Construction workers rig materials for a lift during the COVID-19 pandemic in Toronto on Sept. 29, 2020.
Nathan Denette/The Canadian Press
The Canadian economy is poised for strong growth in 2021 as COVID-19 vaccinations reach a critical mass of people, and restrictions are gradually lifted – the start of a return to normal after a destructive year for workers and businesses.
The script for next year isn’t written, but economists are largely agreed on the rough outline. Employers will add to headcount. Hard-hit service industries will be released from crippling lockdowns. And households, sitting on billions in excess cash, will unleash some pent-up demand. With companies and consumers feeling more upbeat, growth is the key theme for 2021.
To that end, real gross domestic product is projected to rise by 4.4 per cent next year, based on the median estimate from private-sector economists. That would unwind some of the 5.7-per-cent decline that’s expected for 2020, once final numbers are tallied.
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“Fundamentally, there wasn’t anything wrong with the economy before this all began,” said Douglas Porter, chief economist at Bank of Montreal. “And because of the tremendous fiscal support, I do think [the economy is] relatively well-coiled to come back when health conditions do allow.”
He did inject a note of caution, however: “The economy is going to be slogging uphill in the next couple of months. …It’s going to be a tough grind through the winter.”
Indeed, 2021 will get off to a rough start. Much of the country is grappling with a second wave of the coronavirus, and targeted restrictions could be in place for months more. Furthermore, millions of underemployed people are still relying on government support to pay the bills, while thousands of businesses find themselves in a similar position.
As such, economic growth will be tepid – or worse, non-existent – in the early months of 2021. Bank of Canada Governor Tiff Macklem has warned of a small backslide in the first quarter.
But the second quarter (April through June) is when many on Bay Street expect the tide to turn.
In essence, the economy will be guided by inoculation. Canada began its vaccination campaign in mid-December, and upwards of three million people will receive their shots by the end of March, according to Ottawa’s initial timetable. That should allow policy makers to begin easing restrictions by March or April, several economists said.
The second quarter is the “pivot point on growth being much stronger,” said Beata Caranci, chief economist at Toronto-Dominion Bank.
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Broadly speaking, households are well-positioned to guide the recovery. The federal government’s support programs have more than replaced income lost through layoffs. Combined with weaker consumption, savings have skyrocketed. A recent CIBC Capital Markets report said households and businesses are sitting on no less than $170-billion in excess cash.
In its fall economic statement, the federal Liberals said they would enact measures to help “unleash” these savings, referring to them as “preloaded stimulus.”
A big question for 2021 is how much of those savings people spend – and whether the government should do anything to coax money from chequing accounts.
“If you think back a year ago, what was the biggest concern about the Canadian economy? The vulnerability of the household sector and the weakness of household finances,” Mr. Porter said. “It’s not necessarily a bad thing that [households have] built up this extra cushion of savings.”
The federal government will unveil in 2021 the details of an economic stimulus plan costing as much as $100-billion over three years. Spending will be tied to “fiscal guardrails” that have yet to be outlined, but are based on labour market performance. (Canada has recovered around 80 per cent of its pandemic job losses.)
“I suspect [Ottawa] won’t need to spend as much as perhaps they are anticipating on that front,” said Ms. Caranci, pointing to the relative health of household balance sheets. “If people are income-protected during the crisis, it would suggest you have to do less after the crisis.”
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Her bigger concern is corporate health. Business insolvencies have been especially low during the economic downturn, thanks to government programs that supply no-interest loans and subsidies for rent and wages. Many supports are slated to run until June.
“Once you take away those supports, next year might show where the weaknesses are among businesses,” Ms. Caranci said. “That should really be where [the federal government has] their sights, because if you don’t have businesses, you don’t have workers.”
In his final speech and press conference of 2020, the Bank of Canada’s Mr. Macklem focused on strategies to strengthen international trade. He noted, however, that a stronger loonie – largely due to a broad-based weakening of the U.S. dollar – was making things difficult.
“There’s no question, this appreciation of the [Canadian] dollar is, on the margin, making our exporters less competitive,” he said. “It’s material. It’s on our radar screen.”
At the same time, Mr. Macklem urged the corporate sector to make investments that enhance productivity and competitiveness. He noted that borrowing costs will be “low for a long while.” The bank has pledged to keep its key rate at a record low 0.25 per cent into 2023.
“This seems an opportune time for companies to look at how they judge the rate of return on potential investments – the so-called hurdle rate,” he said. “Taking a longer-term approach to capital investment could unlock a myriad of viable growth opportunities.”
