adplus-dvertising
Connect with us

Economy

What the Bank of Canada might make of our shrinking economy next week

Published

 on

Canada’s economy surprised to the downside in a big way this week when GDP data came in well below expectations.

The 1.1% contraction on an annual basis in the second quarter was a shock, considering economists had expected 2.5% growth and the Bank of Canada, 2%.

“The Canadian economy was not quite as resilient as pretty much everybody thought and there’s more ground to make up at this point,” BMO economist Benjamin Reitzes told the Financial Post. “It’s a longer road to recovery.”

Not only that, Statistic Canada’s preliminary estimate for July calls for a 0.4% contraction driven by declines in manufacturing, construction and retail trade.

300x250x1

BofA Global Research says this signals a weak third quarter, which will also be hit by policy uncertainty because of the Canadian federal election.

Global supply chain problems and the third wave of the COVID virus have been a drag on economic activity, but BofA sees better days ahead.

It along with many other economists cut its forecast for this year to 5% growth from 6% after Tuesday’s GDP data.

But it expects Canada to benefit from above-average growth in the United States of 5.9% this year and 5.2% next. That boost and pent-up demand and advancing vaccinations at home, which should reduce the impact of the fourth wave of the virus, will power the recovery in the new year.

“So we defer some of the growth that we are not seeing now and hence rise our GDP growth forecasts for 2022,” to 5%, up from 4%,” wrote BofA analyst Carlos Capistran.

But how will the Bank of Canada see this soft patch? The central bank meets next week, and both BofA and Capital Economics say the unexpected bad news reduces the chance of further tapering for now.

“We still believe that the BoC will reduce bond purchases further in October, to at least CA$1 billion per week, although there are downside risks to our call now,” wrote Capistran.

Despite the dismal data, don’t expect a dovish tone from the Bank next week, wrote Stephen Brown of Capital Economics.

Brown says labour market conditions that the bank previously expressed concerns about have improved as the employment rate of young people gets closer to pre-pandemic levels.

Inflation too has come in higher than expected.

The economists expect the Bank to downgrade its forecast in October, but not to change its course.

“At both the meeting next week and in October, the Bank is likely to reiterate that it will hold the ‘policy interest rate at the effective lower bound’ at least until ‘the second half of 2022’,” wrote Brown.

The key change, he said, is that the implicit timing will now be toward the end of that year.

_____________________________________________

Source link

Continue Reading

Economy

Britain's economy went into recession last year, official figures confirm – The Globe and Mail

Published

 on


Open this photo in gallery:

People walk over London Bridge, in London, on Oct. 25, 2023.SUSANNAH IRELAND/Reuters

Britain’s economy entered a shallow recession last year, official figures confirmed on Thursday, leaving Prime Minister Rishi Sunak with a challenge to reassure voters that the economy is safe with him before an election expected later this year.

Gross domestic product shrank by 0.1 per cent in the third quarter and by 0.3 per cent in the fourth, unchanged from preliminary estimates, the Office for National Statistics (ONS) said on Thursday.

The figures will be disappointing for Mr. Sunak, who has been accused by the opposition Labour Party – far ahead in opinion polls – of overseeing “Rishi’s recession.”

300x250x1

“The weak starting point for GDP this year means calendar-year growth in 2024 is likely to be limited to less than 1 per cent,” said Martin Beck, chief economic adviser at EY ITEM Club.

“However, an acceleration in momentum this year remains on the cards.”

Britain’s economy has shown signs of starting 2024 on a stronger footing, with monthly GDP growth of 0.2 per cent in January, and unofficial surveys suggesting growth continued in February and March.

Tax cuts announced by finance minister Jeremy Hunt and expectations of interest-rate cuts are likely to help the economy in 2024.

However, Britain remains one of the slowest countries to recover from the effects of the COVID-19 pandemic. At the end of last year, its economy was just 1 per cent bigger than in late 2019, with only Germany faring worse among Group of Seven nations.

The economy grew just 0.1 per cent in all of 2023, its weakest performance since 2009, excluding the peak-pandemic year of 2020.

GDP per person, which has not grown since early 2022, fell by 0.6 per cent in the fourth quarter and 0.7 per cent across 2023.

Sterling was little changed against the dollar and the euro after the data release.

