Kevin Carmichael: Economy grew at an annual rate of 6.7 per cent in the fourth quarter, much faster than the Bank of Canada was expecting
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Mar 01, 2022 • 12 hours ago • 5 minute read • 46 Comments
The Canadian economy grew at an annual rate of 6.7 per cent in the fourth quarter, much faster than the Bank of Canada was expecting, guaranteeing an interest-rate increase when policy-makers announce the results of their latest policy deliberations on March 2.
A war in Europe has upended the near-term outlook, which was dominated entirely by inflation until the middle of last week, when Russian President Vladimir Putin stunned the world by sending a wave of troops into Ukraine. Inflation remains too high for the Bank of Canada to ignore, especially with evidence of strong demand.
“Canada’s economic engine was going almost full throttle,” Arlene Kish, director of Canadian economics at S&P Global Inc., said in a note to clients.
Kish predicted a quarter-point increase, a “first step in slowing demand as supply catches up,” she said. “Geopolitical events are impacting energy prices, adding to already strong inflationary pressures, and may require the Bank of Canada to act more swiftly during the initial monetary policy tightening cycle.”
Business investment, fees related to home sales and company stockpiling led the surge in economic growth in the fourth quarter, Statistics Canada said. The latter could help offset inflation pressures, since it suggests companies were either learning how to deal with all the supply disruptions that came with the pandemic, or had decided to build their inventories in anticipation of new ones.
“The inventory component of GDP was generally a much larger boost to (fourth-quarter) growth than we had penciled in, similar to end-of-2021 GDP data in the U.S.,” Veronica Clark, an economist at Citigroup Global Markets Inc., said in a note. “This could partly be due to continued global supply issues, as inventories of intermediate goods are accumulated while final production is stalled due to shortages of some final inputs.”
A separate Statistics Canada report showed that GDP, based on output by industries, was little changed in December, suggesting the economy held up in the face of the Omicron wave of COVID-19 infections. The agency said preliminary information suggests GDP increased 0.2 per cent in January, a positive surprise, because there had been speculation that strict health restrictions in Ontario and Quebec might have caused economic growth to stall at the beginning of the year.
“These reports clear the way for the Bank of Canada to begin its hiking process,” Phil Suttle, a former Bank of England and New York Fed economist who now runs his own research firm, Suttle Economics, said in a note to his clients.
The Bank of Canada in January predicted Canada’s gross domestic product would grow at an annual rate of 5.8 per cent in the fourth quarter, a strong enough estimate for the central bank to conclude the time had come to end its promise to keep the benchmark interest rate near zero until at least the spring of 2022.
Canada’s economy ended 2021 with considerable momentum, as the fourth-quarter acceleration followed growth at an annual rate of 5.5 per cent in the third quarter, which was also much faster than the country’s economy typically expands.
Overall, GDP grew 4.3 per cent in 2021, enough to get back to $2.13 trillion, slightly more than at the end of 2019. The eight-quarter recovery was a bit faster than the average 8.75 quarters it took GDP to recover during Canada’s five recessions since 1974, according to Jocelyn Paquet, an economist at National Bank Financial.
Household spending led the most recent recovery, as Canadians took advantage of elevated savings and low interest rates to buy houses. New construction, resales and renovations were at record levels. Mortgage debt climbed 10.3 per cent in 2021, an unprecedented increase of $182.4 billion, Statistics Canada said.
That consumption impulse could begin to fade, as household disposable income dropped 1.3 per cent in the fourth quarter from the previous quarter, even as employee compensation increased 1.9 per cent.
The main reason was the federal government’s tapering of emergency benefits, as government transfers to people dropped almost 12 per cent in the final three months of 2021. Transfers were about 19 per cent of all disposable income, marking a return to pre-pandemic levels of less than 20 per cent, Statistics Canada said.
The savings rate dropped to 6.4 per cent from nine per cent, still high by recent historical standards, but down from the previous five quarters, when the savings rate was above 10 per cent.
Prices for financial assets tied to short-term interest rates suggest traders’ confidence that the Bank of Canada will raise interest rates is fading, as worries that the financial and economic sanctions the West is using to hobble Putin’s ability to fight a war could lead to a global recession or financial instability.
Inflation is probably the greater threat to Canada, at least for now. The consumer price index surged to 5.1 per cent in January from a year earlier, the biggest increase since the central bank started targeting inflation in 1991.
Even if much of that inflation is related to supply issues, and, therefore, beyond the Bank of Canada’s control, the latest GDP numbers show there is also a demand element. Commodity prices are surging anew because of the war, and that will strengthen demand in Canada because the country exports much of what Russia and Ukraine export.
The Bank of Canada’s target for year-over-year increases in the CPI is two per cent. Some economists observed inflation might also now be hurting growth, as weaker consumption could be the result of higher prices.
“This morning’s GDP reports underline the risks from waiting,” economists at RBC Capital Markets said in a report. “From a fundamental perspective, there is no real justification for the BoC to avoid raising rates due to developments in Russia.”
• Email: kcarmichael@postmedia.com | Twitter: carmichaelkevin
TOKYO (AP) — Japanese technology group SoftBank swung back to profitability in the July-September quarter, boosted by positive results in its Vision Fund investments.
