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Economy

Conference board thinks pandemic’s impact on economy will be twice as bad as initial forecasts – The Journal Pioneer

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Alberta’s economy is expected to suffer an 11.3 per cent decline in 2020, the worst in the country, according to a new Conference Board of Canada report that projects the COVID-19 induced recession will hit Canada nearly twice as hard as the group initially thought.

The last time that the board wrote an outlook report was near the height of the pandemic in April when the country was still shut down and economists’ forecasts were clouded by uncertainty. The organization estimated that Canada was heading for a 4.3 per cent GDP contraction by the end of 2020. Four months later, it’s clear the damage will be much worse than initially thought as the board now says Canada is heading for an 8.2 per cent GDP decline by the end of 2020.

“Initially, we thought this would last from March to perhaps June and July and in the second half of the year, the economy would be fully back to operating normally — this is not the case at all,” said Conference Board of Canada chief economist Pedro Antunes after publishing his latest projections Monday. “What we’ve come to realize is the economy will be operating well below (pre-pandemic) levels.”

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The board’s province-to-province breakdown was similarly altered. In April, it did not foresee a GDP loss for any province hitting six per cent — the projection of a 5.8 per cent drop for Alberta was the highest. The only three provinces the board expects won’t surpass that number now are Manitoba, P.E.I. and B.C.

Alberta’s deeper decline is due to the “double whammy” of the lockdown and the crumbling of oil prices. West Texas Intermediate prices were hovering above US$50 in February before falling deep into negative territory. Crude prices have rebounded since but are still trading only around US$42.

“The outlook for oil prices over the next two years is quite pessimistic because of the impact on transportation which is a big user of oil,” Antunes said. “That affects profits and royalties the government will have to forgo, but the biggest impact … is the capital investment. Firms have cut down to the bare bones.”

Business investment is not expected to pick up again until Spring 2021, while a stark decline in household spending won’t be corrected until 2022.

Other provinces that rely heavily on the oil-and-gas sector, namely Newfoundland and Saskatchewan, are in a similar position and the board expects them to lose 7.1 per cent and 8.6 per cent of GDP respectively.

The board initially expected the downturns in Ontario and Quebec to result in GDP contractions of 3.2 per cent and 3.8 per cent, but those projections have now been revised to 7.6 per cent and 7.2 per cent.

Quebec was the worst-hit province in terms of the total number of COVID-19 cases and deaths, but the damage to its economy would have been worse if not for the government’s decision to begin the reopening process earlier than others, the report said.

The province’s crucial aerospace industry, in particular, may have a long wait ahead before it can fully recover. Air travel, the report said, likely will not return to normal levels until late 2021 or 2022.

For Ontario, it’s the automotive industry that’s troubled. The report estimates that auto sales plunged by close to 60 per cent this year due to a drop off in exports to the U.S. The province’s recovery will continue to be tied to the U.S. and its ability to keep cases under control. If it cannot do so, Americans won’t exactly be flocking to car dealerships, the report said.

“Even with the rebound starting in the third quarter … it will take until the end of next year for the economy to return to its pre-pandemic level of output,” the report said.


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Copyright Postmedia Network Inc., 2020

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Economy

U.S. economic growth for last quarter revised up slightly to healthy 3.4% annual rate

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The U.S. economy grew at a solid 3.4 per cent annual pace from October through December, the government said Thursday in an upgrade from its previous estimate. The government had previously estimated that the economy expanded at a 3.2 per cent rate last quarter.

The Commerce Department’s revised measure of the nation’s gross domestic product – the total output of goods and services – confirmed that the economy decelerated from its sizzling 4.9 per cent rate of expansion in the July-September quarter.

But last quarter’s growth was still a solid performance, coming in the face of higher interest rates and powered by growing consumer spending, exports and business investment in buildings and software. It marked the sixth straight quarter in which the economy has grown at an annual rate above 2 per cent.

For all of 2023, the U.S. economy – the world’s biggest – grew 2.5 per cent, up from 1.9 per cent in 2022. In the current January-March quarter, the economy is believed to be growing at a slower but still decent 2.1 per cent annual rate, according to a forecasting model issued by the Federal Reserve Bank of Atlanta.

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Thursday’s GDP report also suggested that inflation pressures were continuing to ease. The Federal Reserve’s favoured measure of prices – called the personal consumption expenditures price index – rose at a 1.8 per cent annual rate in the fourth quarter. That was down from 2.6 per cent in the third quarter, and it was the smallest rise since 2020, when COVID-19 triggered a recession and sent prices falling.

Stripping out volatile food and energy prices, so-called core inflation amounted to 2 per cent from October through December, unchanged from the third quarter.

