A report published as part of the autumn edition of the Bank of Canada Review, a twice-yearly collection of academic papers by bank economists, concludes that the slow economic growth in Canada is here to stay.
Overall, there is increasing evidence that growth in advanced economies may remain slow in the immediate future compared to its pre-financial crisis average, as a result of a combination of cyclical and structural factors,” according to experts.
While cyclical factors including households and governments debts will eventually ease, longer-term factors, including the aging population and slowing labour force expansion, will continue to hamper economic growth.
One of the most significant longer-term problems is the slowing growth rate of the working-age population as the baby boom generation retires. The report pointed out that later retirement and increased participation by women have in the past helped offset demographic trends.
While the economy has usually revived rapidly from recessions with above-average growth, this was not the case after the Great Recession of 2008-09. Instead, growth averaged just 1.4 per cent a year in advanced economies between 2010 and 2014. The Bank of Canada has repeatedly revised its forecasts lower and in October it cut the forecasted gross domestic product to 2 per cent in 2016 and 2.5 per cent in 2017.
Recently the central bank confirmed it will begin publishing a quarterly consumer confidence survey in 2016. This data has generally not been made public previously. Titled the Canadian Survey of Consumer Expectations, it will track Canadians’ attitudes to inflation, the job market, household income and spending as well as house prices.
Inflation data is currently missing from the Conference Board of Canada’s monthly consumer confidence index. Monitoring the behavior of inflation expectations is critical to gauging future inflation pressures.
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A survey of professional accountants in leadership positions by the Chartered Professional Accountants (CPA) of Canada reveals that optimism in Canada’s economic performance is gradually on the rise.
According to the survey, which is carried out quarterly, 29 per cent of respondents were optimistic about the Canadian economy in the year ahead, up from 23 per cent in the previous quarter. Respondents with a negative outlook were at 20 per cent, a significant reduction from the 30 per cent who expressed a pessimistic view earlier this year. About 50 per cent had a neutral outlook on the Canadian economy.
While most respondents cited the fall in oil prices as posing the main challenge for Canadian economic growth, over 20 per cent of the respondents believe that lower oil prices actually benefited the economy.
According to the survey, over half of professional accountants were optimistic about the prospects of their companies, with 60 per cent forecasting revenue growth over the next 12 months, and 56 per cent anticipating an increase in profits. Around 38 per cent of those surveyed predict an increase in employee numbers at their company, while 35 per cent anticipated no change and 25 per cent expect a drop.
The American job market has beaten Canada’s by the biggest margin in 21 years. Bank of Montreal chief economist Doug Porter said that although jobs in Canada were up one per cent over the past year, the country has recorded job losses in eight of the last 17 months due to the oil price crash.
By contrast, in the US the number of jobs in the private sector has grown by 2.5 per cent over the past year, the fastest rate since the peak of the internet boom in the late 1990s.
Until recently, Canada had the best job market performance among developed nations since the Great Recession of 2008. Canada fared much better than its American neighbor, with the US struggling with the effects of the financial crisis over the past seven years.
According to Porter, the last time the US beat Canada in job market performance was way back in 1994 when the Canadian economy was struggling with a manufacturing and housing slump, as well as mounting public debts. The unemployment rate in Canada at the time was above 10 per cent.
At present, Canada’s unemployment rate stands at 6.8 per cent, significantly higher than the 5.4 per cent recorded in the US. According to Porter, the reason behind the better performance of the US at present is due to its lower starting point after the shock of the 2008 financial crisis. Compared to Canada, the US had three per cent less of its working-age population employed.
The Bank of Montreal says that regardless of the US performance, it has “serious doubts on Canada’s economic outlook”.
Canada’s plan to boost exports to the US to counter the effects of the oil price crash has not yet worked out either. “Export volumes have been down over the past two quarters,” says Porter.
According to the statement released by StatsCan last week, Canada’s economy experienced a 0.6 per cent decline in the first quarter of the year, owing to a similar decline experienced by the US economy. Experts believe that 2015 will see a downward trend, with economic growth predicted at 1.5 per cent.