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The coming year will vary by region. In a recent forecast, TD Bank said real GDP would expand in all provinces, ranging from 3.1 per cent in Prince Edward Island to 5.6 per cent in Ontario.
“On the margin, provinces with a greater exposure to hard-hit services and tourism industries should benefit more,” the report said. “A swifter rebound in commodity prices should also provide support to the Prairie provinces.”
With a report from David Parkinson
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OTTAWA – Finance Minister Chrystia Freeland says the government is making some changes to mortgage rules to help more Canadians to purchase their first home.
She says the changes will come into force in December and better reflect the housing market.
The price cap for insured mortgages will be boosted for the first time since 2012, moving to $1.5 million from $1 million, to allow more people to qualify for a mortgage with less than a 20 per cent down payment.
The government will also expand its 30-year mortgage amortization to include first-time homebuyers buying any type of home, as well as anybody buying a newly built home.
On Aug. 1 eligibility for the 30-year amortization was changed to include first-time buyers purchasing a newly-built home.
Justice Minister Arif Virani is also releasing drafts for a bill of rights for renters as well as one for homebuyers, both of which the government promised five months ago.
Virani says the government intends to work with provinces to prevent practices like renovictions, where landowners evict tenants and make minimal renovations and then seek higher rents.
The government touts today’s announced measures as the “boldest mortgage reforms in decades,” and it comes after a year of criticism over high housing costs.
The Liberals have been slumping in the polls for months, including among younger adults who say not being able to afford a house is one of their key concerns.
This report by The Canadian Press was first published Sept. 16, 2024.
OTTAWA – Statistics Canada says manufacturing sales rose 1.4 per cent to $71 billion in July, helped by higher sales in the petroleum and coal and chemical product subsectors.
The increase followed a 1.7 per cent decrease in June.
The agency says sales in the petroleum and coal product subsector gained 6.7 per cent to total $8.6 billion in July as most refineries sold more, helped by higher prices and demand.
Chemical product sales rose 5.3 per cent to $5.6 billion in July, boosted by increased sales of pharmaceutical and medicine products.
Sales of wood products fell 4.8 per cent for the month to $2.9 billion, the lowest level since May 2023.
In constant dollar terms, overall manufacturing sales rose 0.9 per cent in July.
This report by The Canadian Press was first published Sept. 16, 2024.
TORONTO – Strength in the base metal and technology sectors helped Canada’s main stock index gain almost 100 points on Friday, while U.S. stock markets climbed to their best week of the year.
“It’s been almost a complete opposite or retracement of what we saw last week,” said Philip Petursson, chief investment strategist at IG Wealth Management.
In New York, the Dow Jones industrial average was up 297.01 points at 41,393.78. The S&P 500 index was up 30.26 points at 5,626.02, while the Nasdaq composite was up 114.30 points at 17,683.98.
The S&P/TSX composite index closed up 93.51 points at 23,568.65.
While last week saw a “healthy” pullback on weaker economic data, this week investors appeared to be buying the dip and hoping the central bank “comes to the rescue,” said Petursson.
Next week, the U.S. Federal Reserve is widely expected to cut its key interest rate for the first time in several years after it significantly hiked it to fight inflation.
But the magnitude of that first cut has been the subject of debate, and the market appears split on whether the cut will be a quarter of a percentage point or a larger half-point reduction.
Petursson thinks it’s clear the smaller cut is coming. Economic data recently hasn’t been great, but it hasn’t been that bad either, he said — and inflation may have come down significantly, but it’s not defeated just yet.
“I think they’re going to be very steady,” he said, with one small cut at each of their three decisions scheduled for the rest of 2024, and more into 2025.
“I don’t think there’s a sense of urgency on the part of the Fed that they have to do something immediately.
A larger cut could also send the wrong message to the markets, added Petursson: that the Fed made a mistake in waiting this long to cut, or that it’s seeing concerning signs in the economy.
It would also be “counter to what they’ve signaled,” he said.
More important than the cut — other than the new tone it sets — will be what Fed chair Jerome Powell has to say, according to Petursson.
“That’s going to be more important than the size of the cut itself,” he said.
In Canada, where the central bank has already cut three times, Petursson expects two more before the year is through.
“Here, the labour situation is worse than what we see in the United States,” he said.
The Canadian dollar traded for 73.61 cents US compared with 73.58 cents US on Thursday.
The October crude oil contract was down 32 cents at US$68.65 per barrel and the October natural gas contract was down five cents at US$2.31 per mmBTU.
The December gold contract was up US$30.10 at US$2,610.70 an ounce and the December copper contract was up four cents US$4.24 a pound.
— With files from The Associated Press
This report by The Canadian Press was first published Sept. 13, 2024.
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