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The Taylor Swift Economy Is a Post-Covid Myth BloombergThe Taylor Swift Economy Is a Post-Covid Myth - Bloomberg
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Monday, July 31, 2023
The Taylor Swift Economy Is a Post-Covid Myth - Bloomberg
The Taylor Swift Economy Is a Post-Covid Myth - Bloomberg
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Lebanon’s new central bank head says reforms planned to deal with economy - Al Jazeera English
Wassim Mansouri is to take over as interim chief of Lebanon’s central bank after Riad Salameh steps down.
The Lebanese central bank’s new interim chief has urged the government to undertake long-delayed reforms as he confirmed he would take over as its acting head, replacing longtime chief Riad Salameh.
Wassim Mansouri, the vice governor of the Banque du Liban or central bank, is due to take over from Salameh on Tuesday after political factions failed to appoint a successor to Salameh, despite the instability this could cause Lebanon amid a four-year-long financial crisis.
Riad Salameh leaves office after a 30-year tenure, tarnished by an economic meltdown that has impoverished many Lebanese and paralysed a once sprawling banking system, as well as charges of corruption against him at home and abroad – which he denies.
Speaking at a news conference, Mansouri said the new Banque du Liban leadership planned to impose severe restrictions on the central bank’s lending to the government and that such funding should be gradually stopped in its entirety.
He added that the authorities should also phase out a controversial exchange platform known as Sayrafa and lift the peg on the local currency.
“We are facing a crossroads,” Mansouri said, promising he would not sign off on any government financing that he was not convinced by and that was “outside the legal framework”.
Mansouri’s appointment
The failure to appoint a new bank governor reflects wider dysfunction that has left Lebanon with neither a fully empowered government nor a president, further hollowing out a state crippled by a four-year-old financial freefall.
Ruling politicians have taken scant action to begin addressing the financial collapse, widely blamed on decades of profligate spending and corruption overseen by long-dominant sectarian factions.
The International Monetary Fund said in June that the crisis had been aggravated by vested interests resisting crucial reforms.
Mansouri, who is trained as a lawyer and worked as a legal consultant to the finance ministry and to parliament in recent years, said this was Lebanon’s “last chance” to enact changes. His reforms include setting up a capital control law, a financial restructuring law and a 2023 state budget within six months.
The central bank leadership is selected via a sectarian power-sharing system that governs other top posts in Lebanon. Mansouri was appointed, along with three other vice governors, in June 2020.
Mansouri is a Shia Muslim, while the central bank governorship is traditionally reserved for Maronite Christians.
The downfall of Salameh
Once feted as a financial wizard, former central bank chief Riad Salameh left the post he held for three decades on Monday surrounded by a group of his followers, who celebrated him with traditional music and dancing.
However, while he was widely viewed as the linchpin of the financial system until it imploded in 2019, Salameh saw his standing crumble as the meltdown impoverished many Lebanese and froze most savers out of their deposits kept in banks, leading to several incidents where depositors held up banks demanding the release of their money.
His image was further tarnished as one European country after another began investigating whether he abused his powers to embezzle Lebanese public money.
Salameh has denied wrongdoing, and said days before his departure that he had “worked according to the law and respected the legal rights of others” during his tenure.
In May, French and German authorities issued warrants for his arrest. Interpol Red Notices declared him wanted by both countries.
Defending his tenure in an interview on Wednesday, Salameh said he had been made a scapegoat for the meltdown, claiming that the government – not the central bank – was responsible for spending public funds.
“I am going to turn a page of my life,” he said.
Lebanon’s new central bank head says reforms planned to deal with economy - Al Jazeera English
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Guelph names new manager of economic development and tourism - Global News
Guelph has a new manager of economic development and tourism.
James Goodram comes from the city of Cambridge where he was in charge of implementing large and complex projects, including the launch of the municipal accommodation tax, and played a key role in downtown and urban renewal projects.
In a news release, Goodram was described as having an extensive background in economic development including business attraction, retention and expansion, municipal land development and real estate, small business development, and film industry experience.