The economy’s resilience over the past two years has repeatedly defied predictions that the ever-higher borrowing rates the Fed engineered to fight inflation would lead to waves of layoffs and probably a recession. Beginning in March 2022, the Fed jacked up its benchmark rate 11 times, to a 23-year high, making borrowing much more expensive for businesses and households.

Yet the economy has kept growing, and employers have kept hiring – at a robust average of 251,000 added jobs a month last year and 265,000 a month from December through February.

At the same time, inflation has steadily cooled: After peaking at 9.1 per cent in June 2022, it has dropped to 3.2 per cent, though it remains above the Fed’s 2 per cent target. The combination of sturdy growth and easing inflation has raised hopes that the Fed can manage to achieve a “soft landing” by fully conquering inflation without triggering a recession.

Thursday’s report was the Commerce Department’s third and final estimate of fourth-quarter GDP growth. It will release its first estimate of January-March growth on April 25.

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Economy

Canadian economy starts the year on a rebound with 0.6 per cent growth in January – CBC.ca

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The Canadian economy grew 0.6 per cent in January, the fastest growth rate in a year, while the economy likely expanded 0.4 per cent in February, Statistics Canada said Thursday.

The rate was higher than forecasted by economists, who were expecting GDP growth of 0.4 per cent in the month. December GDP was revised to a 0.1 per cent contraction from zero growth initially reported.

January’s rise, the fastest since the 0.7 per cent growth in January 2023, was helped by a rebound in educational services as public sector strikes ended in Quebec, Statistics Canada said.

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WATCH | The Canadian economy grew more than expected in January: 

Canada’s GDP increased 0.6% in January

41 minutes ago

Duration 2:20

The Canadian economy grew 0.6 per cent in January, the fastest growth rate in a year, while the economy likely expanded 0.4 per cent in February, Statistics Canada says.

“The more surprising news today was the advance estimate for February,” which suggested that underlying momentum in the economy accelerated further that month, wrote CIBC senior economist Andrew Grantham in a note.

Thursday’s data shows the Canadian economy started 2024 on a strong note after growth stalled in the second half of last year. GDP was flat or negative on a monthly basis in four of the last six months of 2023.

More time for BoC to assess

The strong rebound could allow the Bank of Canada more time to assess whether inflation is slowing sufficiently without risking a severe downturn, though the central bank has said it does not want to stay on hold longer than needed.

Because recent inflation figures have come in below the central bank’s expectations, “it appears that much of the growth we are seeing is coming from an easing of supply constraints rather than necessarily a pick-up in underlying demand,” wrote Grantham.

“As a result, we still see scope for a gradual reduction in interest rates starting in June.”

WATCH | Bank of Canada left interest rate unchanged earlier this month: 

Bank of Canada leaves interest rate unchanged, says it’s too soon to cut

22 days ago

Duration 1:56

The Bank of Canada held its key interest rate at 5 per cent on Wednesday, with governor Tiff Macklem saying it was too soon for cuts. CBC News speaks with an economist and a couple who might be forced to sell their home if interest rates don’t come down.

The central bank has maintained its key policy rate at a 22-year high of five per cent since July, but BoC governors in March agreed that conditions for rate cuts should materialize this year if the economy evolves in line with its projections.

The bank in January forecast a growth rate of 0.5 per cent in the first quarter, and Thursday’s data keeps the economy on a path of small growth in the first three months of 2024. The BoC will release new projections along with its rate announcement on April 10.

Growth in 18 out of 20 sectors

Growth in January was broad-based, with 18 of 20 sectors increasing in the month, StatsCan said. The agency said that real estate and the rental and leasing sectors grew for the third consecutive month, as activity at the offices of real estate agents and brokers drove the gain in January.

Overall, services-producing industries grew 0.7 per cent, while the goods-producing sector expanded 0.2 per cent.

In a preliminary estimate for February, StatsCan said GDP was likely up 0.4 per cent, helped by mining, quarrying, oil and gas extraction, manufacturing and the finance and insurance industries.

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Economy

Yellen Sounds Alarm on China ‘Global Domination’ Industrial Push – Bloomberg

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US Treasury Secretary Janet Yellen slammed China’s use of subsidies to give its manufacturers in key new industries a competitive advantage, at the cost of distorting the global economy, and said she plans to press China on the issue in an upcoming visit.

“There is no country in the world that subsidizes its preferred, or priority, industries as heavily as China does,” Yellen said in an interview with MSNBC Wednesday — highlighting “massive” aid to electric-car, battery and solar producers. “China’s desire is to really have global domination of these industries.”

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