Stephen Poloz has kept markets on edge ever since an unexpected rate cut to the Bank of Canada’s key interest rate in January, the first adjustment in four-and-a-half years.
The Bank of Canada governor and his policy team are likely to keep their options open, maintaining the trendsetting lending level at 0.75 per cent — down from the one per cent set in September 2010. Poloz has said the “insurance” cut is working for now.
However, a lot has happened since the central bank’s surprise 25-basis-point cut on Jan. 21. The Canadian economy has been sideswiped by the global collapse in oil prices, threatening to pull resources-dependent Alberta into recession, perhaps Saskatchewan along with it. It hasn’t helped that the U.S. economy also got off to a slow start in 2015.
Some of Canada’s top economists share their views on the Bank of Canada’s policy decisions this year — their effectiveness and where the key borrowing level is heading next, and when.
Douglas Porter, BMO Capital Markets chief economist
“I think [the rate cut] was modestly effective. We are talking about a 25-basis-point cut. Ultimately, only 15 basis points of which showed up in prime lending rates. Initially, of course, there was a shock reaction by the Canadian dollar. There was a shock reaction in the bond market and there was a positive reaction in equities. Of the three, I would say, really, the only lasting effect was on the equity market.
For equities, we’re up a little more than six per cent from pre-cut levels, which is substantial.
I do think the bank’s cut did probably play a role in some of the aggressive mortgage rate cuts we’ve seen among banks in recent months.
I think it would be pretty tough to justify a rate increase any time soon — unless oil prices came flaring back and there was a view that this was sustainable. But I suspect though the bank will be very slow to turn around. They’ll be very cautious, wanting to see the full impact of the oil collapse in oil prices over the past year.
We’re forecasting them staying on hold over the next year and start raising rates in the second half of 2016.
Craig Alexander, TD Economics chief economist
“The rate cut in January provided some stimulus to the Canadian economy, but the impact was very slight. Interest rates were already incredibly low, and much of the drop in yields in the early months of the year reflected a rally in global fixed income markets, which has now reversed course.
I don’t think the Bank of Canada needs to cut rates further, or should cut rates further. I worry about household debt, and consumers don’t need more incentive to leverage their finances.
If the Canadian economy fails to rebound from the likely flat reading of economic growth in Q1, I think the bank will start to consider further cuts.
However, I would urge them not to cut again unless it looks like the economy is heading for another downturn. They are already providing massive stimulus, and it is leading to an indebtness problem that will need to be addressed in the future.”
Avery Shenfeld, chief economist, CIBC World Markets
“The rate cut was only of marginal significance through the interest rate channel, but the Canadian dollar is likely weaker than it would have been otherwise, as it underscored to markets that the Bank of Canada will also not be hiking when the Fed does so. A weaker trading range for the Canadian dollar will, with a lot of patience, help the export sector rebuild.
Given that the impact was largely through the exchange rate, the Bank of Canada could be compelled to cut again if we saw the combination of continued slow growth and an appreciating Canadian dollar that threatened to undermine the desired rotation to improved export performance.
Dawn Desjardins, assistant chief economist, Royal Bank of Canada
The bank’s decision to cut resulted in an easing in financial conditions and in turn an acceleration in business borrowing via increases in longer-term financing, and short-term financing providing the capital needed for firms to increase investment to expand capacity — outside the oil and gas sector.
We expect the bank’s next move will be a rate hike, based on our view that the economy will grow at an above-potential pace in upcoming quarters resulting in the output gap closing in the middle of 2016.
Emanuella Enenajor, senior economist, BofA Merrill Lynch
The main channel of the Bank of Canada rate cut was through mortgage rates. The easing in the overnight rate contributed to a slight decline in Canadian mortgage rates, supporting an increase in house prices and credit demand.
A rate cut would be justified if it is clear that the Canadian economy is set to grow notably below the BoC’s forecast, a sign of a persistently negative output gap and persistent downside inflationary risk.
Derek Holt, vice-president, Scotiabank Economics
“I think the cut had a modestly positive impact, but would place it second to the impact of broader global forces that had lowered bond yields and weakened the currency. Those global forces have now reversed significantly.
