Canada’s economy isn’t focused enough on investment, a shortcoming that puts the country on a path to fall behind in competitiveness and experience a slow erosion of living standards, according to a new report from law firm Bennett Jones LLP.
The report, published June 12, concludes that more competition at home would stimulate stronger investment and position Canadian firms to “win” globally, crucial goals in a period of high interest rates, “sticky” inflation and increasing fragmentation in supply chains and trade.
“Protected markets and poor incentives for investment in Canada will do the opposite,” the report warns.
The authors say Canada should tackle improvements to “framework” policies in areas including competition, regulation and taxation, focusing on changes that would incentivize innovation and the investment and reinvestment of companies’ retained earnings.
At the same time, raising the share of GDP linked to investment should be accomplished through targeted measures that ensure Canada gains a foothold in emerging critical industries including digital and clean tech and technologies such as electric vehicles. Such a strategy would both accelerate productivity growth and position Canada to compete globally on the path to a clean economy, the report said.
“Poor investment in Canada not only deprives our economy of growth opportunities, it means that our firms lag their global peers in their capacity to conquer global markets, and that they may fail to take advantage of the vast possibilities permitted by our trade agreements with major economies,” it said.
The authors acknowledged there are challenges to the path they are promoting, calling tax reform “a perilous political exercise at the best of times.” But the report urged governments to consult and engage with businesses while being responsive to global forces and challenging vested interests and policies that hold back competition and breed complacency.
“Rules and tax structures need to be adapted to a world that is rapidly expanding the potential and applications of digitalization, where a rising share of economic value is generated by intangible assets,” the report said, adding that some initiatives are already underway and should be “pursued with vigor and a sense of urgency.”The list includes a review of competition policy, modernization of privacy and data management legislation and steps to accelerate digitalization in the financial services industry.
The report’s authors, members of the governmental affairs and public policy group at Bennett Jones, said raising the share of national income devoted to investment would reduce the share available for current consumption but it would provide a foundation for long-term prosperity.
While this shift is crucial for the future, the report acknowledged that Canada’s short-term priority must be to get back on path to non-inflationary growth.
“Hikes in the policy interest rates of central banks have helped to moderate demand and rates need to be high for longer. Inflation will not get back to target quickly,” the report said. “Consequently, global growth will be weak in 2023, recover some momentum later in 2024 and only by 2025 be at roughly potential for the medium term, with low inflation.”
Even after inflation is back near the target of two per cent, the report said there is reason to expect that interest rates will remain higher than they were before the COVID pandemic and that growth potential will be lower. The authors note that while U.S. and European authorities acted quickly in March 2023 to resolve failing banks, financial stress remains given record levels of public and private debt. Moreover, intensification of the war in Ukraine, or rising tension over Taiwan, could push up commodity prices, depress confidence and unsettle capital markets.
The authors noted that the IMF’s global growth projection for the next five years is the lowest since 1990. Globally, there are risks of recession and “disorderly adjustment,” while inflation may prove to be “sticky” and stretch out the return to noninflationary growth beyond 2025.
The report suggested Canada’s interest rates appear to be near a peak at 4.75 per cent and would likely come back down gradually in 2024 and 2025. This could translate to real GDP growth of around one per cent, rising to an annualized average growth rate of 2.5 per cent by the end of 2025. But uncertainty remains.
“There are risks to this scenario,” the report cautions. “If global developments cause new stress, or if inflation is stickier than expected, there could be a recession, but more likely a prolonged period of low growth and adjustment.”
TORONTO – Canada’s main stock index was down more than 200 points in late-morning trading, weighed down by losses in the technology, base metal and energy sectors, while U.S. stock markets also fell.
The S&P/TSX composite index was down 239.24 points at 22,749.04.
In New York, the Dow Jones industrial average was down 312.36 points at 40,443.39. The S&P 500 index was down 80.94 points at 5,422.47, while the Nasdaq composite was down 380.17 points at 16,747.49.
The Canadian dollar traded for 73.80 cents US compared with 74.00 cents US on Thursday.
