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KPMG survey finds support for continued investment in the economy ahead of federal budget, but Canadians want stimulus focused on long-term economic growth – Canada NewsWire

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“The vast majority of Canadians want government to launch a major stimulus program to get our economy moving again,” says Mary Jo Fedy, National Leader, Enterprise, KPMG in Canada. “But they also want those investments centred around areas that will drive sustained health and prosperity in the country. The areas they would like targeted are, not surprisingly, healthcare and domestic manufacturing – two key sectors whose importance to the country was highlighted during the pandemic.”

Key Survey Findings:

  • 77 per cent believe we need government to step in with a major stimulus program to get our economy back to pre-Covid levels, down from 82 per cent in a January poll conducted by KPMG
    • 25 per cent want investments in healthcare/health sciences, down 9 per cent
    • 24 per cent want investments in domestic manufacturing, up 2 per cent
  • 89 per cent say future spending must be prudent, targeted and focused on initiatives that will grow our economy
  • 88 per cent say small- and medium-sized businesses in Canada have been the economic victims of the pandemic and government needs to do more for them, up 1 per cent from January

93 per cent want government to create incentives to “buy Canadian” to restart our economy and ensure we build necessary domestic capacity to supply our critical needs, up 1 per cent.

Vaccine rollout brings optimism, but questions about Canada’s economic recovery remain 

Canadian confidence that the economy will recover this year has slipped a little, with those very confident of a rebound in 2021 falling 4 per cent since January. But the recent ramp up in vaccine rollout has the nation more optimistic that we will see sustained growth in the latter half of the year.

“Now that vaccine programs are gaining momentum, we are seeing growing optimism that better days are ahead,” says Ms. Fedy. “But many individual Canadians and businesses still have a big hole to dig out of and will need further support. The last year has seen unprecedented challenges to our health, communities and economy, and most Canadians believe government will need to continue playing an active role until we’ve crushed Covid and our economy finds its feet again.”

Ms. Fedy notes that no matter what is contained in the upcoming federal budget, the pandemic has reshaped the Canadian economy, placing pressures on companies across all sectors to operate digitally – in both the way they create and sell their products and services.

“Some companies have been able to adapt and make this change effectively, but others have struggled and will need support to build their digital capabilities and workforces,” adds Ms. Fedy. “The Canadian economy has an opportunity to come out of this crisis stronger and more resilient that ever with the right kinds of investments and leadership.”

While Canadians are optimistic that vaccines will get their lives and the economy back on track soon, one thing they are not ready for is a reopening of the border with the United States. Barely one quarter of Canadians said it is time to start thinking about resuming normal traffic between the two nations.

Other poll findings

  • 64 per cent of Canadians are very confident the overall Canadian economy will recover in 2021
  • 91 per cent are hopeful widespread vaccinations by July will boost the economy in the latter half of the year
  • 84 per cent believe our economy has been forever changed – all businesses, no matter how small, need to be able to operate online
  • 91 per cent say the pandemic has shown a real need for Canadian businesses to improve their online presence and service
  • 28 per cent say it in now time to think about reopening the border with the U.S.

KPMG’s professionals are available to provide insights and commentary on the upcoming 2021 federal budget.

About KPMG in Canada’s Outlook Survey / Confidence Survey

KPMG surveyed 1,000 Canadians aged 18+ from March 17 to 20, 2021 to discern changes in the public’s confidence in and attitudes toward the economic recovery from the COVID-19 pandemic. This follows a survey of over 4,000 Canadians in January 2021 examining public sentiment on the health and economic impacts of COVID-19. For each study, KPMG leveraged the AskingCanadians panel by Delvinia through its methodify online research automation platform.

About KPMG in Canada

KPMG LLP, a limited liability partnership, is a full-service Audit, Tax and Advisory firm owned and operated by Canadians. For over 150 years, our professionals have provided consulting, accounting, auditing, and tax services to Canadians, inspiring confidence, empowering change, and driving innovation. Guided by our core values of Integrity, Excellence, Courage, Together, For Better, KPMG employs nearly 8,000 people in over 40 locations across Canada, serving private- and public-sector clients. KPMG is consistently ranked one of Canada’s top employers and one of the best places to work in the country.

