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Recession will be ‘deeper’ than first thought, but job loss will be minimal: Deloitte

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Canada’s economy will face a more pronounced slowdown this year than first thought, but it will still be historically “mild and short-lived” compared to previous recessions, according to the latest forecasts from Deloitte.

The consultancy and financial services firm said in a report Tuesday that the Canadian economy will hit a “deeper” recession in 2023 than it initially forecast last September.

Estimating that the country’s gross domestic product declined 2.2 per cent in the last quarter of 2022, Deloitte is now calling for a further contraction of 3.4 per cent and 1.6 per cent in the first two quarters of 2023.

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While the firm expects growth to return midway through 2023, its call is for the gross domestic product (GDP) to drop 0.9 per cent this year.

In its September forecast, Deloitte had expected GDP to rebound in the second quarter of 2023, with the country’s economy able to eke out 0.2 per cent growth for the year.

Meanwhile, Deloitte expects inflation to slow “sharply,” easing to 2.9 per cent by the final quarter of 2023.

Deloitte pointed to the Bank of Canada raising its benchmark interest rate more than expected as driving the more pronounced recession, as well as the knock-on effects of a forecast economic slowdown in the United States.

Central banks in both economies have been “aggressive” with interest rate hikes, the report noted; the Bank of Canada raised its policy rate 400 basis points to 4.25 per cent in 2022, one of the fastest tightening cycles in its history.

Deloitte researchers expect that before 2023 is up, the central bank will reverse course and start cutting interest rates again, eventually getting back down to around three per cent in 2024.

Deloitte’s current economic forecast assumes the Bank of Canada is done raising interest rates, but most economists and money markets are putting odds towards another 25-basis-point hike on Jan. 25, opening the door for a further economic contraction.

The forecast does not, however, call for significant job losses in Canada as a result of the recession.

Deloitte sees unemployment rising to 6.0 per cent in 2023 with most jobs lost in interest rate-sensitive sectors such as construction and transportation, as well as retail trade and information and culture sectors.

The firm expects current labour shortages will incentivize businesses to keep hold of the talent they have through what’s expected to be a relatively short downturn.

“This is shaping up to be another rocky year for the Canadian economy,” Deloitte researchers wrote in the report. “But we’re getting rather used to calling on our resilience and acting nimbly to position ourselves to weather the economic storm — the upcoming recession is simply the latest wave.”

 

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Bank of Canada to publish summary of interest-rate deliberations for the first time – CP24

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  1. Bank of Canada to publish summary of interest-rate deliberations for the first time  CP24
  2. Bay Street Expects Canada To See A Recession, Lower Rates: BoC Survey  Better Dwelling
  3. Bank of Canada set to reveal first public glimpse into what happens at its interest rate policy deliberations  CBC News
  4. Bank of Canada takes historic step in improving transparency with release of minutes  The Globe and Mail
  5. View Full Coverage on Google News

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Fed Chair Powell: There will be more rate increases to get to our 2 percent inflation goal – CNBC Television

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  1. Fed Chair Powell: There will be more rate increases to get to our 2 percent inflation goal  CNBC Television
  2. Stock market news live updates: Stocks soar after Powell embraces ‘disinflation’  Yahoo Canada Finance
  3. The close: Stocks rise as investors digest Powell comments  The Globe and Mail
  4. Why Are Stocks Up Today?  InvestorPlace
  5. Fed’s Powell: Strong hiring could force further rate hikes – Business News  Castanet.net
  6. View Full Coverage on Google News

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Ship-To-Ship Loadings Of Urals Hit Record High As Russian Oil Heads To Asia

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Loadings of Russia’s flagship Urals crude using ship-to-ship (STS) transfers in the Mediterranean surged eight times in January from December to a record in the first full month in which the EU banned seaborne imports of Russian oil.

STS loadings, used by traders to move the crude from smaller tankers onto larger ones to make the journey to Asia profitable, have soared since the EU ban came into effect on December 5, according to data from Refinitiv Eikon cited by Reuters on Tuesday.

The key STS loading points in the Mediterranean are near Kalamata in Greek waters and near the Spanish port of Ceuta in the Strait of Gibraltar.

STS loadings in the Mediterranean hit an all-time high of 1.7 million tons in January, an eightfold surge compared to December, per Refinitiv Eikon data and Reuters calculations.

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Since Urals is no longer being imported into the EU, cargoes are being diverted to Asia, mostly to India, China, and Singapore.

While the Urals crude is now finding a home outside Europe, the low price of Russia’s flagship grade is reducing Russian revenues from oil, due to the steep discount at which Urals trades relative to Brent Crude.

Russia’s budget revenues from oil and gas plunged in January by 46% compared to the same month last year. Russian budget revenues from energy sales – including taxes and customs revenues – plummeted last month to the lowest level since August 2020.

In January 2023, the price of Urals grade averaged 42% lower than in the same month of 2022, as its discount to Brent Crude grew wider following the EU embargo and the G7 price cap, which came into effect on December 5. The average price of Urals in January, at $49.48 per barrel, was 1.7 times lower than in January 2022, when it averaged $85.64 per barrel, Russia’s Finance Ministry said last week.

Russia is considering taxing its oil firms based on the price of Brent – instead of Urals – to limit the fallout on the Russian budget revenues due to the widening discount of Urals to Brent, Russian daily Kommersant reported last week, quoting sources.

By Tsvetana Paraskova for Oilprice.com

 

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