The well-scripted turn by global central banks towards tighter, post-pandemic monetary policy has been thrown into doubt by Russia’s invasion of Ukraine, a geopolitical upheaval likely to be felt differently across the world’s major economic centers.
Risks policymakers face globally include a near immediate spike in the price of oil to above $100 dollars a barrel, and longer-term imponderables of what a European land war could do to confidence, investment, trade and the financial system.
Central banks had been positioned for a head-on fight against inflation while expecting continued strong economic growth.
But now, they may now see growth ebb even as prices continue to surge, a conundrum not easily resolved with standard monetary policy strategies.
“For the major advanced economy central banks the intensification of the war now leaves them in a distinctly worse position,” Oxford Economics analysts wrote.
“The high starting point for inflation…will make it hard for central banks to ignore the near-term upward forces on inflation. But at the same time, they will be aware that the latest developments increase the risks of very low inflation in late 2023 or 2024 due to a weaker growth outlook.”
High inflation in the United States and elsewhere makes it unlikely the Federal Reserve, the European Central Bank, and the Bank of England will fully pause what has been a joint turn towards tighter monetary policy.
Indeed less than 24 hours after Russia’s invasion began, Fed Governor Christopher Waller laid out the case for raising U.S. interest rates by a full percentage point by mid-summer.
“Of course, it is possible that the state of the world will be different in the wake of the Ukraine attack, and that may mean that a more modest tightening is appropriate, but that remains to be seen,” he said.
The Bank of Japan is set to keep monetary policy ultra-loose for the foreseeable future. While an expected rise in fuel would push up inflation closer to its 2% target, concern over the damage to consumption will likely exceed the need to combat inflation with tighter policy, analysts say.
“Rising fuel costs would hurt the economy so tightening policy would be difficult. But the hurdle for easing policy is even higher,” said Yoshiki Shinke, chief economist at Dai-ichi Life Research Institute. “That means the BOJ will maintain the status quo for some time.”
INFLATION AGGRAVATOR
Still, analysts said the new level of uncertainty brought on by Russia’s actions could put policymakers in a more cautious mode, likely to settle at the margins for a bit less policy tightening than a bit more.
The Fed would now likely limit itself to a quarter percentage point rate increase at its March meeting, ruling out the half point hike some policymakers have favored, wrote analysts with Evercore ISI.
The Bank of England might also pare its next expected increase, and the ECB delay making any firm promises about its tightening plans.
The path could be more diverse for central banks in Asia.
Singapore’s central bank is likely on track for a policy tightening as it assesses inflationary outcomes in the run-up to its next semi-annual meeting in April, said Selena Ling, an analyst at OCBC Bank.
The war in Ukraine will have mixed implications for commodity exporter Australia, prompting its central bank to keep rates steady next week as it scrutinizes the impact of the crisis.
“While commodity price impacts are likely to be positive for Australia’s terms of trade, higher petrol prices could weigh on consumer spending, as could a negative wealth shock from falling stockmarkets,” aid Felicity Emmet, a senior economist at ANZ.
“We are happy keeping our pick of a September lift-off for rate hikes.”
Other central banks, however, may be forced to focus more on downside risks to growth.
Nomura analysts said a sustained rise in oil and food prices would hit some Asian economies by weakening their current account and fiscal balances and squeezing growth, with India, Thailand and the Philippines likely the main losers.
“Central banks in developed Asia are likely to tighten policies due to the risk of second round effects amidst an already strengthening economy, while central banks in emerging Asia are likely to prioritize still-weak growth,” Nomura analysts wrote in a research note.
(Reporting by Howard Schneider, Leika Kihara and Mark John; Additional reporting by Ann Saphir, Aradhana Aravindan, Anshuman Daga, Wayne Cole and Enrico Dela Cruz; Editing by Dan Burns, Andrea Ricci and Sam Holmes)
OTTAWA – Canada’s unemployment rate held steady at 6.5 per cent last month as hiring remained weak across the economy.
Statistics Canada’s labour force survey on Friday said employment rose by a modest 15,000 jobs in October.
Business, building and support services saw the largest gain in employment.
Meanwhile, finance, insurance, real estate, rental and leasing experienced the largest decline.
Many economists see weakness in the job market continuing in the short term, before the Bank of Canada’s interest rate cuts spark a rebound in economic growth next year.
Despite ongoing softness in the labour market, however, strong wage growth has raged on in Canada. Average hourly wages in October grew 4.9 per cent from a year ago, reaching $35.76.
Friday’s report also shed some light on the financial health of households.
