OTTAWA — The pace of Canada’s economic rebound from the COVID-19 pandemic slowed in July, and maybe even more in August, Statistics Canada says, suggesting the country is in what experts described as a long, choppy path to recovery.
Statistics Canada says real gross domestic product grew by three per cent in July, matching the agency’s preliminary estimate and economists’ expectations, but below the 6.5 per cent recorded in June, and May’s 4.8 per cent bump.
Gains have been linked to the loosening of restrictions that forced non-essential businesses to close in March and April, but they haven’t been enough to haul the economy back to pre-pandemic levels.
Overall, Statistics Canada said the economy in July was about six per cent below its pre-pandemic level in February, even if some sectors like retail and real estate have recouped their losses and then some.
Looking at August, the statistics agency said growth likely continued albeit at a slower pace as it provided a preliminary estimate of a one per cent climb in GDP for the month.
“That’s suggesting the steam in the recovery is going away and so, this for me is suggesting that we might be moving from a quick rebound phase of the recovery to a more challenging phase,” said TD senior economist Sri Thanabalasingam.
The August figure will be finalized late next month.
The path of the recovery over the coming months will be tied to the path the pandemic takes, which could lead to rollbacks of reopening measures.
Rising case counts have prompted such calls as the country heads into what several public health officials say is a second wave of the novel coronavirus pandemic.
The increase in COVID-19 infections, coupled with the August figure suggests the sharp rebound in the third quarter won’t carry over to the final three months of the year, said CIBC chief economist Avery Shenfeld.
“Easing up on COVID-19 restraints fed into solid Canadian GDP gains in July and August, but the concerns now are whether we will pay for some of that greater openness,” Shenfeld wrote in a note.
The Conference Board of Canada said health measures and testing should prevent another full shutdown of economic activity earlier this year, but warned of localized lockdowns as one hurdle.
The pandemic is going to flatten the recovery curve for the next year at least, said Pedro Antunes, the organization’s chief economist.
“We’re going to be creating fewer jobs on a monthly basis going forward, we’re going to see the increases in economic activity or GDP being much more subdued in terms of their increases overall,” he said.
The Conference Board’s outlook expected the unemployment rate won’t fall back to its pre-pandemic levels until 2025.
Thanabalasingam said it could be early 2022 before before the economy gets back to where it was prior to COVID-19.
July’s GDP report from Statistics Canada noted that all 20 industrial sectors it tracks posted increases in July, with agriculture, utilities, finance, insurance and real estate sectors recouping losses suffered since the start the pandemic.
Manufacturing grew 5.9 per cent in July, following a 15.1 per cent expansion in June as more operations ramped up production, but still remained about six per cent below where it was pre-pandemic.
The hard-hit accommodations and food services sector posted a third consecutive month of double-digit increases, jumping 20.1 per cent in July.
Thanabalasingam said despite the bump, the amount of activity in the industry was about two-thirds of where it was in February, as more people went shopping and case numbers dropped.
“There’s still a very, very long way to go, even though they’re posting these strong growth rates,” he said.
“My worry is that as caseloads continue to rise and some of these provinces think about rolling back some of those reopening measures . . . then is this as good as it could get for these sectors?”
The health care and social assistance sector rose by 3.7 per cent in July, as more doctors, dentists and diagnostic laboratories reopened in line with the rollback of restrictions.
This report by The Canadian Press was first published Sept. 30, 2020.
How Trump’s and Biden’s Tax Plans Will Help or Hurt the Economy’s Recovery – Barron's
While political rivals are forecasting economic devastation if former Vice President Joe Biden were to raise taxes on the wealthy and corporations, many economists and tax analysts who have modeled outcomes have a different take.
The net effect of Biden’s proposals, when analyzed independently of spending and economic policies, would be negative economic growth ranging from -0.16% to -1.62% over the next 10 years, according to analyses by the American Enterprise Institute and Tax Foundation.
Slowed growth is attributed to higher taxes on the very wealthy, and major changes to businesses taxation, including an increase in the corporate tax rate from 21% to 28%, a doubling of the tax rate on certain income earned by foreign subsidiaries of U.S. corporations, and elimination of a 20% deduction for owners of pass-through entities with income of more than $400,000.
But when factoring in spending and economic plans—including those for trade, immigration, education, housing, health care, and other policies—the outlook varies by scenario.
An analysis by Moody’s Analytics finds that if Biden wins and Democrats win a majority in both the Senate and the House and enact his plans, average annual economic growth would be 2.9% and average annual wage growth would be 0.9% through 2030.
Moody’s finds that some 18.6 million jobs would be created over Biden’s four-year term, and full employment would be reached in the second half of 2022. Full employment is typically defined as an unemployment rate under 5%. It is about 8% today.
In contrast, if President Donald Trump wins the election and Republicans win the majority in both houses of Congress, the economic picture dims: 10-year economic growth would average 2.4%, wages would grow by 0.7% over a decade, 11.2 million jobs would be created over four years, and full employment would be reached in 2024.
If Congress maintains its split majority, with Republicans dominating the Senate and the Democrats in the House, the economic outcomes will be similar whether Biden’s or Trump’s tax policies are in effect—though somewhat more favorable under Biden’s presidency, according to Moody’s.
