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Forecasting Canada’s economic future is now about risk management, not one-way bets – Financial Post

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In December, I used Montreal-based New Look Vision Group Inc. as an example of the sort of confidence that could explain the unexpected surge in business investment during the third quarter.

But I didn’t mention why chief executive Antoine Amiel was feeling so good.

Unlike, say, the automobile industry, the future burns bright for optometry. Almost everyone acquires presbyopia (farsightedness) by middle age and the population is quickly aging. There’s also a “worldwide crisis of myopia,” Amiel said, because youngsters are spending more time indoors, reducing their exposure to natural light. “Those are fundamentally positive trends for the industry.”

Canada really is the shining star in the demographic game

Antoine Amiel

New Look in November reported its 21st consecutive quarter of comparable store sales growth and its stock price has increased about 40 per cent in five years, more than double the gain achieved by the S&P/TSX Composite Index during the same period.

Things are so bright that New Look, already Canada’s biggest eyewear retailer, is on the hunt of international acquisitions, and in December it purchased a small Florida chain. But the company’s home market will remain its main profit engine because Canada’s population is both aging and growing thanks to surging immigration rates. No other major advanced economy can boast such a combination.

“Canada really is the shining star in the demographic game,” Amiel said.

But befitting a population afflicted with myopia, many of the 2020 outlooks you have read suffer from varying degrees of shortsightedness: They tend to focus on whether the economy will grow moderately faster or somewhat slower. They wonder if stock prices will claw their way to new records, or ease off the peaks achieved in 2019. They debate whether the Bank of Canada will raise interest rates a quarter of a percentage point or not at all.

A better way to think about the year ahead is to contemplate the extent to which a handful of meta-forces will disrupt our best efforts to predict the next 12 months to the tenth decimal point. Many of these calculations are based on how economies have behaved in decades past, and we know that a handful of new phenomena, such as a planet seized by climate change, will have structural implications not seen before. Forecasting the years ahead calls for risk management, not one-way bets.

Demographics is one of those meta-forces, and possibly the most important one for economic growth.

Last year should have been a bad one based on our general understanding of what makes the Canadian economy tick. The Alberta energy industry was in crisis and trade wars choked global demand for exports. The Bank of Nova Scotia’s forecasting team began 2019 thinking that the Bank of Canada would raise interest rates. It flipped midyear, persuaded that the U.S.-China tariff fight would force the central bank to lower borrowing costs. Global economic growth had slowed to its weakest since the Great Recession. What chance did a small, open economy such as ours have in circumstances such as those?

And yet we muddled through, mostly because Canada recruited a small army of economic actors.

The loudest sound of the 2020s may be the ticking of the demographic time bomb

RBC economists

The population grew by almost 210,000 people in the third quarter, the biggest quarterly increase since 1971, according to Bloomberg. Most of the gain was the result of immigration, and the majority of those newcomers found jobs. The jobless rate hovered around the lowest on record since the mid-1970s. About 83 per cent of Canadians aged 25 to 54 are working, the highest percentage on record, according to Statistics Canada.

There’s little reason to expect those trends will reverse. Unlike the United States and Europe, Canadian immigration policy is tilted to receiving more newcomers, not fewer. And there’s lots of work: StatCan’s quarterly surveys of hiring intentions consistently put the number of unfilled positions at far more than 500,000. The shortage of workers partly explains why wages have started to rise after years of stagnation.

Unfortunately, demographics aren’t as unambiguously positive for the broader economy as they are for New Look. “The loudest sound of the 2020s may be the ticking of the demographic time bomb,” economists at Royal Bank of Canada said in a Jan. 3 report that previews the next decade.

Current immigration rates won’t stop Canada from joining the club of “super-aged societies,” as the Royal Bank analysis predicts about a quarter of the population will be seniors in 2030, compared with about 17 per cent currently. Unless those men and women decide to work into their 70s, the economy will fundamentally change. Consumption patterns will shift and demand for government services will increase. The Royal Bank study predicts there will be 1.7 Canadians of working age in 2030 compared with 2.3 in 2010.

“The financial demands of an older population will make it harder for governments to fund key growth priorities like education and skills development, let alone the vote-getting niche initiatives they often advance at election time,” the report said.

Without some kind of catalyst, demographics will reduce Canada’s economic potential. Productivity rates are weak, so the growing population isn’t generating as much wealth as it could. But positive surprises are also possible. Politicians could decide to accept even greater numbers of immigrants. Royal Bank sees opportunities in real estate, from both demand by seniors for retirement housing and the increased supply of property due to the larger homes they will abandon.