According to the agency, 28.8 per cent of Canadians aged 15 or older were living in a household that had difficulty meeting financial needs – like food and housing – in the previous four weeks.
That was down from 33.1 per cent in October 2023 and 35.5 per cent in October 2022, but still above the 20.4 per cent figure recorded in October 2020.
People living in a rented home were more likely to report difficulty meeting financial needs, with nearly four in 10 reporting that was the case.
That compares with just under a quarter of those living in an owned home by a household member.
Immigrants were also more likely to report facing financial strain last month, with about four out of 10 immigrants who landed in the last year doing so.
That compares with about three in 10 more established immigrants and one in four of people born in Canada.
This report by The Canadian Press was first published Nov. 8, 2024.
The Canadian Institute for Health Information says health-care spending in Canada is projected to reach a new high in 2024.
The annual report released Thursday says total health spending is expected to hit $372 billion, or $9,054 per Canadian.
CIHI’s national analysis predicts expenditures will rise by 5.7 per cent in 2024, compared to 4.5 per cent in 2023 and 1.7 per cent in 2022.
This year’s health spending is estimated to represent 12.4 per cent of Canada’s gross domestic product. Excluding two years of the pandemic, it would be the highest ratio in the country’s history.
While it’s not unusual for health expenditures to outpace economic growth, the report says this could be the case for the next several years due to Canada’s growing population and its aging demographic.
Canada’s per capita spending on health care in 2022 was among the highest in the world, but still less than countries such as the United States and Sweden.
The report notes that the Canadian dental and pharmacare plans could push health-care spending even further as more people who previously couldn’t afford these services start using them.
This report by The Canadian Press was first published Nov. 7, 2024.
Canadian Press health coverage receives support through a partnership with the Canadian Medical Association. CP is solely responsible for this content.
As Canadians wake up to news that Donald Trump will return to the White House, the president-elect’s protectionist stance is casting a spotlight on what effect his second term will have on Canada-U.S. economic ties.
Some Canadian business leaders have expressed worry over Trump’s promise to introduce a universal 10 per cent tariff on all American imports.
A Canadian Chamber of Commerce report released last month suggested those tariffs would shrink the Canadian economy, resulting in around $30 billion per year in economic costs.
More than 77 per cent of Canadian exports go to the U.S.
Canada’s manufacturing sector faces the biggest risk should Trump push forward on imposing broad tariffs, said Canadian Manufacturers and Exporters president and CEO Dennis Darby. He said the sector is the “most trade-exposed” within Canada.
“It’s in the U.S.’s best interest, it’s in our best interest, but most importantly for consumers across North America, that we’re able to trade goods, materials, ingredients, as we have under the trade agreements,” Darby said in an interview.
“It’s a more complex or complicated outcome than it would have been with the Democrats, but we’ve had to deal with this before and we’re going to do our best to deal with it again.”
American economists have also warned Trump’s plan could cause inflation and possibly a recession, which could have ripple effects in Canada.
It’s consumers who will ultimately feel the burden of any inflationary effect caused by broad tariffs, said Darby.
“A tariff tends to raise costs, and it ultimately raises prices, so that’s something that we have to be prepared for,” he said.
“It could tilt production mandates. A tariff makes goods more expensive, but on the same token, it also will make inputs for the U.S. more expensive.”
A report last month by TD economist Marc Ercolao said research shows a full-scale implementation of Trump’s tariff plan could lead to a near-five per cent reduction in Canadian export volumes to the U.S. by early-2027, relative to current baseline forecasts.
Retaliation by Canada would also increase costs for domestic producers, and push import volumes lower in the process.
“Slowing import activity mitigates some of the negative net trade impact on total GDP enough to avoid a technical recession, but still produces a period of extended stagnation through 2025 and 2026,” Ercolao said.
Since the Canada-United States-Mexico Agreement came into effect in 2020, trade between Canada and the U.S. has surged by 46 per cent, according to the Toronto Region Board of Trade.
With that deal is up for review in 2026, Canadian Chamber of Commerce president and CEO Candace Laing said the Canadian government “must collaborate effectively with the Trump administration to preserve and strengthen our bilateral economic partnership.”
“With an impressive $3.6 billion in daily trade, Canada and the United States are each other’s closest international partners. The secure and efficient flow of goods and people across our border … remains essential for the economies of both countries,” she said in a statement.
“By resisting tariffs and trade barriers that will only raise prices and hurt consumers in both countries, Canada and the United States can strengthen resilient cross-border supply chains that enhance our shared economic security.”
This report by The Canadian Press was first published Nov. 6, 2024.