We forecast the BoC to be on hold throughout 2015-16. To hike before then would require large unexpected upsides to growth and for the temporary upward influences on core inflation to be more permanent in nature. “
Sherry Cooper, chief economist, Dominion Lending Centres
I think the rate cut was warranted. It did lead to lower mortgage rates, which does spur housing and/or put more money in people’s pockets. It did lower the Canadian dollar, which boosts exports at the margin.
There will be no rate increase until next year and not until we are much closer to full capacity utilization and two-per-cent inflation.
According to a report by the CIBC, the number of non-permanent residents in Canada has more than doubled over the past decade. In total, there are almost 770,000 non-permanent residents in Canada – 450,000 more than there were 10 years ago – and they have a substantial impact on the housing market and consumer spending.
Almost 50 per cent of non-permanent residents are workers on contracts, and 38 per cent are students, while the rest fall in the humanitarian or refugee category.
Most of the 384,200 non-permanent workers are employed in middle-income professional jobs and expect to gain permanent resident status in Canada.
As a result, they provide a substantial boost to demand for rental properties, with some even buying property despite their temporary status. These non-permanent workers also contribute significantly to overall retail spending just like any other middle-income Canadians.
Most should be viewed as an important demographic force capable of influencing and potentially altering the trajectories of macro-economic variables such as housing activity and consumer spending according to a recent report prepared by CIBC.
Additionally, almost 95 per cent of these non-permanent workers are under the age of 45, making them an important part of the demographic of young workers that are vital for sustaining Canada’s ageing population.
The CIBC report highlights the powerful demographic and economic impact of non-permanent residents in British Columbia and Ontario. Between 2006 and 2013, there would have been a decline of 120,000 individuals in the 25 to 44 age segment of the population in Ontario if not for non-permanent residents, while B.C. saw all of its growth since 2006 in the 25 to 44 age group come through non-permanent residents.
The CIBC report underlines the important contribution non-permanent residents make to the Canadian economy, which the federal government should keep in mind when making policy decisions concerning TFWs.
“The main issue is to take into account the economic impact of such large numbers. The number is big enough to change the trajectory”, the report concludes. “The numbers are simply too large to ignore. Non-permanent residents is a major demographic force with significant macro-economic implications.”
Canada overhauled the temporary foreign workers program in 2014, placing restrictions on the number of TFWs that could be hired by a single employer, as well as limits on hiring TFWs in regions with high unemployment rates.
Canadian Prime Minister, Stephen Harper recently made the statement, ‘The oil industry isn’t remotely the entire Canadian economy.’ While this is not a startling statement in itself, since production of crude oil represents just 3% of Canada’s GDP, the surprise is that Mr. Harper felt he has to state the obvious.
He pulled Canada out of the Kyoto protocol on climate change and promoted the Keystone XL pipeline that would carry Alberta bitumen to refineries in the southern United States. He has likened the development of Alberta’s tar sands to building the Great Wall of China. Canada, the fifth-largest producer of crude oil (which makes up 14% of exports), is an “emerging energy superpower”, Mr. Harper has proclaimed.
However, since June 2014 oil prices have dropped by over fifty percent leading to a shift in the engines of economic growth from western Canada to the central provinces of Ontario and Quebec, which concentrate on services and manufacturing. The weakness in the energy sector prompted a surprise cut in interest rates by the Bank of Canada on January 21st. The federal government, which usually delivers its budget by the end of March, has put that off until April at the earliest. Volatile energy markets make it impossible to predict revenue accurately, says Joe Oliver, the finance minister.
While the energy slump will boost some parts of the country, it will depress others. According to the Conference Board of Canada, oil-rich Alberta, which has grown faster than the rest of Canada for the past 20 years, will enter recession this year, predicts one.
This is the reason behind the central bank’s decision to reduce the target for its key interest rate by a quarter of a percentage point from 1%, its level since September 2010. This has puzzled the financial markets since core inflation stands at 2.2%, well within the bank’s target range. Lower rates could encourage consumers, who are already carrying record levels of debt, to take on even more. Stephen Poloz, the central bank’s governor, acknowledged the risk but argued that the recession in the oil industry made it worth taking. He fears that the loss of jobs, investment and export income from the energy sector will eventually spread to other parts of the economy. He said the rate cut was similar to taking out an insurance policy.