The Bank of England (BOE) has said inflation is moving toward the point where it can start cutting rates. It expects the economy to grow by just 0.25 per cent this year, although official budget forecasters expect a 0.8-per-cent expansion.

BOE policy maker Jonathan Haskel said in an interview reported in Thursday’s Financial Times that rate cuts were “a long way off,” despite dropping his advocacy of a rise at last week’s meeting.

Thursday’s figures from the ONS also showed 0.7 per cent growth in households’ real disposable income, flat in the previous quarter.

Thomas Pugh, an economist at consulting firm RSM, said the increase could prompt consumers to increase their spending and support the economy.

“Consumer confidence has been improving gradually over the last year … as the impact of rising real wages filters through into people’s pockets, even though consumers remain cautious overall,” Mr. Pugh said.

Britain’s current account deficit totalled £21.18-billion ($36.21-billion) in the fourth quarter, slightly narrower than a forecast of £21.4-billion ($36.6-billion) shortfall in a Reuters poll of economists, and equivalent to 3.1 per cent of GDP, up from 2.7 per cent in the third quarter.

The underlying current account deficit, which strips out volatile trade in precious metals, expanded to 3.9 per cent of GDP.

Adblock test (Why?)

728x90x4

Source link

Continue Reading

Economy

How will a shrinking population affect the global economy? – Al Jazeera English

Published

 on


Falling fertility rates could bring about a transformational demographic shift over the next 25 years.

It has been described as a demographic catastrophe.

The Lancet medical journal warns that a majority of countries do not have a high enough fertility rate to sustain their population size by the end of the century.

300x250x1

The rate of the decline is uneven, with some developing nations seeing a baby boom.

The shift could have far-reaching social and economic impacts.

Enormous population growth since the industrial revolution has put enormous pressure on the planet’s limited resources.

So, how does the drop in births affect the economy?

And regulators in the United States and the European Union crack down on tech monopolies.

The gender gap in tech narrows.

Adblock test (Why?)

728x90x4

Source link

Continue Reading

Economy

John Ivison: Canada's economy desperately needs shock treatment after this Liberal government – National Post

Published

 on


Lack of business investment is the main culprit. Canadians are digging holes with shovels while our competitors are buying excavators

Get the latest from John Ivison straight to your inbox

Article content

It speaks to the seriousness of the situation that the Bank of Canada is not so much taking the gloves off as slipping lead into them.

Senior deputy governor, Carolyn Rogers, came as close to wading into the political arena as any senior deputy governor of the central bank probably should in her speech in Halifax this week.

Article content

But she was right to sound the alarm about a subject — Canada’s waning productivity — on which the federal government’s performance has been lacklustre at best.

Advertisement 2

Article content

Productivity has fallen in six consecutive quarters and is now on a par with where it was seven years ago.

Lack of business investment is the main culprit.

In essence, Canadians are digging holes with shovels while many of our competitors are buying excavators.

“You’ve seen those signs that say, ‘in emergency, break glass.’ Well, it’s time to break the glass,” Rogers said.

She was explicit that government policy is partly to blame, pointing out that businesses need more certainty to invest with confidence. Government incentives and regulatory approaches that change year to year do not inspire confidence, she said.

Recommended from Editorial

  1. Carolyn Rogers, Senior Deputy Governor of the Bank of Canada, holds a press conference at the Bank of Canada in Ottawa on Wednesday, March 6, 2024.

    Canada’s lagging productivity at crisis level, BoC official says

  2. Homes for sale at the Juniper condo development in North Vancouver, British Columbia, Canada, on Tuesday, Sept. 13, 2022.

    Expected BoC rate cuts luring buyers back into housing market

The government’s most recent contribution to the competitiveness file — Bill C-56, which made a number of competition-related changes — is a case in point. It was aimed at cracking down on “abusive practices” in the grocery industry that no one, including the bank in its own study, has been able to substantiate. Rather than encouraging investment, it added a political actor — the minister of industry — to the market review process. The Business Council of Canada called the move “capricious,” which was Rogers’s point.

Article content

Advertisement 3

Article content

While blatant price-fixing is rare, the lack of investment is a product of the paucity of competition in many sectors, where Canadian companies protected from foreign competition are sitting on fat profit margins and don’t feel compelled to invest to make their operations more efficient. “Competition can make the whole economy more productive,” said Rogers.

