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In a connected world, a global slowdown will hit Canada, too – CBC.ca

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Could this really be the end of interest rate hikes?

As Canadians wait for Tuesday’s latest domestic inflation reading and real estate sales data, a flurry of economic signals at home and around the world may be telling us that the long path of painful increases in interest rates has done its work and come to an end.

A slowdown in demand is just what the Bank of Canada has been hoping for, allowing production in the economy to catch up with consumption, thus putting the brakes on rising prices.

Ending the interest rate sting?

For borrowers who have been watching the rising cost of mortgage renewals and other loans, an end to the sting of higher lending costs could not come too soon.

But an examination of world events — from the impact of a climate crisis to declining trade to fears of a meltdown in the world’s second-largest economy — may imply Canadians could get more of a slowdown than they have been bargaining for.

Perhaps the biggest portent for Canadian inflation were the figures released last week from our southern neighbour. While the U.S. inflation number out on Thursday jogged up a touch from the previous month, marking the first rise in the headline consumer price index (CPI) in a year, analysts looking at the numbers more deeply said the inflationary trend was heading down.

As of Friday, an average of estimates by bank economists polled by Bloomberg predicted that Canadian inflation would likely follow a similar path, rising from 2.8 per cent in June to three per cent in July.

WATCH | Canada lost about 6,000 jobs in July, a sign of a slowing economy: 

Canada lost about 6,000 jobs in July, a sign of a slowing economy

10 days ago

Duration 2:24

The latest StatsCan jobs numbers show Canada had about fewer jobs last month, a sign the economy is slowing down, according to at least one economist.

The inflation number that gets most of the attention compares prices this year to those one year ago, but after a surge last autumn, prices of many goods have been coming down.

And a measure of U.S. core inflation — the number with volatile food and fuel removed, which is closely watched by central bankers — fell to 3.1 per cent from what had been five per cent as recently as May.

“The core CPI, in particular, adds to recent data that calls into question whether the central bank will need to raise rates again this year, as most officials had projected in June,” the Wall Street Journal reported.

But while stock markets rose on Thursday on the prospect of an end to interest rate hikes, by Friday there were signs that fears for the global economy — notably trouble in the world’s second-largest economic powerhouse, China — contributed to concerns among some traders.

September is the cruellest month

U.S. producer prices released on Friday showed company costs rising, which traders also seemed to read as evidence that even an end to interest rate hikes will not lead to rate cuts as central banks try to ward off a new outbreak of rising prices.

As markets head for the volatile month of September, traditionally the cruellest month for stocks, traders seem to look for things to worry about. But a number of economic indicators point to a slowdown in the medium term.

Plastic letters arranged to read "Inflation" are placed on U.S. Dollar banknote in this illustration taken, June 12, 2022. REUTERS/Dado Ruvic/Illustration/File Photo
While last week’s U.S. figures showed a rise in inflation, analysts say a sharp fall in core inflation may mean the U.S. central bank won’t raise rates this year as many had predicted, taking pressure off Canadian borrowers, too. (Dado Ruvic/Reuters)

“The number shows that we’ve fallen below 50 on a seasonally adjusted basis — it’s at 48.6, which means that we’re actually seeing indications of a slowdown,” Fraser Johnson, a professor in operations management at Western University’s Ivey Business School in London, Ont., and author of the textbook Purchasing and Supply Management, said in a phone conversation last week.

The number Johnson was talking about was the Ivey Purchasing Managers Index, a Canadian economic measure that gets less attention than things like unemployment and inflation. As the director of the group that compiles the index, Johnson said the sudden decline of the data point below 50 is significant.

Like other PMIs around the world, the data is based on a rolling poll of a group of key people across a spectrum of industries and regions who simply say whether their companies are buying more or buying less in any month. In other words, he said, as of the July data, a majority of purchasing managers have given a thumbs down.

Johnson said despite research that shows his 23-year-old PMI has proven itself reliable, only the August reading, expected in early September, will show whether the decline is a blip or a trend. He also points to the strength of the employment component of the index coming in at 54.2, which shows companies are still hiring.

Shrinking global trade is bad for Canada

Johnson said that purchasing by businesses tends to be a leading indicator for the economy. And as David Parkinson reported in the Globe and Mail last week, Canada is far from alone in seeing that indicator decline — demonstrating that manufacturing, and thus trade, may be slowing worldwide.

That matters for Canada, a relatively small economy that depends on trade with its bigger partners. The latest data out last week showed that both imports and exports fell, but exports fell more, leading to the biggest trade deficit in three years.

Canadian exports to the United States declined more that two per cent, but trade with other countries fell even more sharply, down 5.5 per cent.

“Weaker global demand and the fading boost from easing supply shortages took a toll on exports in June, confirming that net trade weighed on second-quarter GDP growth,” Olivia Cross, an economist at Capital Economics, told Reuters last week.

Men work at the construction site of an apartment building in Beijing, China, July 29, 2023. REUTERS/Thomas Peter
Workers are shown at the construction site of an apartment building in Beijing on July 29. Inflation in China, the world’s second-largest economy, has disappeared, leading to falling prices or deflation. It is one more sign of a struggling economy as construction and manufacturing slow. (Thomas Peter/Reuters)

Economists at the Bank of Montreal insisted that last week’s surprise move from rising prices to deflation in China was unlikely to have a strong impact outside that country. But in an article titled “Sputtering Trade Fuels Fears of a Fractured Global Economy,” the Wall Street Journal warned that growing trade divisions would have a slowing effect.

There were also several warnings last week of the medium-term economic impact of climate change, as places like Hawaii are too dry and places like Ottawa are too wet. The insurance costs of disasters are rising, and a new study from the journal Management Science shows that failing to address climate change will increase the cost of public borrowing, with Canada one of the most affected.

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Canada’s unemployment rate holds steady at 6.5% in October, economy adds 15,000 jobs

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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 Press. All rights reserved.

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Health-care spending expected to outpace economy and reach $372 billion in 2024: CIHI

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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.

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Trump’s victory sparks concerns over ripple effect on Canadian economy

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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.

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