Tokyo-based SoftBank Group Corp. reported Tuesday a fiscal second quarter profit of nearly 1.18 trillion yen ($7.7 billion), compared with a 931 billion yen loss in the year-earlier period.
Quarterly sales edged up about 6% to nearly 1.77 trillion yen ($11.5 billion).
SoftBank credited income from royalties and licensing related to its holdings in Arm, a computer chip-designing company, whose business spans smartphones, data centers, networking equipment, automotive, consumer electronic devices, and AI applications.
The results were also helped by the absence of losses related to SoftBank’s investment in office-space sharing venture WeWork, which hit the previous fiscal year.
WeWork, which filed for Chapter 11 bankruptcy protection in 2023, emerged from Chapter 11 in June.
SoftBank has benefitted in recent months from rising share prices in some investment, such as U.S.-based e-commerce company Coupang, Chinese mobility provider DiDi Global and Bytedance, the Chinese developer of TikTok.
SoftBank’s financial results tend to swing wildly, partly because of its sprawling investment portfolio that includes search engine Yahoo, Chinese retailer Alibaba, and artificial intelligence company Nvidia.
SoftBank makes investments in a variety of companies that it groups together in a series of Vision Funds.
The company’s founder, Masayoshi Son, is a pioneer in technology investment in Japan. SoftBank Group does not give earnings forecasts.
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The Canadian Press. All rights reserved.
Shopify Inc. executives brushed off concerns that incoming U.S. President Donald Trump will be a major detriment to many of the company’s merchants.
“There’s nothing in what we’ve heard from Trump, nor would there have been anything from (Democratic candidate) Kamala (Harris), which we think impacts the overall state of new business formation and entrepreneurship,” Shopify’s chief financial officer Jeff Hoffmeister told analysts on a call Tuesday.
“We still feel really good about all the merchants out there, all the entrepreneurs that want to start new businesses and that’s obviously not going to change with the administration.”
Hoffmeister’s comments come a week after Trump, a Republican businessman, trounced Harris in an election that will soon return him to the Oval Office.
On the campaign trail, he threatened to impose tariffs of 60 per cent on imports from China and roughly 10 per cent to 20 per cent on goods from all other countries.
If the president-elect makes good on the promise, many worry the cost of operating will soar for companies, including customers of Shopify, which sells e-commerce software to small businesses but also brands as big as Kylie Cosmetics and Victoria’s Secret.
These merchants may feel they have no choice but to pass on the increases to customers, perhaps sparking more inflation.
If Trump’s tariffs do come to fruition, Shopify’s president Harley Finkelstein pointed out China is “not a huge area” for Shopify.
However, “we can’t anticipate what every presidential administration is going to do,” he cautioned.
He likened the uncertainty facing the business community to the COVID-19 pandemic where Shopify had to help companies migrate online.
“Our job is no matter what comes the way of our merchants, we provide them with tools and service and support for them to navigate it really well,” he said.
Finkelstein was questioned about the forthcoming U.S. leadership change on a call meant to delve into Shopify’s latest earnings, which sent shares soaring 27 per cent to $158.63 shortly after Tuesday’s market open.
The Ottawa-based company, which keeps its books in U.S. dollars, reported US$828 million in net income for its third quarter, up from US$718 million in the same quarter last year, as its revenue rose 26 per cent.
Revenue for the period ended Sept. 30 totalled US$2.16 billion, up from US$1.71 billion a year earlier.
Subscription solutions revenue reached US$610 million, up from US$486 million in the same quarter last year.
Merchant solutions revenue amounted to US$1.55 billion, up from US$1.23 billion.
Shopify’s net income excluding the impact of equity investments totalled US$344 million for the quarter, up from US$173 million in the same quarter last year.
Daniel Chan, a TD Cowen analyst, said the results show Shopify has a leadership position in the e-commerce world and “a continued ability to gain market share.”
In its outlook for its fourth quarter of 2024, the company said it expects revenue to grow at a mid-to-high-twenties percentage rate on a year-over-year basis.
“Q4 guidance suggests Shopify will finish the year strong, with better-than-expected revenue growth and operating margin,” Chan pointed out in a note to investors.
This report by The Canadian Press was first published Nov. 12, 2024.
Companies in this story: (TSX:SHOP)
The Canadian Press. All rights reserved.
TORONTO – RioCan Real Estate Investment Trust says it has cut almost 10 per cent of its staff as it deals with a slowdown in the condo market and overall pushes for greater efficiency.
The company says the cuts, which amount to around 60 employees based on its last annual filing, will mean about $9 million in restructuring charges and should translate to about $8 million in annualized cash savings.
The job cuts come as RioCan and others scale back condo development plans as the market softens, but chief executive Jonathan Gitlin says the reductions were from a companywide efficiency effort.
RioCan says it doesn’t plan to start any new construction of mixed-use properties this year and well into 2025 as it adjusts to the shifting market demand.
The company reported a net income of $96.9 million in the third quarter, up from a loss of $73.5 million last year, as it saw a $159 million boost from a favourable change in the fair value of investment properties.
RioCan reported what it says is a record-breaking 97.8 per cent occupancy rate in the quarter including retail committed occupancy of 98.6 per cent.
This report by The Canadian Press was first published Nov. 12, 2024.
Companies in this story: (TSX:REI.UN)
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