“I’m really looking forward to joining the Guelph team and collaborating with partners in the community to grow Guelph,” said Goodram in a statement.
Guelph’s deputy CAO Jayne Holmes said: “We look forward to his leadership in supporting and advancing the great work being done to promote Guelph as a destination of choice for both visitors and investors.”
Goodram’s first day as Guelph’s manager of economic development and tourism will be Aug. 14.
He takes over from John Regan who left on May 9.
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© 2023 Global News, a division of Corus Entertainment Inc.
Guelph names new manager of economic development and tourism - Global News
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Italy GDP: Economy Unexpectedly Shrinks as Domestic Demand Weakens - Bloomberg
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Italy GDP: Economy Unexpectedly Shrinks as Domestic Demand Weakens BloombergItaly GDP: Economy Unexpectedly Shrinks as Domestic Demand Weakens - Bloomberg
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Easy to ignore what's happening to U.S. economy when stock market remains so high: QI Research CEO - BNN Bloomberg
Easy to ignore what's happening to U.S. economy when stock market remains so high: QI Research CEO - BNN Bloomberg
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Sunday, July 30, 2023
China Seeks to Boost Consumption to Spur Economy's Recovery - Bloomberg
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China Seeks to Boost Consumption to Spur Economy's Recovery BloombergChina Seeks to Boost Consumption to Spur Economy's Recovery - Bloomberg
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Pimco Warms Toward China Bonds on Weak Economy, Monetary Easing - BNN Bloomberg
(Bloomberg) -- Bearishness among foreign investors toward China’s bonds is easing after last year’s rout, with Pacific Investment Management Co. becoming the latest to warm up to the debt.
“We have turned neutral on China bonds for a number of weeks now, compared with an underweight bias at the beginning of the year,” said Stephen Chang, a portfolio manager at Pimco. “Data continue to show the Chinese economy losing momentum and the current monetary policy justifies a more neutral stance for us on duration.” Easing depreciation pressure on the yuan is also supportive, he added.
After a record exodus last year, global funds have started returning to Chinese bonds since May as bets for US interest rates to soon peak and Beijing’s monetary easing boost demand. But optimism has yet to fully take hold, with pricey valuations, a wide US-China yield gap and uncertainties over the yuan’s outlook deterring some investors.
It may take some time for sentiment toward China’s economy to recover completely, even after the Politburo, the country’s top decision-making body, adopted a supportive stance toward the private sector and housing market at its latest meeting, Chang said.
“It’s a matter of where those policies will come through — not only in terms of the exact measures, but also in terms of the timing of when they might become helpful,” he said. “While there is that desire to support growth for it to go back up as the Politburo signaled, the type of measures might be more difficult to implement this time around.”
The probability is also low for a meaningful rebound in Chinese property bonds. “Many Chinese developers will be facing maturity coming through in the next 6 to 12 months and their ability to meet timely payment of those bonds remains vulnerable,” Chang said.
Pimco is holding more of a neutral view on developers’ dollar notes, until industry support measures lead to a pickup in actual home purchases that would improve companies’ cash flows and credit profiles, he said.
While China’s economic fundamentals and policy direction bode well for its local-currency debt, the nation’s sovereign bonds remain expensive on a valuation basis, reducing its appeal relative to other government bond markets, according to Chang.
China’s yield curve is likely to steepen as potential further easing measures pressure the front end while extra bond supply points to lower conviction on longer tenors, he said.
The 10-year government bond yield has fallen since February and touched the lowest in almost a year this month.
Here are some other takeaways from the interview:
- There may be quite incremental and modest rate cuts in China in terms of scope, but at least the direction is that the central bank will keep monetary policy accommodative
- If the yuan were to stabilize and maybe even turn around from the recent depreciation, that may be a potential supportive factor for allocation to China bonds. The recent yuan fixings indicate that the PBOC may not want to see additional weakness. The CFETS Index for the currency may stabilize at current levels after the pullback this year
- In Asia, Pimco is overweight South Korea due to the country’s preemptive rate hikes and stabilizing inflation; underweight Malaysia where rate hikes have been slow compared to other economies
©2023 Bloomberg L.P.