The good news is that Canada will confront these challenges from a position of relative strength. Amiel said one of New Look’s greatest challenges is finding workers so it can keep up with demand. “In many provinces of Canada, we are close to full employment for retailers and manufacturers,” he said. “It’s a challenge, but there is a flip side. It’s probably a better thing to have to pay a few dollars more an hour and have plenty of customers than the reverse.”

• Email: kcarmichael@nationalpost.com | Twitter:

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Biden's Burdens Grow: Sagging Global Economy Adds to US Woes – U.S. News & World Report

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Biden’s Burdens Grow: Sagging Global Economy Adds to US Woes  U.S. News & World Report



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How the housing slowdown could hobble Canada's economy – The Globe and Mail

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Home sales fell nationwide by 12.6 per cent in April from March, with even steeper pullbacks seen in Toronto and Vancouver markets.Richard Buchan/The Canadian Press

The housing downturn that’s taking root across Canada will act as a headwind to economic growth this year, following a period in which real estate powered the economic recovery from COVID-19, but was also characterized by fervent speculation and worsening affordability amid ultralow interest rates.

Nationwide home sales fell 12.6 per cent in April from March, with even steeper pullbacks seen in the frothy markets of Toronto and Vancouver. The national home price index, which adjusts for volatility, fell just 0.6 per cent last month, although price drops were larger in some parts of Southern Ontario.

Rising interest rates have put a quick chill on a feverish rally. Given that more rate hikes are on the way, many economists say Canada could be in the early stages of a protracted housing slump, albeit one welcomed by would-be buyers who got priced out.

For an economy that increasingly relies on housing, the downturn will likely weigh on economic growth in the near future – not only through direct channels, such as reduced real estate commissions, but in indirect ways, such as weaker spending from households that gorged on mortgages and now face higher debt-servicing costs.

The pandemic housing boom is winding down. Economists forecast a 10-20% price correction

Toronto housing market ‘suddenly getting into buyers market terrain’: BMO chief economist

“Unfortunately for Canada, we’re in a pretty perilous situation now where our housing activity measures are extremely stretched. … The pandemic basically put what was already stretched on steroids,” said David Doyle, head of economics at Macquarie Group.

As home sales drop and interest rates head higher, “that does create significant downside risks for Canada’s economy,” he added.

Already the largest industry in Canada, real estate became an even bigger chunk of the economy during the pandemic, largely due to record-low mortgage rates that encouraged rabid buying.

Residential investment, as a share of nominal gross domestic product, soared to about 10 per cent at peak times over the past two years, amounting to more than $240-billion in 2021. That’s up from about 7 per cent of GDP before the pandemic – or double the equivalent rate in the United States. For housing bears, it’s a sign that Canadians have become far too infatuated with real estate, and that the country’s economic fortunes are too tied up with those of the sector.

Total residential investment is comprised of three items: new construction, renovations and ownership transfer costs, which include fees to realtors, land transfer taxes and other transaction costs.

This final aspect of investment is most directly exposed to a slump. Mr. Doyle said the April sales drop, if followed by flatter activity in May and June, could curb GDP growth in the second quarter by as much as 1.5 percentage points, on an annualized basis. If sales continue to drop, the drag would be larger.

And that’s before accounting for the potential knock-on effects of weaker home-buying activity, such as fewer renovations and purchases of household appliances.

In its latest forecast, the Bank of Canada estimated the economy would grow by 6 per cent in the second quarter on an annualized basis. “That feels like a stretch to me,” Mr. Doyle said.

Home construction is an aspect of GDP that could hold up well. The federal government wants to double the pace of home building over the next decade, and other levels of government say they also want to add supply. However, Bank of Montreal senior economist Robert Kavcic doubts construction can get much bigger. He pointed to already strong housing starts and a shortage of available workers.

“Physically, there’s no way we can actually double the rate of home construction from what is already the maximum amount of home construction that we can do in this country,” he said.

That said, Mr. Kavcic doesn’t see residential investment, as a percentage of the economy, heading back to the tepid levels of the 1990s. The fundamentals for housing demand are still strong, he said, in part because Canada is targeting a record intake of permanent residents in the coming years.

“I think the issue here is that through 2021, monetary policy was just too easy for too long,” he said. “So, the asset price just ran ahead of what was fundamentally justified.”

