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Red flags on Canadian economy abound, but it might be too soon to sound the alarm – Financial Post

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The Canadian economy is labouring.

Statistics Canada on Dec. 23 reported that gross domestic product dropped 0.1 per cent in October, the first decline in eight months. Last week, it observed a drop in sales at retailers, wholesalers and factories. And the agency’s latest inflation report showed that the average of the Bank of Canada’s three preferred price measures was 2.2 per cent, the highest in a decade.

Reasons for alarm? That depends on where you were sitting when this mini-parade of numbers started rolling out.

Veronica Clark, a Citibank economist in New York who keeps an eye on Canada, advised her clients after the GDP report that the “recent string of softer data does not yet raise concerns of a substantial slowdown, but it will be important to see activity data bounce back in early 2020.”

One of the main jobs of a Bay Street or Wall Street economist is predicting the trajectory of interest rates. Clark’s bet is that the Bank of Canada will leave borrowing costs unchanged next year. Rivals who think Governor Stephen Poloz and his deputies could be forced to cut interest rates have taken a dimmer view of the latest data.

“Don’t sound the ‘all clear’ for the Canadian economy just yet, as October’s GDP results, alongside the drop we saw in November employment, casts some doubt on momentum late this year,” said Avery Shenfeld, chief economist at CIBC World Markets.

Shenfeld noted that Canada’s economy is now on track to grow at an annual rate of less than one per cent in the fourth quarter, compared with the Bank of Canada’s October estimate of 1.3 per cent. “That’s not enough to put January on tap for a rate cut, but if joined by softer jobs performance, would leave a March rate cut alive,” he said.

About those November employment numbers: the outsized drop of 71,000 should be dismissed as an outlier along with the outsized gains of 107,000 and 81,000 that StatCan’s Labour Force Survey generated in April and August, respectively. StatCan’s measure of trend hiring shows employment growth is slowing, but at a high level.

“We don’t normally put a lot of weight on individual data points, especially the labour market report, which is a very volatile report,” Poloz told reporters in Toronto on Dec. 12. “You tend to see through these things and watch the trend. And the trend has been quite a positive one for the labour market.”

Last week, the Canadian unit of Automatic Data Processing Inc., a big provider of payroll services that uses its data to generate employment estimates, said Canada added almost 31,000 jobs in November, an increase from 3,000 new positions in October and 26,000 in September. There are weak spots, particularly Alberta, but the labour market overall still has momentum, if only because the technology industry continues to rapidly expand.

“We have capacity for 200 Canadians to come on board,” Will Buckley, Canada manger at Xero Ltd., a business software firm from New Zealand that opened an office in Toronto earlier this month, said in an interview. “We want to fill this building.”

Buckley said Xero, which targets smaller companies, was oblivious to signs of slower growth. That makes sense. Sometimes decisions are bigger than simple supply-and-demand calculations. The economy is going digital and companies must pay up to join the cloud or quit.

The information-and-communication technology sector represented about four per cent of the economy when StatCan started measuring its contribution to GDP in January 2007. The segment now represents around five per cent of GDP and continues to grow. Companies that are grouped under “computer assisted design and related services” generated output of $33.5 billion in October, seven per cent more than in October 2018 and 71 per cent more than in October 2007.

Traditional manufacturers, meanwhile, are struggling around the world. The trade wars are choking investment and demand, while tariffs have diminished profit margins. But it’s possible that 2019 could represent a nadir for global manufacturing. The new North American free-trade agreement is on its way to being ratified and the Donald Trump administration and China appear to have agreed to a ceasefire in their fight for commercial supremacy. China also cut tariffs on more than 800 products that Bloomberg said were worth close to US$400 billion in 2018.

It would be wrong to assume the world is back to normal, but it would also be a mistake to conclude that factory output will continue to be as weak as it was in 2019.

The reddest flags in the latest GDP report are retail and wholesale trade, which dropped 1.1 per cent and one per cent, respectively. (The drop in retail output was the biggest in three years.) Sellers of building materials and related supplies recorded less output for the fourth consecutive month, adding colour to the decision of Lowe’s Cos. Inc. in November to close 34 “underperforming” stores. Automobile sellers also posted a decline, highlighting the trend of generally weaker sales of cars and trucks around the world.

Poloz is sensitive to signs of flagging consumption. He’s assumed for years that record levels of household debt would eventually result in less spending. But that doesn’t mean he’s prepared to shrug off evidence that his assumption is coming true. The Bank of Canada in its last policy statement of 2019 said future decisions will depend in part on whether consumer spending continues to demonstrate resilience in the face of weaker overall economic growth.