The firm is established under the laws of Ontario and is a member of KPMG’s global organization of independent member firms affiliated with KPMG International, a private English company limited by guarantee. Each KPMG firm is a legally distinct and separate entity and describes itself as such. For more information, see home.kpmg/ca

SOURCE KPMG LLP

For further information: Nancy White, National Communications, KPMG in Canada, (416) 777-3306, (416) 777-1400, [email protected]

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Economy

Bank of Canada signals rate hike in 2022, tapers bond purchases

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By Julie Gordon and David Ljunggren

OTTAWA (Reuters) -The Bank of Canada signaled on Wednesday that it could start hiking interest rates in late 2022, as it sharply boosted its outlook for the Canadian economy and reduced the scope of its bond buying program.

The central bank said it now expects economic slack to be absorbed in the second half of 2022, from a previous forecast of into 2023. It held its key overnight rate steady at 0.25%.

Governor Tiff Macklem, speaking to reporters after the decision, made clear that while the bank is committed to refrain from raising rates until the economy is running at full capacity, there is no guarantee borrowing costs will rise when those conditions are met.

“What we do when those conditions are met, we’ll have to assess that at the time. There’s nothing mechanical,” he said, adding: “We’re looking for a full recovery, we’re not going to count our chickens before they’re hatched.”

The Bank also said it now believes the COVID-19 pandemic will be “less detrimental” than previously assessed to the economy’s potential output.

Canada‘s annual inflation rate doubled to 2.2% in March, Statistics Canada said separately, in part due to a statistical effect caused by a sharp deceleration last year during the coronavirus pandemic.

The Bank of Canada targets the midpoint of an control range of 1% to 3%. It expects inflation to temporarily rise to about 3% this year, before falling to around 2% in the second half. It will then fall further in early 2022 before recovering.

Canada‘s economy is expected to grow 6.5% in 2021, up from a forecast of 4.0% in January, the central bank said in its spring Monetary Policy Report, also released Wednesday.

It sees economic growth in the United States, which is Canada‘s largest trading partner, at 7.0% this year, up from 5.0%.

Much of the growth comes down to a massive U.S. stimulus plan passed in March and Canada‘s own stimulus package, unveiled Monday as part of Prime Minister Justin Trudeau’s government‘s first budget in more than two years.

“Our projection at a macro level really captures the fiscal stimulus that has been announced both by provincial governments and to a large degree the federal government,” said Macklem.

BOND TAPERING

The Bank of Canada cut its weekly net purchases of Canadian government bonds to a target of C$3 billion ($2.4 billion) from C$4 billion, saying the adjustment reflected the progress made in the economic recovery.

“Certainly this is a more hawkish statement that begins to lay the foundations for the removal of the substantial monetary policy support that has been put in place over the past year,” said Josh Nye, senior economist at RBC Economics.

While recent job growth looks positive, the Bank warned it may take considerable time for full employment to be reached. Due to population growth, Canada needs to add 475,000 jobs to return to its pre-pandemic employment rate, it said.

The Canadian dollar strengthened as much as 1.2% to 1.2459 per greenback, or 80.26 U.S. cents, its biggest gain since last June, while Canada‘s 2-year yield jumped about 4 basis points to 0.334%.

(Reporting by Julie Gordon and David Ljunggren, additional reporting by Steve Scherer, Fergal Smith, Nia Williams, Jeff Lewis and Moira Warburton; Editing by Franklin Paul, Paul Simao and David Gregorio)

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U.S. dollar rebound after Canada tips toward higher rates

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By David Henry

NEW YORK (Reuters) – A U.S. dollar rebound against major currencies was interrupted on Wednesday after Canada‘s central bank signaled it could start an interest rate hike in 2022 and reduced the scope of its asset-buying program.

The dollar index, which tracks the U.S. currency against six major peers, turned down after the announcement from the Bank of Canada and was off by 0.1% in late afternoon (1946 GMT) in New York after having been up as much as 0.24% for the day. The greenback lost about 1% against the Canadian dollar.

Earlier the U.S. dollar had rebounded from a seven-week low hit overnight against major currencies as broad weakness in stock markets triggered by a resurgence of COVID-19 cases in India and Japan encouraged a retreat to the safe-haven appeal of the greenback.

The safety bid had also supported the Swiss franc and the Japanese yen as the bright outlook for a global recovery dimmed.

But the catalyst for the move between the two North American dollars on Wednesday was a reminder that the outlook for changes in interest rates have been key to currencies as recoveries unfold. The greenback weakened through much of April as U.S. interest rates declined and as traders bet that vaccinations would open up a stronger global economic recovery and drive demand for riskier and higher-yielding currencies.

The greenback’s bounce had come with softer U.S. Treasury yields as investors reconsidered how long it might take before inflation forces the Federal Reserve to tighten monetary policy and as they saw prices for oil and stocks hit on Tuesday by the prospect of a slower global recovery because of more COVID-19 cases.

