Business
Fireside Chat – Stephen S. Poloz, Governor
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Introduction
Good morning, everyone, and happy new year. It is great to be here in Vancouver for the Board of Trade’s Economic Outlook Forum.
This part of the event has been billed as a fireside chat. And, while I am happy to share the Bank of Canada’s observations on the economic outlook, I very much hope that I will get the chance to hear from you—business leaders who are making real decisions with real money every day. At the Bank, a large and talented team uses state-of-the-art economic models and reams of data to forecast economic growth and inflation. But just as important is what we learn from talking to Canadians. So I look forward to hearing about what is on your minds for 2020.
The Bank will announce its next interest rate decision and publish a Monetary Policy Report with updated economic projections in a couple of weeks. To help set the stage for our discussion today, let me set out four key areas that are top of mind for the Bank.
Global trade policy developments
The first is the evolution of global trade policy. This has been a pressing concern for the past three years. The impact of protectionist actions, and uncertainty about what might come next, continues to hold back exports and investment globally.
On the surface, there has been some improvement on this front lately, although it remains to be seen whether this will lead to a recovery of trade and investment. The Canada-United States-Mexico Agreement is close to being ratified, and that will remove one big source of uncertainty for many Canadian companies. And the United States and China have agreed to stop raising tariffs and to roll back some of them.
But a lot of damage has been done; this year, we estimate that global GDP will be around 1 percent lower than it would have been without the trade conflict. This loss will likely be permanent, even if growth resumes from that lower level. Plenty of uncertainty remains around the implications of the US-China agreement for Canadian exports and around whether any more of the new tariffs can be rolled back. Some are concerned that the next step will be for the US administration to take similar trade actions against the European Union. It is understandable that companies are reluctant to make big investments in this setting.
Experience tells us that companies always find ways to cope and innovate in the face of such challenges. We want to know how companies are dealing with uncertainty and the upheaval in the global trading system. We want to know if you are rethinking the value chains that you built in the past. If so, we want to know what kinds of alternative arrangements you are putting in place and what that may mean for productivity and prices.
Clearly, the Canadian economy is not immune to global developments. We are watching for signs that adverse impacts of trade disputes are being felt beyond the export sectors that are directly affected. So far, all of the trade actions have been against firms in the goods sector, and the service sector has remained relatively resilient in most countries. We are looking to see the extent to which weakness from manufacturing may be spreading to services, employment, consumer spending or housing. In this regard, the most recent data have been mixed, so we continue to monitor the situation closely.
By the way, next week we will begin publishing a regular report about the Bank’s quarterly Canadian Survey of Consumer Expectations. From now on, we will publish this alongside our current report on the Business Outlook Survey. Taken together with data from our Senior Loan Officer Survey, these give a more complete picture of the expectations of consumers, firms and lenders as an input into our interest rate decisions.
Labour and housing markets
A second area we will be watching closely is the intersection between Canada’s labour and housing markets.
Our labour market has shown a healthy trend over the past year. Even though growth in new jobs seems to have slowed very recently, wage growth has continued to strengthen. We will be watching the data carefully to see how much of the recent moderation persists. In this respect, it is important to understand that labour market conditions vary quite a bit across different regions.
Meanwhile, population growth has increased recently, driven by immigration. This, too, has varied across regions. Provinces such as British Columbia, Ontario and Quebec, where job growth has been strong, continue to attract the bulk of new immigrants. This combination of job growth and rising population has supported a rebound in housing over the past year.
Should this housing rebound continue, we will be watching for signs of extrapolative expectations returning to certain major housing markets—in other words, froth. The fact is, the fundamental demand for housing appears to be outpacing our ability to build new homes, which can put renewed upward pressure on prices. It can be very unhealthy when the situation becomes speculative because it can lead to a sudden downdraft in house prices later, with wider implications for the economy.
Stronger housing activity also means more household debt, of course, which continues to be Canada’s biggest financial system vulnerability. The good news is that with the B-20 guideline working to reduce the riskiest borrowing, we are confident that the stock of household debt is becoming less of a threat over time.
Assessing the economy’s capacity
The third area is business investment. As you know, the trend in business investment has been running below expectations for the past three years. We ascribe this mainly to uncertainty around trade rules.
However, we received a surprise with the national accounts data for the third quarter, which were published at the end of November. This report showed unexpectedly strong growth in business investment. What is more, previous data were revised upward quite significantly.
Staff have been digging into the data, aiming to get a better understanding of what is happening with investment. This is crucial to the outlook for the economy because investment is both important for growth and vital for building the economy’s productive capacity. And the whole concept of investment is evolving with the digitalization of the economy, making it much harder for Statistics Canada to measure. We will have a more complete narrative around this issue in a couple of weeks. But one element that I can mention today is that the revisions have made the federal government’s infrastructure program more visible in the data.
What are financial markets telling us?
The fourth major area for us is to understand what financial markets are telling us. You may recall that a year ago many commentators were talking about the inverted yield curve—short-term interest rates were higher than long-term yields in many markets. Some took this as a sign of imminent recession in Canada and elsewhere. At the time, we were forecasting economic growth for 2019 of close to 2 percent, and some saw this as far too optimistic.