Pimco Warms Toward China Bonds on Weak Economy, Monetary Easing - BNN Bloomberg
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Saturday, July 29, 2023
Canada's economy grew 0.3 per cent in May: StatCan - CTV News
The Canadian economy grew by 0.3 per cent in May despite downward pressure from wildfire-hit oil and gas production but it looks to have slowed in June, Statistics Canada said Friday.
In its latest report on economic growth, the federal agency's preliminary estimate suggests real gross domestic product grew at an annualized rate of one per cent in the second quarter.
The May figure came in slightly lower than was expected by Statistics Canada as mining and oil and gas companies reduced their operations in Alberta at the outset of the record-breaking wildfire season.
The energy sector was down 2.1 per cent in May, the release shows.
"This was the sector's first decline in five months and its largest since August 2020," the agency said.
The modest GDP increase in May was driven in part by a rebound in the public administration sector as most federal public servants on strike returned to work by the end of April. However, 35,000 Canada Revenue Agency workers remained on strike for three days in May, which dampened the rebound.
The economy remained resilient in the second quarter, but growth started to look weaker by the end of the period, with wholesale sales posting one of their largest declines in history in June, said RBC economist Claire Fan in a note.
"The resilience in consumer demand we've seen to date is not to be overlooked, adding to sticky inflation pressures. But momentum in services spending also appears to be waning -- gross sales at food services and drinking places have been trending at levels below this January for months," she wrote.
That modest growth is unlikely to hold, as the federal agency's preliminary estimate for June suggests the economy contracted by 0.2 per cent.
Statistics Canada says the estimated decrease in June is mainly owing to the wholesale trade and manufacturing sectors.
Both sectors saw growth in May as supply chain issues related to semiconductor chips eased, but the downward trend in June is expected to "more than offset the increases recorded in May," the agency said.
The slowdown comes as the Bank of Canada's key interest rate sits at five per cent, the highest it's been since 2001. The interest rate spike is expected to slow the economy down, though it has generally performed better than expected this year.
The real estate sector, for example, is expected to continue to grow in June despite high interest rates.
In May, home resales in most of Canada's largest markets led to an industry increase of 7.6 per cent.
A series of transitory shocks since April, such as the wildfires, has made the data more difficult to interpret, wrote TD economist Marc Ercolao in a note.
"Looking ahead, headline GDP figures may continue to be skewed by the government's grocery rebate and the effects of the B.C. port strike in July," he said.
But the the pullback in June will likely help support a hold on the Bank of Canada's key policy rate in September after announcing a hike this month, said Ercolao.
"Slowing growth appears to be in the cards for the Canadian economy, and we believe this will be enough for the (central bank) to remain on hold at its next meeting," he said.
The Bank of Canada won't hesitate to hike rates further if necessary, said Fan, but she added that "the worst is yet to come" for households dealing with rising debt service costs.
"We expect that will soften spending, push inflation lower and keep the (central bank) to the sideline over the second half of this year," she said.
This report by The Canadian Press was first published July 28, 2023.
Canada's economy grew 0.3 per cent in May: StatCan - CTV News
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Economy hit ‘sharp reversal’ in June. What this means for the Bank of Canada - Global News
Canada’s economy kept growing in May, but early signs of a long-awaited slowdown started to appear in June, according to Statistics Canada.
The federal agency said Friday that real gross domestic product was up 0.3 per cent in May, with growth in services-producing sectors offsetting declines in goods.
A return to work among striking federal service workers helped lift GDP in May, StatCan said. An easing in supply chain kinks, especially among semiconductors, boosted automotive manufacturing in the month.
Rebounding housing markets in some of Canada’s largest cities drove real estate activity up 7.6 per cent, StatCan said. Construction activity contracted 0.8 per cent, however, amid a slowdown in residential building and renovations.
Upsizing buyers drove demand in Canada’s housing market this spring, new report says
Forest fires in Alberta dragged down growth in the mining, quarrying and oil and gas extraction industries in May, according to the agency.