The October crude oil contract was down US$1.07 at US$68.08 per barrel and the October natural gas contract was up less than a penny at US$2.26 per mmBTU.
The December gold contract was down US$2.10 at US$2,541.00 an ounce and the December copper contract was down four cents at US$4.10 a pound.
This report by The Canadian Press was first published Sept. 6, 2024.
TORONTO – Canada’s main stock index was up more than 150 points in late-morning trading, helped by strength in technology, financial and energy stocks, while U.S. stock markets also pushed higher.
The S&P/TSX composite index was up 171.41 points at 23,298.39.
In New York, the Dow Jones industrial average was up 278.37 points at 41,369.79. The S&P 500 index was up 38.17 points at 5,630.35, while the Nasdaq composite was up 177.15 points at 17,733.18.
The Canadian dollar traded for 74.19 cents US compared with 74.23 cents US on Wednesday.
The October crude oil contract was up US$1.75 at US$76.27 per barrel and the October natural gas contract was up less than a penny at US$2.10 per mmBTU.
The December gold contract was up US$18.70 at US$2,556.50 an ounce and the December copper contract was down less than a penny at US$4.22 a pound.
This report by The Canadian Press was first published Aug. 29, 2024.
The crypto market has recently experienced a significant downturn, mirroring broader risk asset sell-offs. Over the past week, Bitcoin’s price dropped by 24%, reaching $53,000, while Ethereum plummeted nearly a third to $2,340. Major altcoins also suffered, with Cardano down 27.7%, Solana 36.2%, Dogecoin 34.6%, XRP 23.1%, Shiba Inu 30.1%, and BNB 25.7%.
The severe downturn in the crypto market appears to be part of a broader flight to safety, triggered by disappointing economic data. A worse-than-expected unemployment report on Friday marked the beginning of a technical recession, as defined by the Sahm Rule. This rule identifies a recession when the three-month average unemployment rate rises by at least half a percentage point from its lowest point in the past year.
Friday’s figures met this threshold, signaling an abrupt economic downshift. Consequently, investors sought safer assets, leading to declines in major stock indices: the S&P 500 dropped 2%, the Nasdaq 2.5%, and the Dow 1.5%. This trend continued into Monday with further sell-offs overseas.
The crypto market’s rapid decline raises questions about its role as either a speculative asset or a hedge against inflation and recession. Despite hopes that crypto could act as a risk hedge, the recent crash suggests it remains a speculative investment.
Since the downturn, the crypto market has seen its largest three-day sell-off in nearly a year, losing over $500 billion in market value. According to CoinGlass data, this bloodbath wiped out more than $1 billion in leveraged positions within the last 24 hours, including $365 million in Bitcoin and $348 million in Ether.
Khushboo Khullar of Lightning Ventures, speaking to Bloomberg, argued that the crypto sell-off is part of a broader liquidity panic as traders rush to cover margin calls. Khullar views this as a temporary sell-off, presenting a potential buying opportunity.
Josh Gilbert, an eToro market analyst, supports Khullar’s perspective, suggesting that the expected Federal Reserve rate cuts could benefit crypto assets. “Crypto assets have sold off, but many investors will see an opportunity. We see Federal Reserve rate cuts, which are now likely to come sharper than expected, as hugely positive for crypto assets,” Gilbert told Coindesk.
Despite the recent volatility, crypto continues to make strides toward mainstream acceptance. Notably, Morgan Stanley will allow its advisors to offer Bitcoin ETFs starting Wednesday. This follows more than half a year after the introduction of the first Bitcoin ETF. The investment bank will enable over 15,000 of its financial advisors to sell BlackRock’s IBIT and Fidelity’s FBTC. This move is seen as a significant step toward the “mainstreamization” of crypto, given the lengthy regulatory and company processes in major investment banks.
The recent crypto market downturn highlights its volatility and the broader economic concerns affecting all risk assets. While some analysts see the current situation as a temporary sell-off and a buying opportunity, others caution against the speculative nature of crypto. As the market evolves, its role as a mainstream alternative asset continues to grow, marked by increasing institutional acceptance and new investment opportunities.
