adplus-dvertising
Connect with us

Economy

Drop in trade imports ‘ominous’ sign for Canada’s economy

Published

 on

The latest trade numbers suggest consumer demand is weakening, which, in theory, would allow the Bank of Canada to leave interest rates on hold because higher borrowing costs could be starting to bite.

Statistics Canada reported May 4 that the value of imports dropped 2.9 per cent in March from February, and 5.9 per cent in volume terms.

Desjardins Group economist Randall Bartlett described the decrease as “ominous,” because much of what Canadian households purchase arrives from abroad. Excluding pharmaceuticals, imports of consumer goods dropped 5.1 per cent, led by a large declines in clothing and the “miscellaneous” category.

“The ongoing weakness in import volumes, particularly in consumer goods and motor vehicles, suggests elevated interest rates may be weighing on household purchases heading into the middle of the year,” said Bartlett.

300x250x1

Seeking a ‘sweet spot’

The Bank of Canada would welcome weaker economic growth. Governor Tiff Macklem reiterated during a talk in Toronto that the economy still is in a state of “excess demand,” stoking inflationary pressure because suppliers can’t keep up with orders.

“You do have to be forward looking,” Macklem said when asked for guidance on when he might start cutting interest rates, given mounting evidence that economic growth is slowing and last year’s sharp increase will inevitably hurt mortgage holders. “We’re looking for that sweet spot.”

In other words, the Bank of Canada is open to leaving the benchmark interest rate at 4.5 per cent, which is four percentage points higher than it was this time a year ago.

However, the consumer price index, which the Bank of Canada uses to guide interest rates, is still increasing at annual rates that are well above the central bank’s target of two per cent. Headline inflation was 4.3 per cent in March, and while policymakers are confident it will slow to three per cent by the summer, Macklem told an audience assembled by the Greater Toronto Board of Trade that he’s worried inflation could then get stuck there.

“We’re really not thinking about interest rate cuts,” Macklem said. “The lesson from history is that cutting prematurely is going to end up being more costly down the road. It is too early to be thinking about interest rate cuts.”

The value of exports fell 0.7 per cent to $63.6 billion, the lowest since February 2022, mostly because of lower energy prices. Because the decline in imports was bigger, Canada recorded a trade surplus of about $922 million in March after recording a deficit the previous month, Statistics Canada said.

Rough patch

There are other signs that households are retrenching.

National Bank economist Jocelyn Pacquet observed in a note that Statistics Canada’s advance estimate of retail sales in March is for a drop of 1.4 per cent. “Household spending went through a bit of a rough patch at the end of the first quarter,” she said.

Shipping data from Canada’s biggest port tell a similar tale of a consumer slowdown.

Cargo volumes fell three per cent in 2022, according to data from the Vancouver Fraser Port Authority. There were also reports of “full warehouses” near major centres such as Toronto and Montreal, as inventory piled up in March, the port authority chief executive, Robin Silvester, told The Canadian Press.

Stephen Brown, economist for Canada at Capital Economics, a research firm, said he revised his forecast for annualized growth in the first quarter to two per cent, down from 2.5 per cent. The Bank of Canada’s current forecast calls for an annualized rate of 2.3 per cent.

Bartlett at Desjardins said the drop in imports “should provide more support for the (Bank of Canada) to maintain its pause on interest rates.”

Macklem acknowledged in Toronto that the inflation risk has receded considerably since the start of the year, and because interest rate increases slow economic activity with a lag, the effect of last year’s hikes hasn’t been fully felt.

Still, consumption of goods is only one expression of consumer demand. The cost of services remains elevated, and Macklem reiterated that he won’t be satisfied until services inflation slows.

“There are some things we need to see happen that we haven’t seen yet,” he said. “If those things don’t fall into place, we are going to have a problem.”

728x90x4

Source link

Continue Reading

Economy

U.S. economy and new incentives put Canada at disadvantage in Stellantis negotiations, professor says

Published

 on

 

Two weeks of negotiations between the federal and provincial governments and Stellantis have failed to produce a new deal for the NextStar EV battery plant in Windsor, Ont. Ian Lee, an associate professor at Carleton University’s Sprott School of Business, says the economic might of the U.S., coupled with the incentives offered in recent legislation, make it extremely challenging for Canada to compete.

 

728x90x4

Source link

300x250x1
Continue Reading

Economy

Watch Moody's Analytics' Ell on Asia Economy – Bloomberg

Published

 on


[unable to retrieve full-text content]

Watch Moody’s Analytics’ Ell on Asia Economy  Bloomberg

728x90x4

Source link

Continue Reading

Economy

Theo Argitis and Robert Asselin: Trudeau can't keep juicing the economy with more spending – Financial Post

Published

 on


World entering period of scarcity, meaning Canada won’t be able to spend its way to prosperity

300x250x1

Article content

The unexpected pick up in Canadian inflation last month — even if it turns out to be a blip — is a fresh reminder that Prime Minister Justin Trudeau’s government is facing a more perilous economic policy landscape going forward, with difficult trade-offs on the horizon.

Advertisement 2

Article content

The natural economic instinct of this government has been generous budget spending and open international migration.