The energy sector was “severely impacted” by forest fires, StatCan said, contracting 2.1 per cent in May — the largest decline in the industry since August 2020.
The month’s GDP figures are down slightly from StatCan’s flash estimates suggesting growth of 0.4 per cent in the month. April’s reading showed the economy was virtually unchanged, while it grew a slight 0.1 per cent in March.
Early readings for June show the economy contracted 0.2 per cent in June, though those figures could be revised.
Those same early estimates from StatCan show economy grew at a rate of 1.0 per cent annualized in the second quarter of the year. In its most recent monetary policy report released in July, the Bank of Canada said it expected growth of 1.5 per cent, revised up from earlier expectations of 1.0 per cent.
Bank of Canada raises key interest rate to 5 per cent, highest level in 22 years
What does a slowing economy mean for the Bank of Canada?
The central bank has been working to slow the economy by raising interest rates in an effort to bring inflation to its target of two per cent.
It most recently raised its key rate on July 12 by a quarter of a percentage point to five per cent, the highest it’s been since 2001.
The Bank of Canada has said that future rate decisions, including its next one on Sept. 6, will be dependent on what economic data shows.
Raising interest rate to 5 per cent will help relieve inflation: Macklem
“The sharp reversal in June reinforces our view that the Bank of Canada is done with rate hikes,” Royce Mendes, head of macro strategy at Desjardins Group, said in a note on Friday. “Momentum is clearly slowing and the risks to the downside are growing.”
TD Bank economist Marc Ercolao said in a note that with the public sector strike and wildfire impacts, Canada’s economy has been hit by a “series of transitory shocks” that make the data difficult to interpret.
While he expects one-time disruptions in the data to continue with the impact of the B.C. port strike and the federal government’s grocery rebate rolling out in July, Ercolao said there’s enough in the latest GDP figures to suggest there was some “slowing momentum” in the economy heading into the summer months.
As such, Ercolao said the Bank of Canada should be satisfied with the progress in slowing the economy to date enough to hold interest rates steady in September.
GDP is not the only metric the central bank will be watching as it plots its next rate decision, however.
CIBC senior economist Andrew Grantham said in a note that he believes forthcoming updates on core inflation and next week’s Labour Force Survey for July will be “more important” to the Bank of Canada in gauging whether demand in the economy has cooled sufficiently to leave rates unchanged.
— with files from Reuters, The Canadian Press
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© 2023 Global News, a division of Corus Entertainment Inc.
Economy hit ‘sharp reversal’ in June. What this means for the Bank of Canada - Global News
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Charting the Global Economy: Fed, ECB Press on With Rate Hikes - Bloomberg
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Charting the Global Economy: Fed, ECB Press on With Rate Hikes BloombergCharting the Global Economy: Fed, ECB Press on With Rate Hikes - Bloomberg
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Shambolic economic policies give investors reason to look for Canadian opportunities abroad - The Globe and Mail
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A man crosses by the Toronto Dominion Centre main building on May 10.Tuan Minh Nguyen/The Globe and Mail
Justin Trudeau missed an opportunity when he shuffled his cabinet this week. He should have appointed a minister of economic coherence.
The Prime Minister could have handed this unfortunate soul the job of explaining to Canadians how the various disjointed parts of the Liberals’ agenda fit together.
Among other things, this would have involved explaining how a government can insist it is in favour of more affordable housing while it simultaneously encourages a boom in immigration and temporary workers that is overwhelming the country’s demonstrated capacity to build homes.
Sadly, though, there is no minister of economic coherence. Until there is, investors might want to ponder how much they should bet on Canada’s growth trajectory.
At first glance, this trajectory doesn’t look so bad. Over the past four decades, the country has managed to expand its economy at a reasonable clip.
That record is deceptive, though. Much of it simply reflects Canada’s steadily growing population. Since more people mean more workers, a larger population nearly always implies more economic output – or gross domestic product (GDP), as economists call it.