The Fed’s Open Market Committee meets next week and the European Central Bank decides policy on Thursday. Though neither is expected to signal a change in policy now, traders may hold back from big bets for a few days, said Joseph Manimbo, senior market analyst at Western Union Business Solutions.

“I think the market is just going to play it carefully in case the Fed changes its tune,” Manimbo said.

At the moment, he sees the market acting as though it is at “somewhat of a crossroads for the dollar given that it has struggled this month.”

Some analysts have said that a new inclination by the Bank of Canada to tighten monetary policy could prove to foreshadow changes by other central banks.

The Bank of Canada sharply raised its outlook for the economy and reduced the scope of its large-scale asset-buying program while keeping its key interest rate steady. It said the pandemic will be “less detrimental” to the economy than it had thought.

The central bank’s message brought back some of the appetite for risk, which carried over to other commodity-linked currencies, strategists at ANZ Research noted. The Australian and New Zealand dollars gained about 0.5%.

The benchmark 10-year Treasury yield climbed to 1.58% on the news from Canada and then hovered around 1.57%, not far from the 1.60% level at the start of the week, as the note consolidated gains after a reversal that had driven yields to a 14-month high at 1.7760% last month. The note held steady even after an auction of 20-year bonds showed strong demand.

The biggest casualty of the dollar’s rise in Wednesday trading was the euro, with the single currency weakening as much as 0.24%. It was last flat at $1.2032 after touching a seven-week high of $1.2079 overnight.

The Japanese yen, often seen as a safer refuge than the dollar, gained against the greenback to 107.86 but then drifted back to 108.08.

In cryptocurrencies, bitcoin traded around $55,500, consolidating after its dip to as low as $51,541.16 on Sunday. It set a record high at $64,895.22 on April 14.

 

Graphic: EURUSD and CESI – https://fingfx.thomsonreuters.com/gfx/mkt/yzdpxbkwdpx/EURUSD%20and%20CESI.JPG

 

(Reporting by David Henry in New York and Saikat Chatterjee in London; Editing by Will Dunham, Hugh Lawson, Jonathan Oatis and Sonya Hepinstall)

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Canadian Dollar Gain Biggest in 10 months as Bank of Canada cuts stimulus

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Canadian dollar

By Fergal Smith

TORONTO (Reuters) – The Canadian dollar surged by the most since June 2020 against its U.S. counterpart on Wednesday and the Toronto stock market rebounded as investors welcomed a move by the Bank of Canada to dial back emergency support for the economy.

The loonie strengthened 0.9% to 1.2495 per U.S. dollar, or 80.03 U.S. cents. Canada‘s main stock index ended 0.5% higher at 19,143.25, clawing back some of its decline over the previous two days.

“I think we are seeing positive sentiment toward the Canadian economy coming off the comments from the Bank of Canada today,” said Colin Cieszynski, chief market strategist at SIA Wealth Management.

The Bank of Canada signaled that it could start hiking interest rates in late 2022, as it sharply boosted its outlook for the Canadian economy and cut the pace of bond purchases to C$3 billion per week from C$4 billion.

The central bank began a large-scale bond buying program last year to support the economy during the coronavirus crisis.

The reduction in stimulus puts Canada‘s central bank at odds with some other major central banks, such as the Federal Reserve and the European Central Bank, that have said they will maintain or even increase the pace of bond buying.

“It makes sense that Canada might be one of the ones to start scaling back first … our economic numbers have been quite positive,” Cieszynski said.

Canada‘s annual inflation rate doubled to 2.2% in March, Statistics Canada said, while the average of the Bank of Canada‘s three core measures was 1.9%, up from 1.8%.

The Canadian dollar, which touched its strongest intraday level since March 18 at 1.2455, was able to rally despite pressure on the price of oil, one of Canada‘s major exports.

U.S. crude oil futures settled 2.1% lower at $61.35 a barrel amid concerns that surging COVID-19 cases in India will drive down fuel demand in the world’s third-biggest oil importer.

Still, the Toronto Stock Exchange’s energy sector advanced 0.9%, while the materials group was up 1.1%, bolstered by higher gold prices. Last Friday, the TSX notched a record high at 19,380.68.

Canadian government bond yields were higher across the curve. The 2-year rose 2.2 basis points to 0.317%, near the top if its range since the start of the year.

 

(Reporting by Fergal Smith; Editing by Kirsten Donovan and David Gregorio)

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