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Economy, consumer spending bounces back in Q3 as new variant stirs concerns – Alaska Highway News

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OTTAWA — The economy bounced back sharply in the third quarter of the year after taking a walloping in the preceding three-month stretch, in a demonstration of what may be in store as COVID-19 concerns wane and Canadians start spending anew.

Statistics Canada said Tuesday the economy grew at an annual rate of 5.4 per cent in the third quarter of this year as COVID-19 restrictions eased and household spending rose.

The result was a rebound from a contraction in the second quarter that Statistics Canada also said Tuesday was deeper than it previously reported.

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Quarterly growth in household spending was one of the largest on record. Consumers spent their money at restaurants, bars, hotels and on air travel, which jumped 181.9 per cent as more travellers took to the skies.

Offsetting those soaring figures was floundering business investment and lower consumer spending on goods like cars.

TD senior economist Sri Thanabalasingam said growth in real domestic product could have been even stronger in the third quarter if not for global supply-chain issues.

But celebrations were quickly grounded by severe flooding in British Columbia, and concerns about a new, possibly more transmissible variant of COVID-19.

CIBC chief economist Avery Shenfled said the Omicron variant, a potential retightening of restriction and the need for booster shots could all affect the next leg of the economic recovery, 

“A summer lull in COVID worries brought Canadians out to party, and their spending spree was fun while it lasted,” he wrote in a note, “but we’re facing new concerns about whether a more vaccine-resistant variant could set back the timetable for further growth.”

Statistics Canada said the third quarter ended with the economy edging up by 0.1 per cent in September, as broad gains in service industries were offset by declines in manufacturing that was partly pulled down by a global shortage of semiconductor chips.

The agency also said preliminary data suggests the economy grew by 0.8 per cent in October to start the final quarter of the year, led by manufacturing.

Statistics Canada said that with that estimate, total economic activity was about 0.5 per cent below the pre-pandemic level recorded in February 2020.

Stephen Brown, senior Canada economist with Capital Economics, said the shortfall should be made up by the end of this year or early next. He also said the path for the economy should lead the Bank of Canada to raise its trendsetting interest rate by the middle of 2022.

“Certainly, we’re getting to the final stages of a recovery here and starting to think about tightening (monetary) policy,” Brown said.

The federal government has already tightened its pandemic purse strings. In October, the Trudeau Liberals ended broad benefits to workers and businesses in favour of more targeted support outlined in a bill now before the House of Commons.

The parliamentary budget officer on Tuesday estimated more targeted rent support to still hurting businesses would push the overall price tag for the supplement to $8.3 billion. 

In two other reports, the PBO estimated the cost of extending pandemic sickness benefits to May would cost $373.8 million, and $554 million to add extra weeks of eligibility to the federal caregiving benefit.

Statistics Canada noted that government transfers dropped in the third quarter as employee compensation rose 2.9 per cent, which was one of the largest bumps over the last two decades.

The extra spending outpaced the growth in disposable income, which dropped the savings rate to 11 per cent from 14 per cent in the second quarter. The savings rate is still well above pre-pandemic levels.

“Households are well-prepared to deal with potential challenges ahead, and there is still plenty of gas in the tank to fuel an eventual comeback in the service sector,” wrote BMO chief economist Douglas Porter. 

This report by The Canadian Press was first published Nov. 30, 2021.

Jordan Press, The Canadian Press

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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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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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Opinion: The future economy will suffer if Canada axes the carbon tax – The Globe and Mail

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Open this photo in gallery:

Poilievre holds a press conference regarding his “Axe the Tax” message from the roof a parking garage in St. John’s on Oct.27, 2023.Paul Daly/The Canadian Press

Kevin Yin is a contributing columnist for The Globe and Mail and an economics doctoral student at the University of California, Berkeley.

The carbon tax is the single most effective climate policy that Canada has. But the tax is also an important industrial strategy, one that bets correctly on the growing need for greener energy globally and the fact that upstart Canadian companies must rise to meet these needs.

That is why it is such a shame our leaders are sacrificing it for political gains.

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The fact that carbon taxes address a key market failure in the energy industry – polluters are not incentivized to consider the broader societal costs of their pollution – is so well understood by economists that an undergraduate could explain its merits. Experts agree on the effectiveness of the policy for reducing emissions almost as much as they agree on climate change itself.

It is not just that pollution is bad for us. That a patchwork of policies supporting clean industries is proliferating across the United States, China and the European Union means that Canada needs its own hospitable ecosystem for clean-energy companies to set up shop and eventually compete abroad. The earlier we nurture such industries, the more benefits our energy and adjacent sectors can reap down the line.

But with high fixed costs of entry and non-negligible technological hurdles, domestic clean energy is still at a significant disadvantage relative to fossil fuels.

A nuclear energy company considering a reactor project in Canada, for example, must contend with the fact that the upfront investments are enormous, and they may not pay off for years, while incumbent oil and gas firms benefit from low fixed costs, faster economies of scale and established technology.

The carbon tax cannot address these problems on its own, but it does help level the playing field by encouraging demand and capital to flow toward where we need it most. Comparable policies like green subsidies are also useful, but second-best; they weaken the government’s balance sheet and in certain cases can even make emissions worse.

Unfortunately, these arguments hold little sway for Pierre Poilievre’s Conservatives, who called for a vote of no-confidence on the dubious basis that the carbon tax is driving the cost-of-living crisis. Nor is it of much consequence to provincial leaders, who have fought the federal government hard on implementing the tax.

Not only is this attack a misleading characterization of the tax’s impact, it is also a deeply political gambit. Most expected the vote to fail. Yet by centering the next election on the carbon tax debate, Mr. Poilievre is hedging against the possibility of a new Liberal candidate, one who lacks the Trudeau baggage but still holds the line on the tax.

With the reality of inflation, a housing crisis and a general atmosphere of Trudeau-exhaustion, Mr. Poilievre has plenty of ammunition for an election campaign that does not leave our climate and our clean industries at risk. The temptation to do what is popular is ever-present in politics. Leadership is knowing when not to.

Nor are the Liberals innocent on this front. The Trudeau government deserves credit for pushing the tax through in the first place, and for structuring it as revenue-neutral. But the government’s attempt to woo Atlantic voters with the heating oil exemption has eroded its credibility and opened a vulnerable flank for Conservative attacks.

Thus, Canadian businesses are faced with the possibility of a Conservative government which has promised to eliminate the tax altogether. This kind of uncertainty is a treacherous environment for nascent companies and existing companies on the precipice of investing billions of dollars in clean tech and processes, under the expectation that demand for their fossil fuel counterparts are being kept at bay.

The tax alone is not enough; the government and opposition need to show the private sector that it can be consistent about this new policy regime long enough for these green investments to pay off. Otherwise, innovation in these much-needed technologies will remain stagnant in Canada, and markets for clean energy will be dominated by our more forward-thinking competitors.

A carbon tax is not a panacea for our climate woes, but it is central to any attempt to protect a rapidly warming planet and to develop the right businesses for that future. We can only hope that the next generation of Canadian leaders will have a little more vision.

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