Article content

Yet, Trudeau doesn’t need to look much further than Statistics Canada’s inflation numbers or last week’s call from the G7 for global “de-risking” to see how things are changing.

With the world entering a period of scarcity — from more expensive money to supply constraints — the rationale to juice the nation’s economy is weakening.

The housing crisis is a manifestation of that, as are broader price pressures and the Bank of Canada’s historically aggressive run of interest rate hikes.

Trudeau came to power in 2015 on an anti-austerity platform to reverse his Conservative predecessor’s sluggish growth record which, as the Liberals were quick to remind Canadians at the time, was the weakest since R.B. Bennet was prime minister in the 1930s.

Article content

Advertisement 3

Article content

The economics were sound at the time, even if the growth dividend didn’t pay off.

Canada’s economy was demand deficient early in Trudeau’s mandate as commodity prices slumped, while the extra spending helped ease financial stability risks by taking some pressure off the Bank of Canada to stoke growth.

Higher international migration drove gains in labour income and provided support to a housing market that was still largely within reach of affordability. Inflation wasn’t a worry. In fact, the concern for policymakers was it may not have been high enough.

New social programs, meanwhile, allowed the government to make significant strides on equality and redistribution — particularly with respect to lowering poverty.

Advertisement 4

Article content

The Trudeau administration’s weighty policy objectives were synergetic to the economic environment. Policies were rowing more or less in the same direction.

The current post-pandemic environment, though, is no longer as accommodating.

While many policymakers and economists still buy into a moderately optimistic outlook, with continued growth and inflation brought into check, less favourable outcomes are increasingly plausible.

There is a real possibility that inflation and interest rates will remain well above pre-pandemic levels, growth becomes more anemic, budget dynamics worsen and the climate transition proves costly.

Instead of working in concert, the government’s three core economic policy objectives — growth, equity and price stability — could become increasingly in conflict.

Advertisement 5

Article content

For example, increasing immigration is a long-term positive for an economy threatened by aging demographics. And more social spending is typically associated with less inequality.

But higher borrowing costs stoked by large increases in population and government spending will impact disproportionately lower income Canadians and young families, potentially creating divisions and threatening new sorts of inequality.

Add energy transition to the mix and national security issues and the landscape becomes a minefield.

The policy arena will be more ambiguous and the government pulled in multiple directions. Policy paralysis, wasted effort and poor allocation of resources are real risks.

There are certain fundamentals and policy guardrails, however, that can help the government navigate this challenge.

Advertisement 6

Article content

A construction worker frames a new home in London, Ont.
Temporarily slowing the pace of entrants to allow housing supply to catch up could be a good solution to the current housing crisis. Photo by Mike Hensen/The London Free Press/Postmedia Network

First, policymakers should prioritize growing GDP on a per capita basis and increasing productivity over expanding the overall aggregate economy. Both are important, but the former is where true prosperity lies and where Canada is failing. Masking underlying weakness with gains in national income is just a recipe for stagnant wages. Enhanced productivity also helps dampen inflationary pressures.

Second, toolkits and policy precision matter.

For example, supply side solutions are critical to productivity, but policymakers also need to be cognizant of short-term impacts in an inflationary world. Focusing more on economic migration and temporarily slowing the pace of new entrants to allow housing supply to catch up appears a reasonable solution to the current housing crisis.

Advertisement 7

Article content

Another example is industrial policy, which needs to become more sophisticated. Advanced economies will compete in advanced industries, where there is a concentration of R&D and skilled workers. Quick fixes through corporate subsidies, however, are not the answer. Canada needs a modern science and technology architecture that translates ideas into economic outputs, higher wages and better living standards.

The third guardrail is the most Canadian: be reasonable and pragmatic.

This seems obvious but we should not take this principle for granted, particularly as we rush (rightly) to meet ambitious climate targets. Canada remains a resource economy. The sector pays a lot of bills, keeps our currency stable and government finances flush with cash.

  1. Canadians buy a lot of stuff from China, but our businesses have struggled to benefit and there’s little cross-border investment.

    Canada has plenty of leverage as China relations sour

  2. An oil pump jack in a field near Calgary. Alberta’s oil and gas sector is Canada's second largest regional industry behind only Ontario’s real estate sector.

    Climate plan doubts could speed up Canada election timing

  3. PSAC strikers' picket signs demanding fare wages on Friday, April 28, in Victoria, B.C.

    PSAC strike over, but workers’ fight with inflation already lost

It’s also where any global power we may have as a nation lies. That makes an orderly climate transition paramount.

Theo Argitis is managing partner at Compass Rose Group. Robert Asselin is senior vice-president, policy at the Business Council of Canada.

Comments

Postmedia is committed to maintaining a lively but civil forum for discussion and encourage all readers to share their views on our articles. Comments may take up to an hour for moderation before appearing on the site. We ask you to keep your comments relevant and respectful. We have enabled email notifications—you will now receive an email if you receive a reply to your comment, there is an update to a comment thread you follow or if a user you follow comments. Visit our Community Guidelines for more information and details on how to adjust your email settings.

Join the Conversation

Adblock test (Why?)

728x90x4

Source link

Continue Reading

Trending