Ontario and Quebec, which account for over half of Canada’s GDP, are home to large manufacturing industries, such as cars and aerospace, which have long complained that the oil-fuelled rise in the Canadian dollar was damaging their competitiveness. The currency has fallen by 15% against the American dollar since June, giving exports a boost, and may weaken further because of lower interest rates. This combined with strong growth in the United States, Canada’s biggest trading partner, bodes well for manufacturers.
There are two threats to Mr. Harper’s campaign plan. The first is that, as the central bank fears, the petro-plunge will pull down growth overall. The second is that the economy will continue to do relatively well but that the Conservatives will not get credit for it.
Mr. Harper is a skilled political scrapper; he may well find a way to turn the shift away from oil-led growth to his advantage.
The Canadian economy performed surprisingly positively in October and is set to extend its broadly-based growth with higher exports to the U.S., but uncertainty remains over the impact of lower oil prices on the energy sector.
According to Statistics Canada, Gross domestic product rose 0.3 per cent to an annualized $1.65-trillion in October, after a 0.4-per-cent gain in September. October was expected to see growth a 0.1-per-cent growth.
The Toronto Stock Exchange’s S&P/TSX composite index was up by 1.01 per cent, to 145.91 points, in early afternoon trading, at 14,578.29 on news of the strong data as well as slightly higher oil prices.
The U.S. economy grew at a 5-per-cent annual rate in the third quarter, its fastest pace in 11 years, boosted by consumer spending and outpacing Canada’s gains. This is a welcome outcome for Canada’s exporters, as increased demand benefits the manufacturing sector.
However, impacts of the potential longer-term damage of dramatically lower oil prices to the country’s oil and gas companies are under scrutiny as well.
“The Canadian economy is off to a surprisingly strong start to [the fourth quarter] with the good handoff from September providing a nice additional boost,” BMO Nesbitt Burns senior economist Benjamin Reitzes said in a research note. “While growth will likely decelerate in the final two months of 2014, it looks as though [fourth quarter] GDP growth is going to be around 2.5 per cent annualized unless November and December weaken materially.”
But he added that 2015 appears to be more challenging “as the drop in oil prices starts to bite.” GDP growth looks to be on a path to slow to a sub-2-per-cent pace in the first half of 2015, the weakest since 2012, he said.
PNC Financial Services Group’s senior international economist Bill Adams said he expects Canadian real GDP growth will show “modest improvement” next year but will lag GDP growth in the U.S., “which looks likely to exceed 3.0 per cent in 2015.”
“Lower oil prices haven’t dragged on Canadian energy output yet, perhaps because producers may have locked in long-term prices before the fourth quarter’s plunge,” Mr. Adams added.
“The real worries lie in what the collapse in crude means for next year,” CIBC World Markets’ Nick Exarhos said.
Oil production volumes were up a surprising 1.5 per cent in October but the damage from the fall in crude prices will be felt as firms in the sector cut spending plans in the first half of 2015.
October saw a rise of 0.7 per cent for manufacturing output, the highest in six years. According to National Bank Financial senior economist Krishen Rangasam, this was likely due to stronger U.S. demand and the impact of the lower Canadian dollar.
Royal Bank of Canada economist Paul Ferley agrees that oil price declines will likely hurt sector investment but says that should be offset by Canadian exports to the U.S. and higher Canadian consumer spending thanks to lower gasoline prices.
Other factors providing a boost to GDP in October was the 0.8-per-cent rise in public sector output, including a 2.6-per-cent growth in educational services, which got a bump from the return to work of striking British Columbia teachers. Among other sectors, Statistics Canada said services posted a 0.3-per-cent gain.
Source: The Globe and Mail
The Canadian economy experienced strong growth in October, generating 43,100 mostly full-time positions in the private sector and pushing the unemployment to a six-year low.
With the growth of 74,100 in September, October’s gains produced the largest two-month increase since March-April 2012, according to Statistics Canada. This is the first time since November-December 2012 that the economy has generated two months of consecutive gains.