StatCan’s reports on retail sales will factor into that decision, but it’s reasonable to assume the central bank will be gathering other data. During a speech at the San Francisco Federal Reserve in November, Poloz noted that Canadian purchases on Amazon are counted in the monthly trade data. “In Canada, everybody I’m talking to shops on Amazon,” the governor said. “Amazon doesn’t meet the definition of a Canadian retailer. No bricks and mortar,” he continued. “These are conventions. It takes a long time to build the methodology to get it right.”

Amazon said last month’s Black Friday sales produced the biggest shopping day in the company’s history. Ottawa-based Shopify Inc., which makes e-commerce software for smaller companies, said its merchants generated almost US$3 billion in sales that weekend, compared with about US$2 billion in 2018.

Those are fuzzy indicators and there’s no indication of how much of that activity occurred in Canada. Still, it’s reasonable to assume that an economy at full employment did its share of Black Friday shopping. Canada probably has a little more steam heading into 2020 than the most recent data suggest.

Financial Post

• Email: kcarmichael@nationalpost.com | Twitter:

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Economy

Why falling immigration isn't that bad for the economy during COVID-19 – Yahoo Canada Finance

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COVID-19 travel restrictions have put a big dent in immigration, widely seen as something the economy relies on, but the negative effects aren’t as bad as they might seem.

The latest government numbers show 13,645 fewer permanent residents came to Canada in July, down 63 per cent from the same month last year. April and June were similarly weak periods, making the likelihood of reaching the federal government’s target of 341,000 less likely.

<p class="canvas-atom canvas-text Mb(1.0em) Mb(0)–sm Mt(0.8em)–sm" type="text" content="For a country like Canada with an aging population and relatively low population growth, immigration is needed to counter demographic headwinds. But the pandemic’s effects more generally, far outweigh the specific negative effects of lower immigration.” data-reactid=”18″>For a country like Canada with an aging population and relatively low population growth, immigration is needed to counter demographic headwinds. But the pandemic’s effects more generally, far outweigh the specific negative effects of lower immigration.

<p class="canvas-atom canvas-text Mb(1.0em) Mb(0)–sm Mt(0.8em)–sm" type="text" content="“I think we need to keep the incremental impact of new immigration on economic growth in perspective. Even at its maximum pace in recent years, it was adding roughly 1 per cent to population per year and roughly the same to the labour force.” BMO chief economist Doug Porter told Yahoo Finance Canada.&nbsp;” data-reactid=”19″>“I think we need to keep the incremental impact of new immigration on economic growth in perspective. Even at its maximum pace in recent years, it was adding roughly 1 per cent to population per year and roughly the same to the labour force.” BMO chief economist Doug Porter told Yahoo Finance Canada

“So, even a complete shutdown of immigration would (roughly) shave 1 percentage point from growth (or a bit less). Not small by any means, but that compares with what could be a 6 per cent drop in GDP (OECD said -5.8 per cent for this year, we are looking at -5.5 per cent).”

<p class="canvas-atom canvas-text Mb(1.0em) Mb(0)–sm Mt(0.8em)–sm" type="text" content="Around 1.1 million Canadians are still out of work, so immigrant workers aren’t exactly in high demand these days.” data-reactid=”21″>Around 1.1 million Canadians are still out of work, so immigrant workers aren’t exactly in high demand these days.

“Overall, given the realities of COVID and the now-soft demand for labour, the cool down in immigration by itself will not be particularly harmful — and certainly less so than it would have been say a year ago.” said Porter.

Long term effects without immigration

Pedro Antunes, the Conference Board of Canada’s chief economist, also thinks the effects are mitigated in the short-term but that doesn’t mean the economy will be totally unscathed.

<p class="canvas-atom canvas-text Mb(1.0em) Mb(0)–sm Mt(0.8em)–sm" type="text" content="“Some sectors will be affected because immigration drives consumer spending, demand for housing, and other services directly related to increased population,” he told Yahoo Finance Canada.” data-reactid=”25″>“Some sectors will be affected because immigration drives consumer spending, demand for housing, and other services directly related to increased population,” he told Yahoo Finance Canada.

However, he believes it’s more important to look at the long term repercussions of reduced immigration.

“Canada’s underlying capacity is dependent on private and public investment, adoption of technology and the number of workers (and the skills of those workers). We know from our prior research that without immigration, our labour force would be flat or declining (since exiting baby-boomers outnumber school leavers),” said Antunes.