The Conservatives now look set to make this an election issue. Ontario MP Ryan Williams has just released a slick 13-minute video that makes clear his party intends to act in this area.

Using the Monopoly board game as a prop, Williams, the party’s critic for pan-Canadian trade and competition, claims that in every sector, monopolies and oligopolies reign supreme, resulting in lower investment, lower productivity, higher prices, worse service, lower wages and more wealth inequality.

(As an aside, it was a marked improvement on last year’s “Justinflation” rap video.)

Williams said that Canadians pay among the highest cell phone prices in the world and that Rogers, Telus and Bell are the priciest carriers, bar none. The claim has some foundation: in a recent Cable.co.uk global league table that compared the average price of one gigabyte, Canada was ranked 216th of 237 countries at US$5.37 (noticeably, the U.S. was ranked even more expensive at US$6).

Advertisement 4

Article content

Williams noted that two airlines control 80 per cent of the market, even though Air Canada was ranked dead last of all North American airlines for timeliness.

He pointed out that six banks control 87 per cent of Canada’s mortgage market, while five grocery stores — Sobeys, Metro, Loblaw, Walmart and Costco — command a similar dominance of the grocery market.

“Competition is dying in Canada,” Williams said. “The federal government has made things worse by over-regulating airlines, banks and telecoms to actually protect monopolies and keep new players out.”

So far, so good.

The Conservatives will “bring back home a capitalist economy” — a market that does not protect monopolies and creates more competition, in the form of Canadian companies that will provide new supply and better prices.

That sounds great. But at the same time, the Conservative formula for fixing things appears to involve more government intervention, not less.

Williams pointed out the Conservatives opposed RBC buying HSBC’s Canadian operations, WestJet buying Sunwing and Rogers buying Shaw. The party would oppose monopolies from buying up the competition, he said.

Advertisement 5

Article content

The real solution is to let the market do its work to bring prices down. But that is a more complicated process than Williams lets on.

Back in 2007, when Research in Motion was Canada’s most valuable company, the Harper government appointed a panel of experts, led by former Nortel chair Lynton “Red” Wilson, to address concerns that the corporate sector was being “hollowed out” by foreign takeovers, following the sale of giants Alcan, Dofasco and Inco.

The “Compete to Win” report that came out in June 2008 found that the number of foreign-owned firms had remained relatively unchanged, but recommended 65 changes to make Canada more competitive.

The Harper government acted on the least-contentious suggestions: lowering corporate taxes, harmonizing sales taxes with a number of provinces and making immigration more responsive to labour markets.

But it did not end up liberalizing the banking, broadcasting, aviation or telecom markets, as the report suggested (ironically, it was a Liberal transport minister, Marc Garneau, who raised foreign ownership levels of air carriers to 49 per cent from 25 per cent in 2018).

Advertisement 6

Article content

The point is, Canada has a competition problem but solving it requires taking on vested interests. Conservative Leader Pierre Poilievre has indicated he is willing to do that, calling corporate lobbyists “utterly useless” and saying he will focus on Canadian workers, not corporate interests.

“My daily obsession will be about what is good for the working-class people in this country,” he said in Vancouver earlier this month.

Even opening up sectors to foreign competition is no guarantee that investors will come. There are no foreign ownership restrictions in the grocery market (in addition to the five supermarkets listed above, there is Amazon-owned Whole Foods). When the Competition Bureau concluded last year that there was a “modest but meaningful” increase in food prices, it recommended Ottawa encourage a foreign-owned player to enter the Canadian market. It was a recommendation adopted by Industry Minister Francois-Philippe Champagne, to no avail thus far.

But it is clear from the Bank’s warning that the Canadian economy requires some shock treatment.

Robert Scrivener, the chairman of Bell and Northern Telecom in the 1970s, called Canada a nation of overprotected underachievers. That is even more true now than it was back then.

It’s time to break the glass.

jivison@criffel.ca

Get even more deep-dive National Post political coverage and analysis in your inbox with the Political Hack newsletter, where Ottawa bureau chief Stuart Thomson and political analyst Tasha Kheiriddin get at what’s really going on behind the scenes on Parliament Hill every Wednesday and Friday, exclusively for subscribers. Sign up here.

Article content

Get the latest from John Ivison straight to your inbox

Comments

Join the Conversation

This Week in Flyers

Adblock test (Why?)

728x90x4

Source link

Continue Reading

Trending