More GDP is great, so far as it goes. The problem is that it doesn’t necessarily increase prosperity or lift the nation’s living standards. If a country’s population is growing just as fast as its output, then the average person winds up no further ahead. They are neither richer nor poorer than they were before.
What really matters when it comes to raising the standard of living isn’t how fast a country can boost its GDP, but how fast it can raise its GDP per person. Healthy, sustained growth in real GDP per person is what allows each of us to consume more and live better.
On this score, Canada isn’t doing well at all. In 1980 it had GDP per person similar to that of the United States, according to Toronto-Dominion Bank TD-T. Both countries were about US$4,000 a person ahead of other advanced economies.
Not any more. Canada’s GDP per person now lags more than US$10,000 behind that of the U.S. in terms of inflation-adjusted purchasing power. It has also fallen behind the average of other advanced economies.
“Since the 2014-15 oil shock, Canada’s performance has gone from bad to worse,” Marc Ercolao, an economist at TD Bank, wrote in a report this month. He calculated that Canada’s real GDP per capita has inched ahead over this period at “a meagre rate of only 0.4 per cent annually, paling in comparison to the advanced economy average of 1.4 per cent.”
This dismal performance can be blamed on a couple of culprits, according to Mr. Ercolao. For starters, Canadian companies are not investing enough in new factories and new equipment to make workers more productive. Businesses are also not investing enough in research and development to create innovative new products.
That sinking feeling
Canada’s real GDP per capita has steadily lost ground over
the past four decades when compared to other advanced
countries. (Real GDP per capita, in thousands of constant
international dollars, 2017 purchasing power parity)
Advanced economies
the globe and mail, Source: TD economics
That sinking feeling
Canada’s real GDP per capita has steadily lost ground over
the past four decades when compared to other advanced
countries. (Real GDP per capita, in thousands of constant
international dollars, 2017 purchasing power parity)
Advanced economies
the globe and mail, Source: TD economics
That sinking feeling
Canada’s real GDP per capita has steadily lost ground over the past four decades when compared to other
advanced countries. (Real GDP per capita, in thousands of constant international dollars,
2017 purchasing power parity)
Advanced economies
the globe and mail, Source: TD economics
You might think Ottawa would want to focus on these investment gaps and look for ways to direct more capital into productivity-boosting investment. But no. Instead, it seems to be taken with the simpler notion of boosting the size of the economy by supersizing quotas for immigrants and temporary foreign workers.
This will no doubt expand GDP. However, it is unlikely to have much impact at all on GDP per capita since the output gains will be spread among many more people. As a result, “little turnaround in Canadian living standards appears to be on the horizon,” Mr. Ercolao concludes.
Investors may want to ponder this outlook. It suggests that we should be cautious about the outlook for Canadian stocks. There is no tight relationship between GDP per capita and stock market performance, but it’s unlikely the market will boom if general prosperity doesn’t.
Much will depend on government policy. As Mr. Ercolao stresses, the fundamental economic problem here isn’t so much the recent surge in immigration as Canada’s multidecade record of lacklustre productivity growth.
That said, it is reasonable to ask whether the recent influx of newcomers is overwhelming the capacity of a not-very-productive economy to keep up. Other TD Bank economists, led by Beata Caranci, warned this week that “continuing with a high-growth immigration strategy could widen the housing shortfall by about a half-million units within just two years.”
In this uncertain environment, it makes sense to focus on steady, workaday stocks that can benefit from surging population growth and budget-squeezed consumers. Discount retailers such as Dollarama Inc. DOL-T have appeal. So do grocers such as Empire Co. Ltd. EMP-A-T and Metro Inc. MRU-T
It also makes sense to consider Canadian companies with substantial foreign income.
Right now, Canadian companies with European revenue look particularly well placed, according to a report this month from Ian de Verteuil, head of portfolio strategy at CIBC. He argues that recent strength in European currencies should translate into good news for Canadian companies with substantial European exposure, such as Air Canada AC-T, CGI Inc. GIB-A-T, Couche-Tard Inc. ATD-T, Great West Lifeco Inc. GWO-T and Magna International Inc. MG-T
More generally, Canada’s lacklustre record on growing GDP per capita should remind investors of why their portfolios should be globally diversified. Until Canada’s economic policy makers make a more coherent case than they are now, there are excellent reasons to look beyond our borders.