By last October, the Bank was estimating 2019 growth would be about 1.5 percent—a little less than what we had said a year ago, but not too far out of line. The final result will depend on the fourth quarter, but the point is, the dreaded inverted yield curve did not lead to a recession last year. There is certainly some historical correlation between inverted yield curves and recessions. However, in a period of low interest rates and generally flat yield curves, we may see more frequent inversions that indicate slowdowns, rather than recessions.
Meanwhile, many stock markets have been posting record highs lately. This suggests that markets are taking a relatively positive view of the prospects for corporate earnings, despite all the uncertainty over the global trading environment. Certainly, it seems that the potential downside risks have eased as the United States and China approach a deal. This all bears watching during the coming year. Perhaps the lesson from all of this is this: never ignore what markets are telling you, but keep in mind that they are prone to exaggeration.
New $5 note coming
That gives us at least four things to talk about in the fireside chat. But I want to make it five. That is because the Bank of Canada is close to announcing plans for a new $5 bank note. An ongoing priority for us at the Bank is providing Canadians with bank notes that include the latest security features so that they can continue to use them with confidence.
I can tell you today that we will soon be launching public consultations about who should appear on the new $5 note. This will be similar to the public consultations that led to the selection of Viola Desmond for the $10 note. This time we will be asking all Canadians to nominate any historic Canadian—someone who is truly banknote-able. So stay tuned for details about how you can get involved, coming around the end of the month.
With that, let us now turn to our discussion.
Since moving to B.C. from Colombia to go to university, Marylin Moreno has been a regular at Tim Hortons – and she always scans her app so she can play the iconic Roll Up To Win contest.
“I start to roll to see if I can win something, sometimes I have a coffee or a donut,” said Moreno.
On Wednesday, she got an email from Tim Hortons that stopped her in her tracks. “It said, ‘Congratulations, you’ve won four coffees, one donut, and a boat.’ I was like, a boat! Really?” said Moreno.
The prize was a $55,000 fishing boat and trailer. Shaking, Moreno went to the nearest Tim Hortons.
“And I asked them, is this real? I’m not sure it’s real. And they told me yes, it’s real,” said Moreno, who was told to call customer service and wait for further instructions on claiming her prize.
The let down came in an email hours later. “They said, ‘I’m so sorry, we made a mistake, you didn’t win the boat. Please ignore the email.’ And I went oh, my heart! I can’t believe it,“ said Moreno.
She learned she was among hundreds of Roll Up To Win players across the country who got the same email, congratulating them on winning the boat. In the email explaining the error, Tim Hortons said it was meant to be a simple recap of the contest.
The apology email went on to say: “Unfortunately, some of the prizes that you did not win may have been included in the recap email you received. If this was the case, today’s email does not mean you won those prizes.”
Moreno said she understands humans make mistakes, but pointed out this isn’t the first time. In 2023, some Roll Up To Win players were mistakenly told they won a $10,000 prize.
Lindsey Meredith, an SFU marketing professor emeritus, said the fact it’s now happened twice is troubling.
Marylin Moreno was among the false winners of the latest Tim Hortons Roll Up To Win promotion.
“If you start to get a bad reputation, collectively it starts to build. It hurts your brand, it hurts your ability to run future promotions, and it certainly can hurt market segments who get really annoyed when that fishing boat just sunk right underneath them,”said Meredith.
Last time, Tims offered $50 gift cards to the customers who were told they won the big prize and didn’t. Moreno said she hasn’t been offered anything.
“I’m waiting for at least something. Make a customer feel better, so OK you make a mistake, at least you give this customer something good, a gift card, something,” Moreno said.
Meredith agrees, saying: “We start to look at what can we do to make that customer happy again, and if that means giving out a lot of coffee cards, get ‘em out, gang. Because you’ve got a problem on your hands, and it’s lot more than a cup of coffee.”
Moreno said she won’t stop going to Tims, and she will continue to play Roll Up To Win, adding “I want to get a free coffee or free donut.”
But if she gets an email saying she won a bigger prize, she won’t get excited. “I don’t trust them,” she said. “It would be hard for me to believe this.”
Business
Bitcoin's latest 'halving' has arrived. Here's what you need to know – Business News – Castanet.net
The “miners” who chisel bitcoins out of complex mathematics are taking a 50% pay cut — effectively reducing new production of the world’s largest cryptocurrency, again.
Bitcoin’s latest “halving” appeared to occur Friday night. Soon after the highly anticipated event, the price of bitcoin held steady at about $63,907.
Now, all eyes are on what will happen down the road. Beyond bitcoin’s long-term price behavior, which relies heavily on other market conditions, experts point to potential impacts on the day-to-day operations of the asset’s miners themselves. But, as with everything in the volatile cryptoverse, the future is hard to predict.
Here’s what you need to know.
WHAT IS BITCOIN HALVING AND WHY DOES IT MATTER?
Bitcoin “halving,” a preprogrammed event that occurs roughly every four years, impacts the production of bitcoin. Miners use farms of noisy, specialized computers to solve convoluted math puzzles; and when they complete one, they get a fixed number of bitcoins as a reward.