The unemployment rate for October declined to 6.5%, its lowest level since November 2008.
At a news conference held to discuss the results, Finance Minister Joe Oliver said the numbers were encouraging.
“Our plans for jobs and growth are working in spite of a fragile international economic environment,” Oliver said. “As I said before, we don’t rely on one single month but when we have two months … then of course you start to see a trend, which is very positive.”
The Canadian dollar rallied nearly a cent against the U.S. dollar following this announcement, closing up 0.46 of a cent to 87.99 cents US.
The figures revealed by Statistics Canada were largely unexpected. Economists predicted a decline in the employment figures of between 5,000 and 10,000 positions with the jobless rate remaining steady at 6.8%.
The improved labour market results was especially strong in the area of Full-time employment which accounted for 26,500 of the new jobs created. Another 16,500 were part-time jobs, with the private sector creating 70,600 jobs and the public sector shedding 53,800 positions.
“All the employment gains in October were among people aged 25 to 54, with most of the increase among women in this age group,” Statistics Canada said.
Employment for youth aged between 15 and 25 also recorded gains in October, with 4,400 positions added. Commenting on the youth employment figures, Mr. Oliver said “we’re looking for permanent jobs for youth, and we’re very encouraged by the latest numbers.”
Despite the positive numbers, the Bank of Canada’s trendsetting interest rate will remain at 1% — where it has been since for more than four years — at least until mid-2015.
Overall, the October jobs reporting is excellent news for the federal government, which has stated in its press briefings that Canada has been the best performing developed nation since the 2008-09 recession. On the job creation side however, Canada remains far behind the USA.
Source: Financial Post
As Canada moves into the second half of the year, many employers are seeking to increase headcount. More than one-half (56 per cent) of hiring managers have plans to hire full-time, permanent staff, up from 48 per cent this time last year, and 40 per cent in 2012.
Additionally, 50 per cent expect to hire contract or temporary workers, this figure was 42 per cent in 2013. 36 per cent of employers said they’ll be hiring part-time employees.
“The Canadian economy remains healthy, with employers adding jobs over the past several years and continuing to look to increase headcount in the back half of 2014,” said Brent Rasmussen, president of CareerBuilder North America. He added that with employers looking to fill a wide variety of positions this growth will be felt across industries and company sizes.
Most workers don’t plan on leaving their current employer and 26 per cent said they are likely to change jobs in the next 12 months, a decrease of four per cent from last year, found a survey of 431 hiring managers and HR professionals and 422 workers.
Top areas for hiring
The top functional areas for which businesses plan to hire in the second half of 2014 include:
• information technology (34 per cent)
• customer service (29 per cent)
• sales (22 per cent)
• production (21 per cent)
• accounting/finance (17 per cent)
• marketing (17 per cent)
• research and development (15 per cent)
Emerging skill sets
When asked to identify specific areas their organizations plan to hire for in the second half of 2014, employers pointed to jobs tied to:
•cloud technology (21 per cent)
• mobile technology (16 per cent)
• search technology (14 per cent)
• cyber security (14 per cent)
• health informatics (13 per cent)
• wellness (13 per cent)
• social media (13 per cent)
• financial regulation (13 per cent)
• managing and interpreting Big Data (12 per cent)
• global relations (11 per cent)
• content strategy for the web (10 per cent).
Source: HR Reporter
A new Bank of Canada survey is sparking hope that economic recovery may be on the horizon.
According to the Bank’s fourth quarter survey, released last week, there are “some positive signs” for the economy and projections for future sales growth are “solidly positive.” These positives are related to responses provided by businesses, signalling intent toward more investment and expansion.
However, despite these potentially positive responses, the Bank of Canada has indicated that it has no intention to change interest rates, as many businesses still seem uncertain about the current and future economic environment.
The firms that were surveyed in general anticipated more growth this year than last, and planned to invest in machinery and equipment to address the eventual increase in demand, though competition south of the border has some wary. Over half of the businesses surveyed indicated that they planned to hire new staff, and only 11 percent expected cutbacks.
The Bank of Canada survey was conducted from November to December of 2013 and included 100 respondents from across the country.
Source: Wall Street Journal