The Bank of Canada has raised its policy rate twice this year, taking it to 1 per cent from a pandemic low of 0.25 per cent. Bank officials have said they intend to raise the benchmark rate into a “neutral” range – which neither stimulates the economy nor inhibits it – of 2 per cent to 3 per cent in fairly short order.

The central bank has warned the Canadian economy is likely more sensitive to rising borrowing costs than it used to be. After taking on loads of new mortgage debt over the past two years, the average household now owes a record $1.86 for every dollar of disposable income. During the pandemic, investors have plowed into the housing market, and a growing share of borrowers have steep loan-to-income ratios.

Ultimately, the concern is that debt-addled households will be forced to tighten their belts and drastically reduce their spending.

“Rising interest rates are designed to slow the economy by making borrowing more expensive. That tends to slow sectors like housing,” said Toni Gravelle, a deputy governor at the Bank of Canada, in a speech last week.

“But this slowing might be amplified this time around because highly indebted households will face high debt-servicing costs and will likely reduce household spending more than they would have otherwise. Our base-case scenario includes a slowdown in housing activity. But we could see a larger-than-expected slowdown due to higher indebtedness and unsustainably high housing prices.”

How those financially stretched households react to higher interest rates could force the Bank of Canada to “pause” its rate-hike cycle, Mr. Gravelle noted.

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China calls for urgent boost to virus-hit economy – FRANCE 24 English

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Issued on: 18/05/2022 – 15:36Modified: 18/05/2022 – 15:35

Beijing (AFP) – China’s premier called for greater “urgency” in rolling out measures to support the virus-battered economy, state media reported Wednesday, days after data highlighted the stark impact of Covid-19 restrictions.

China — the last major global economy sticking to a rigid zero-Covid policy — is battling an economic slump due to prolonged virus lockdowns that have constricted supply chains, quelled demand and stalled manufacturing.

“All localities and departments should step up their sense of urgency, and new measures that can be used should be used,” Li Keqiang said at a symposium on Wednesday, according to state broadcaster CCTV.

He added that efforts to support the economy should bring it “back to normal quickly” after admitting that indicators have “weakened significantly” since March, with a particular dip in April.

On Monday, data showed retail sales and factory output last month had slumped the most since the start of the pandemic, while unemployment edged back toward its February 2020 peak.

Beijing’s unrelenting approach to Covid-19 outbreaks has snarled supply chains and locked down tens of millions of people, hitting major financial, industrial and tourist hubs.

The country’s borders also remain closed to most foreign travellers and a slew of international sports events have been scrapped over pandemic concerns.

China has targeted full-year growth of around 5.5 percent, but data published in April showed that first-quarter growth slowed to 4.8 percent after the world’s second-biggest economy lost steam in the latter half of last year.

And the economic targets have a political dimension for Chinese leader Xi Jinping, who is eyeing another term in power.

Xi has pinned his legacy to China’s strong economic growth and winning the “battle” against Covid.

But the current outbreak is the country’s worst since the virus emerged in Wuhan in late 2019, and the economy is beginning to weaken.

Tech support

Li also called Wednesday for backing Chinese tech companies’ bids to list domestically and abroad, a day after Communist Party leaders doubled down on support for the tech sector in a rare meeting with executives.

China’s economic slowdown appears to have motivated a softer approach toward the vast, money-spinning tech sector, after an 18-month clampdown driven by fears massive internet companies control too much data and expanded too quickly.

Vice Premier Liu He and other Communist leaders addressed executives, including Robin Li of Baidu — universally used for its search engine and mapping service — and Zhou Hongyi of internet security firm Qihoo 360, state media reported late Tuesday.

Liu offered support for “the sustainable and healthy development of the platform economy and the private economy,” CCTV said.

During the tech crackdown, overseas IPOs from Alibaba’s Ant Group and Didi Chuxing — China’s Uber — were spiked, while millions of dollars of fines over anti-trust and data breaches were ladled out to tech giants.

Chinese tech shares surged late April after officials pledged support for internet firms at a Politburo meeting.

Tech giants including Alibaba, Tencent and Baidu were marginally lower Wednesday morning, with e-commerce behemoth JD slumping over 4 percent after it recorded a 3 billion yuan ($444 million) loss in first-quarter earnings.

On Wednesday, Tencent reported record-low quarterly revenue growth at nearly zero, reaching the slowest pace since the company went public in 2004.

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