Economy

Is a recession coming for the Canadian economy?

Published

2 years ago

April 28, 2022

Toronto –

As inflation driven by the pandemic and Russia’s war on Ukraine continues to impact the economy in Canada and around the world, there are serious concerns that a recession could be on the horizon.

Earlier this month, Deutsche Bank became one of the first major banks to forecast a U.S. recession later next year. At the time, the bank said it expected to see a “mild” recession. But on Wedensday, it revised its forecast, warning a recession could be “significant.”

Former CIBC World Markets chief economist Jeff Rubin says he agrees with that outlook and expects a recession could be even worse than Deutsche Bank’s prediction.

“It probably goes without saying that that outlook is equally valid for the Canadian economy, as it is for the American economy,” he told CTV’s Your Morning on Thursday. “The reason why that outlook is the most likely to occur, is because … runaway inflation has always led and ended in significant recessions for the last 50 years.

Last week, Statistics Canada reported that Canada’s inflation rate had risen to 6.7 per cent in March, a 31-year-high. In the U.S., the Department of Labor two weeks ago said inflation spiked to 8.5 per cent, the highest since 1981.

COVID-19-induced supply chain constraints around the world continue to contribute to higher prices on everyday goods. On top of that, sanctions on Russia imposed by the U.S., Canada and Europe have propelled skyrocketing prices for energy and wheat.

The Bank of Canada and the U.S. Federal Reserve have attempted to curb inflation by steadily increasing interest rates. Two weeks ago, Canada’s central bank raised its key interest rate by a half point to one per cent. The U.S. Fed last month approved a 0.25 percentage point rate hike to 0.5 per cent, and Fed Chairman Jerome Powell has said the central bank needs to raise rates “expeditiously” to address inflation.

But Deutsche Bank says it expects the Fed will hike interest rates so aggressively a recession could ensue.

Typically, a recession leads to deflation or slower inflation, as declining demand for goods and investment drives prices down. However, in the worst-case scenario, Rubin says we could see “stagflation,” a term used to describe high inflation coinciding with poor economic growth and high unemployment that was seen in the 1970s.

“I think that that’s a real concern. The World Bank just put out a report saying that the world faces the largest inflation shock that it has in the last 50 years. And there’s unique factors happening here that will not necessarily be remedied by a recession,” he said.

“Russia … is the world’s largest resource producer. If they continue (the war), then we may see pressures on resource prices, even with a recession, because so much of supply from wheat to oil will be taken off the market,” Rubin continued.

But not all economists are predicting economic doom and gloom. In a forecast published last week, Goldman Sachs said it expects the U.S. economy to avoid a contraction, given the red-hot job market and that households have more savings at their disposal compared to the onset of previous recessions. The Wall Street bank says the likelihood of a recession is 15 per cent in the next 12 months and 35 per cent within the next 24 months.

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Economy

Energy stocks help lift S&P/TSX composite, U.S. stock markets also up

Published

1 day ago

September 17, 2024

Anne Joseph

TORONTO – Canada’s main stock index was higher in late-morning trading, helped by strength in energy stocks, while U.S. stock markets also moved up.

The S&P/TSX composite index was up 34.91 points at 23,736.98.

In New York, the Dow Jones industrial average was up 178.05 points at 41,800.13. The S&P 500 index was up 28.38 points at 5,661.47, while the Nasdaq composite was up 133.17 points at 17,725.30.

The Canadian dollar traded for 73.56 cents US compared with 73.57 cents US on Monday.

The November crude oil contract was up 68 cents at US$69.70 per barrel and the October natural gas contract was up three cents at US$2.40 per mmBTU.

The December gold contract was down US$7.80 at US$2,601.10 an ounce and the December copper contract was up a penny at US$4.28 a pound.

This report by The Canadian Press was first published Sept. 17, 2024.

Companies in this story: (TSX:GSPTSE, TSX:CADUSD)

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Economy

Canada’s inflation rate hits 2% target, reaches lowest level in more than three years

Published

1 day ago

September 17, 2024

Anne Joseph

OTTAWA – Canada’s inflation rate fell to two per cent last month, finally hitting the Bank of Canada’s target after a tumultuous battle with skyrocketing price growth.

The annual inflation rate fell from 2.5 per cent in July to reach the lowest level since February 2021.

Statistics Canada’s consumer price index report on Tuesday attributed the slowdown in part to lower gasoline prices.

Clothing and footwear prices also decreased on a month-over-month basis, marking the first decline in the month of August since 1971 as retailers offered larger discounts to entice shoppers amid slowing demand.

The Bank of Canada’s preferred core measures of inflation, which strip out volatility in prices, also edged down in August.

The marked slowdown in price growth last month was steeper than the 2.1 per cent annual increase forecasters were expecting ahead of Tuesday’s release and will likely spark speculation of a larger interest rate cut next month from the Bank of Canada.

“Inflation remains unthreatening and the Bank of Canada should now focus on trying to stimulate the economy and halting the upward climb in the unemployment rate,” wrote CIBC senior economist Andrew Grantham.

Benjamin Reitzes, managing director of Canadian rates and macro strategist at BMO, said Tuesday’s figures “tilt the scales” slightly in favour of more aggressive cuts, though he noted the Bank of Canada will have one more inflation reading before its October rate announcement.

“If we get another big downside surprise, calls for a 50 basis-point cut will only grow louder,” wrote Reitzes in a client note.

The central bank began rapidly hiking interest rates in March 2022 in response to runaway inflation, which peaked at a whopping 8.1 per cent that summer.

The central bank increased its key lending rate to five per cent and held it at that level until June 2024, when it delivered its first rate cut in four years.

A combination of recovered global supply chains and high interest rates have helped cool price growth in Canada and around the world.

Bank of Canada governor Tiff Macklem recently signalled that the central bank is ready to increase the size of its interest rate cuts, if inflation or the economy slow by more than expected.

Its key lending rate currently stands at 4.25 per cent.

CIBC is forecasting the central bank will cut its key rate by two percentage points between now and the middle of next year.

The U.S. Federal Reserve is also expected on Wednesday to deliver its first interest rate cut in four years.

This report by The Canadian Press was first published Sept. 17, 2024.

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Economy

Federal money and sales taxes help pump up New Brunswick budget surplus

Published

2 days ago

September 16, 2024

Anne Joseph

FREDERICTON – New Brunswick‘s finance minister says the province recorded a surplus of $500.8 million for the fiscal year that ended in March.

Ernie Steeves says the amount — more than 10 times higher than the province’s original $40.3-million budget projection for the 2023-24 fiscal year — was largely the result of a strong economy and population growth.

The report of a big surplus comes as the province prepares for an election campaign, which will officially start on Thursday and end with a vote on Oct. 21.

Steeves says growth of the surplus was fed by revenue from the Harmonized Sales Tax and federal money, especially for health-care funding.

Progressive Conservative Premier Blaine Higgs has promised to reduce the HST by two percentage points to 13 per cent if the party is elected to govern next month.

Meanwhile, the province’s net debt, according to the audited consolidated financial statements, has dropped from $12.3 billion in 2022-23 to $11.8 billion in the most recent fiscal year.

Liberal critic René Legacy says having a stronger balance sheet does not eliminate issues in health care, housing and education.

This report by The Canadian Press was first published Sept. 16, 2024.

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