Halving does exactly what it sounds like — it cuts that fixed income in half. And when the mining reward falls, so does the number of new bitcoins entering the market. That means the supply of coins available to satisfy demand grows more slowly.
Limited supply is one of bitcoin’s key features. Only 21 million bitcoins will ever exist, and more than 19.5 million of them have already been mined, leaving fewer than 1.5 million left to pull from.
So long as demand remains the same or climbs faster than supply, bitcoin prices should rise as halving limits output. Because of this, some argue that bitcoin can counteract inflation — still, experts stress that future gains are never guaranteed.
HOW OFTEN DOES HALVING OCCUR?
Per bitcoin’s code, halving occurs after the creation of every 210,000 “blocks” — where transactions are recorded — during the mining process.
No calendar dates are set in stone, but that divvies out to roughly once every four years.
WILL HALVING IMPACT BITCOIN’S PRICE?
Only time will tell. Following each of the three previous halvings, the price of bitcoin was mixed in the first few months and wound up significantly higher one year later. But as investors well know, past performance is not an indicator of future results.
“I don’t know how significant we can say halving is just yet,” said Adam Morgan McCarthy, a research analyst at Kaiko. “The sample size of three (previous halvings) isn’t big enough to say ‘It’s going to go up 500% again,’ or something.”
At the time of the last halving in May 2020, for example, bitcoin’s price stood at around $8,602, according to CoinMarketCap — and climbed almost seven-fold to nearly $56,705 by May 2021. Bitcoin prices nearly quadrupled a year after July 2016’s halving and shot up by almost 80 times one year out from bitcoin’s first halving in November 2012. Experts like McCarthy stress that other bullish market conditions contributed to those returns.
Friday’s halving also arrives after a year of steep increases for bitcoin. As of Friday night, bitcoin’s price stood at $63,907 per CoinMarketCap. That’s down from the all-time-high of about $73,750 hit last month, but still double the asset’s price from a year ago.
Much of the credit for bitcoin’s recent rally is given to the early success of a new way to invest in the asset — spot bitcoin ETFs, which were only approved by U.S. regulators in January. A research report from crypto fund manager Bitwise found that these spot ETFs, short for exchange-traded funds, saw $12.1 billion in inflows during the first quarter.
Bitwise senior crypto research analyst Ryan Rasmussen said persistent or growing ETF demand, when paired with the “supply shock” resulting from the coming halving, could help propel bitcoin’s price further.
“We would expect the price of Bitcoin to have a strong performance over the next 12 months,” he said. Rasmussen notes that he’s seen some predict gains reaching as high as $400,000, but the more “consensus estimate” is closer to the $100,000-$175,000 range.
Other experts stress caution, pointing to the possibility the gains have already been realized.
In a Wednesday research note, JPMorgan analysts maintained that they don’t expect to see post-halving price increases because the event “has already been already priced in” — noting that the market is still in overbought conditions per their analysis of bitcoin futures.
WHAT ABOUT MINERS?
Miners, meanwhile, will be challenged with compensating for the reduction in rewards while also keeping operating costs down.
“Even if there’s a slight increase in bitcoin price, (halving) can really impact a miner’s ability to pay bills,” Andrew W. Balthazor, a Miami-based attorney who specializes in digital assets at Holland & Knight, said. “You can’t assume that bitcoin is just going to go to the moon. As your business model, you have to plan for extreme volatility.”
Better-prepared miners have likely laid the groundwork ahead of time, perhaps by increasing energy efficiency or raising new capital. But cracks may arise for less-efficient, struggling firms.
One likely outcome: Consolidation. That’s become increasingly common in the bitcoin mining industry, particularly following a major crypto crash in 2022.
In its recent research report, Bitwise found that total miner revenue slumped one month after each of the three previous halvings. But those figures had rebounded significantly after a full year — thanks to spikes in the price of bitcoin as well as larger miners expanding their operations.
Time will tell how mining companies fare following this latest halving. But Rasmussen is betting that big players will continue to expand and utilize the industry’s technology advances to make operations more efficient.
WHAT ABOUT THE ENVIRONMENT?
Pinpointing definitive data on the environmental impacts directly tied to bitcoin halving is still a bit of a question mark. But it’s no secret that crypto mining consumes a lot of energy overall — and operations relying on pollutive sources have drawn particular concern over the years.
Recent research published by the United Nations University and Earth’s Future journal found that the carbon footprint of 2020-2021 bitcoin mining across 76 nations was equivalent to emissions of burning 84 billion pounds of coal or running 190 natural gas-fired power plants. Coal satisfied the bulk of bitcoin’s electricity demands (45%), followed by natural gas (21%) and hydropower (16%).
Environmental impacts of bitcoin mining boil largely down to the energy source used. Industry analysts have maintained that pushes towards the use of more clean energy have increased in recent years, coinciding with rising calls for climate protections from regulators around the world.
Production pressures could result in miners looking to cut costs. Ahead of the latest halving, JPMorgan cautioned that some bitcoin mining firms may “look to diversify into low energy cost regions” to deploy inefficient mining rigs.
Business
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