Analyses that compare the two candidates’ plans are handicapped by a lack of detail issued by Trump. For example, while he has stated that he supports a capital-gains tax cut, none of the analyses factor this in.
Generally speaking, however, capital-gains tax cuts don’t typically help the economy, says Garrett Watson, a senior policy analyst at the Tax Foundation. “There is no evidence that capital-gains tax cuts are growth-enhancing.”
Fall in Crude Oil Prices Puts USD/CAD on the Rise
A mid-October decline in crude oil prices produced a bleaker outlook for the immediate future of the Canadian dollar (CAD), which enabled the US dollar (USD) to get back on the front foot in the USD/CAD currency pair.
On October 15, crude oil prices shed over 3.5% of their value in a single day. The CAD is regarded as one of the world’s leading commodity currencies, such is the Canadian economy’s reliance on the money that it generates from exporting key goods.
Any decline in oil prices is liable to weaken the CAD, which thereby strengthens the USD’s position in comparison to the loonie. That was the case in March 2020, where oil prices plummeted to a four-year low and the USD/CAD rose to its highest level since May 2017.
Neither oil prices nor the USD/CAD currency pair behaved so dramatically in mid-October, but the general trends were the same. Experts have expressed their concerns about the future of oil prices in the coming months, so there may be more scope for the US dollar to make gains against its Canadian counterpart.
An otherwise strong year for CAD
While the USD’s position as a safe haven has proven reassuring to traders at several junctures throughout the year, the overarching narrative in 2020 for the USD/CAD currency pair is one of Canadian resilience.
USD/CAD rose by approximately 2% on June 12, with that single-day increase the consequence of the US Federal Reserve taking the investing community by surprise with its indication that interest rates would remain low for the next couple of years. That sent markets scrambling, with oil prices also falling to further weaken the CAD’s position.
Yet that was a fleeting moment of strength for the USD, with the CAD swiftly recovering its losses against the greenback. From June 12 to the start of September, the USD/CAD pair slumped by approximately 4.4%.
That saw its June mark of 1.3638 traded for prices in the region of 1.30 as September began. This is an indication of the strength of the CAD, as fewer Canadian dollars were required to purchase one US dollar.
That may not seem like a significant drop, given that the USD/EUR retracted by around 5.5% and the USD/GBP shrunk by around 5.9% in the same time period.
However, the USD/CAD currency pair is not one that is known for its volatility. This can be observed through the margin requirements put in place for forex brokers in Canada. Margin requirements contribute to Canada’s strict regulatory environment for currency trading. The margin requirement determines the percentage of their capital that a trader must put forward to open a new position on a market, with a higher margin percentage necessitating more funds upfront.
The reason that margin requirement is a good indication of a currency pair’s traditional volatility is that the pairs more prone to fluctuations have higher percentages. For example, the notoriously unpredictable pair of the South African rand and the Japanese yen (ZAR/JPY) usually comes with a margin requirement of around 29%, whereas the USD/CAD pair has a much more conservative 2% capital requirement for traders seeking to open up a position.
This makes the stretch between June and September for the USD/CAD currency pair particularly notable. The USD clawed back a small proportion of its losses in September, before almost retreating into the 1.31 region. The USD/CAD had not hovered around the 1.30/1.31 mark since January 2020, a testament to the CAD’s resurgence.
Oil concerns to dampen CAD optimism
The news of crude oil’s price decline gave the USD a platform to bounce back, with the USD/CAD ending October 16 at the 1.3225 level. Further gains are likely to be predicated on the long-term forecast for oil prices, with any bleak outlook for the commodity certain to be bad news for the Canadian dollar and the nation’s wider economy.
Other factors inevitably influence the USD/CAD currency pair, given the countries’ heavy trade links and geographical proximity. As demonstrated by that shift in momentum on June 12, the policies announced by either the Federal Reserve or the Bank of Canada can influence market sentiment.
General politics can also be significant. The last few months of 2020 for the USD/CAD are likely to be shaped by the outcome and immediate aftermath of the US presidential election, although this is not a phenomenon unique to the United States and the Canadian economy.
Markets all over the world will be affected by the victor’s presidential vision for the country, with their new social and fiscal policies having the potential to either instill confidence in the American economy or place the long-term future of the US dollar in jeopardy.
Given the US dollar’s prevalence all over the world, as a peg for some currencies and as the central part of dollarized economies, this promises to be an important close to the year. However, crude oil prices may still prove to be the dominant factor in shaping the USD/CAD currency pair.
The International Energy Agency’s October report is grim reading for commodity currencies. The IEA calls the outlook ‘fragile’, raising serious concerns about the long-term prospects for growth in oil demand. The IEA anticipates a stock draw of 4 million barrels per day in the fourth quarter of the year, although this statistic should be caveated with the acknowledgement that these figures are coming off the back of record-high levels.
Yet the IEA ends its October report with the declaration that oil producers have little cause for optimism in the long term. At the start of 2020, some experts were predicting that oil prices would not drop below $50 per barrel (bbl) all year. Now, the IEA suggests that the projected curve for oil prices will not reach the $50bbl mark until 2023.
While markets will eventually adapt to these new oil price projections, Canada’s reliance on commodities makes it difficult to foresee any substantial immediate gains for the CAD against the USD. The USD/CAD currency pair may have moved in Canada’s favour for much of the year, but crude oil concerns may provoke momentum in the opposite direction.
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