“If immigration levels are reduced over a few years (we think 2020 and 2021 at least) the result is a long-lasting impact on our potential (or productive capacity).”

<p class="canvas-atom canvas-text Mb(1.0em) Mb(0)–sm Mt(0.8em)–sm" type="text" content="Jessy Bains is a senior reporter at Yahoo Finance Canada. Follow him on Twitter&nbsp;@jessysbains.” data-reactid=”29″>Jessy Bains is a senior reporter at Yahoo Finance Canada. Follow him on Twitter @jessysbains.

<p class="canvas-atom canvas-text Mb(1.0em) Mb(0)–sm Mt(0.8em)–sm" type="text" content="Download the Yahoo Finance app, available for&nbsp;Apple&nbsp;and&nbsp;Android.” data-reactid=”30″>Download the Yahoo Finance app, available for Apple and Android.

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EU looks to fast 5G, supercomputers to boost virus-hit economy – TheChronicleHerald.ca

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By Foo Yun Chee

BRUSSELS (Reuters) – The European Commission on Friday urged the 27-country bloc to work together to speed up the rollout of fibre and 5G networks to boost the region’s virus-hit economy and secure its technology autonomy.

EU countries should develop a best practices toolbox by March 30 with the aim of cutting cost and red tape, provide timely access to 5G radio spectrum and allow for more cross-border coordination for radio spectrum for 5G services, the EU executive said.

The coronavirus outbreak showed how important internet services and 5G are, European digital chief Margrethe Vestager said.

“We have seen the current crisis highlight the importance of access to very high-speed internet for businesses, public services and citizens, but also to accelerate the pace towards 5G,” she said in a statement. “We must therefore work together towards fast network rollout without any further delays.”

The Commission also proposed a recommendation to boost research and activities to develop new supercomputing technologies.

“Keeping up in the international technological race is a priority, and Europe has both the know-how and the political will to play a leading role,” Internal Market Commissioner Thierry Breton said in a statement.

The Commission is investing 8 billion euros($9.46 billion)in the next generation of supercomputers.

(Reporting by Foo Yun Chee; Editing by Tomasz Janowski)

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Economy

Charting the Global Economy: Fed Signals Rates on Hold for Years – BNN

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(Bloomberg) — The Federal Reserve signaled it will keep its benchmark interest rate near zero through 2023 to help the world’s largest economy recover from the coronavirus pandemic.

Cheap borrowing costs are fueling demand for U.S. housing and leaving builders brimming with optimism in the process. In China, retail sales and industrial output are on the mend, while in the U.K., the virus-related shutdowns are having a large negative impact on youth employment.

Here are some of the charts that appeared on Bloomberg this week, offering insight into the latest developments in the global economy:

World

The global economic slump won’t be as sharp as previously feared this year, though the recovery is losing pace and will need support from governments and central banks for some time yet, according to the OECD.

U.S.

The Federal Reserve’s so-called dot plot, which the central bank uses to signal its outlook for the path of interest rates, shows that officials expect no change in policy this year and borrowing costs near zero through 2023.

Homebuilder optimism rose to a record in September, with low mortgage rates driving a housing boom that has boosted the pandemic economy, National Association of Home Builders data show.

Europe

The U.K.’s lockdown hit young workers particularly hard, with employment in the 16-24 age category falling by 156,000. That may reflect the share of young workers in hotels, restaurants and bars, a sector devastated by the pandemic.

Asia

China’s economic recovery from Covid-19 accelerated, spurred by a rebound in consumption as virus restrictions eased and larger-than-expected gains in industrial output. Retail sales rose for the first time this year in August, by 0.5% from a year earlier, while industrial production expanded 5.6%, against a forecast of 5.1%.

Emerging Markets

Scoring 75 emerging-market and frontier economies, Bloomberg Economics finds that Asia leads in getting closer to pre-outbreak norms, with some countries in Africa and Eastern Europe also outperforming. Latin America is still struggling to contain the pandemic, with 18 of the bottom 25 in the ranking in Latin America or the Caribbean.

Saudi Arabia’s crude exports dropped to the lowest since at least 2016 in the second quarter as it led a campaign alongside Russia to curb oil production following a coronavirus-induced price crash. While the effort yielded a stark turnaround in prices in May and June, Saudi revenue from oil sales still plunged almost 62% in the three-month period from a year earlier.

South Africa is among the countries with the highest percentage of smokers globally, with almost one in every three adults lighting up. So when the government banned cigarette sales for about five months of the nation’s Covid-19 lockdown, some 90% found a workaround.

©2020 Bloomberg L.P.

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