. crude prices slipped 0.1% a barrel. Brent crude added 0.1%. [O/R]

* The materials sector, which includes precious and base metals miners and fertilizer companies, added 0.3% as gold futures rose 0.7% to $1,777.9 an ounce. [GOL/] [MET/L]

* The financials sector gained 0.2%. The industrials sector rose 0.1%.

* On the TSX, 117 issues advanced, while 102 issues declined in a 1.15-to-1 ratio favoring gainers, with 14.26 million shares traded.

* The largest percentage gainers on the TSX were Cascades Inc, which jumped 4.2%, and Ballard Power Systems, which rose 2.9%.

* Lghtspeed POS fell 5.6%, the most on the TSX, while the second biggest decliner was goeasy, down 4.9%.

* The most heavily traded shares by volume were Zenabis Global Inc, Bombardier and Royal Bank of Canada.

* The TSX posted 23 new 52-week highs and no new low.

* Across Canadian issues, there were 160 new 52-week highs and 12 new lows, with total volume of 29.68 million shares.

(Reporting by Shashank Nayar in Bengaluru;Editing by Vinay Dwivedi)

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Economy

Canadian economy likely to slow, but COVID-19 threat to growth low

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By Indradip Ghosh and Mumal Rathore

BENGALURU (Reuters) – The Canadian economy is likely to grow at a slower pace this quarter and next than previously expected, but tighter lockdown restrictions from another wave of coronavirus were unlikely to derail the economic recovery, a Reuters poll showed.

Restrictions have been renewed in some provinces as they struggle with a rapid spread of the virus, which has already infected over 1 million people in the country.

After an expected 5.6% growth in the first quarter, the economy was forecast to expand 3.6% this quarter, a sharp downgrade from 6.7% predicted in January.

It was then forecast to grow 6.0% in the third quarter and 5.5% in the fourth, compared with 6.8% and 5.0% forecast previously.

But over three-quarters of economists, or 16 of 21, in response to an additional question said tighter curbs from another COVID-19 wave were unlikely to derail the economic recovery, including one respondent who said “very unlikely”.

Canada is undergoing a third wave of the virus and while case loads are accelerating, the resiliency the economy has shown in the face of the second wave suggests it can ride out the third wave as well, without considerable economic consequences,” said Sri Thanabalasingam, senior economist at TD Economics.

The April 12-16 poll of 40 economists forecast the commodity-driven economy would grow on average 5.8% this year, the fastest pace of annual expansion in 13 years and the highest prediction since polling began in April 2019.

For next year, the consensus was upgraded to 4.0% from 3.6% growth predicted in January.

What is likely to help is the promise of a fiscal package by Prime Minister Justin Trudeau late last year, which the Canadian government was expected to outline, at least partly, in its first federal budget in two years, on April 19.

When asked what impact that would have, over half, or 11 of 20 economists, said it would boost the economy significantly. Eight respondents said it would have little impact and one said it would have an adverse impact.

“The economic impact of the federal government’s promised C$100 billion fiscal stimulus will depend most importantly on its make up,” said Tony Stillo, director of Canada economics at Oxford Economics.

“A stimulus package that enhances the economy’s potential could provide a material boost to growth without stoking price pressures.”

All but two of 17 economists expected the Bank of Canada to announce a taper to the amount of its weekly bond purchases at its April 21 meeting. The consensus showed interest rates left unchanged at 0.25% until 2023 at least.

“The BoC is set to cut the pace of its asset purchases next week,” noted Stephen Brown, senior Canada economist at Capital Economics.

“While it will also upgrade its GDP forecasts, we expect it to make an offsetting change to its estimate of the economy’s potential, implying the Bank will not materially alter its assessment of when interest rates need to rise.”

 

 

(Reporting and polling by Indradip Ghosh and Mumal Rathore; editing by Rahul Karunakar, Larry King)

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