Shambolic economic policies give investors reason to look for Canadian opportunities abroad - The Globe and Mail
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Wall St Week Ahead Hopes of 'Goldilocks' economy, rate peak buoy US stocks - Reuters
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NEW YORK, July 28 (Reuters) - A resilient U.S. economy and expectations of a nearing peak in the Federal Reserve’s monetary policy tightening cycle are emboldening stock investors, even as worries persist over rising valuations and the potential for inflation to rebound.
The S&P 500 is up nearly 19% this year after gaining around 1% in the past week. It has risen nearly 10 percentage points since June 1, over which time the U.S. government avoided a debt ceiling default and consumer prices cooled, while growth stayed resilient.
One key factor driving stocks higher has been the view that the economy is moving towards a so-called Goldilocks scenario of ebbing consumer prices and strong growth that many believe is a healthy backdrop for stocks.
That view gained further traction in the past week, when Chair Jerome Powell said the central bank's staff no longer forecasts a U.S. recession and that inflation had a shot of returning to its 2% target without high levels of job losses.
Policymakers raised rates by another 25 basis points to their highest level since 2007 at the central bank's July 26 meeting and left the door open to another increase in September.
"The market has fully accepted the narrative that it wanted, which is Goldilocks. Until we see some set of data that scares them it's hard to see how that changes," said Bob Kalman, senior portfolio manager at Miramar Capital.
At the same time, investors believe the Fed is unlikely to deliver much more of the monetary policy tightening that shook markets last year. Futures markets on Friday priced a nearly 73% chance that rates don’t rise above current levels through the end of the year, according to CME’s FedWatch tool, up from 24% a month ago.
A test of the economy comes next week, when the U.S. reports employment numbers for July. While comparatively strong employment data has been a driver of this year’s stock rally, signs that the economy is growing at too rapid a pace could spark worries that the Fed will need to raise rates more than expected.
"For markets to continue to trade higher, the soft landing must be a soft landing, not a reacceleration, because if housing and consumer spending accelerate from here, the Fed will have to raise rates a lot more," wrote Torsten Slok, chief economist at Apollo Global Management.
Kalman, of Miramar Capital, believes there’s a growing chance the Fed may need to raise rates beyond their current 5.50% threshold and hold them there for longer than expected, an outcome he worries could dampen the economy and hurt risk assets.
"It's a 50-50 chance that we'll get Goldilocks or we'll get a stronger downturn," he said.
Many are also assessing the durability of a rally in tech stocks, which has been fueled in part by excitement over developments in artificial intelligence. The tech-heavy Nasdaq 100 is up nearly 44% year-to-date, while the S&P 500 information technology sector has gained nearly 46%.
Optimistic forecasts from Meta Platforms (META.O) and results from Alphabet (GOOGL.O) earlier this week bolstered the case for those who believe megacaps’ lofty valuations are justified. Some smaller companies have delivered as well, with shares of streaming device maker Roku Inc (ROKU.O) soaring on Friday after it gave an upbeat quarterly revenue forecast.
Still, some investors have been looking outside of tech stocks for further gains, wary of rising valuations. The S&P 500 tech sector now trades at 28.2 times forward earnings, from 19.6 at the start of the year.
Burns McKinney, senior portfolio manager at NJF Investment Group, owns shares of Apple and Microsoft but has been adding to dividend-paying positions in healthcare, financials, and energy in anticipation that megacap names start to falter.
For megacap stocks, "the risk-reward is not as good as it was a quarter ago," he said.
Others believe the rally in equities is due for a pause. Randy Frederick, managing director of trading and derivatives for the Schwab Center for Financial Research, said he wouldn't be surprised to see the S&P 500 fall 5% or more in the next month or two as investors take profits on recent gains.
Yet he also believes stocks are in the "early stages" of their recovery after falling into a bear market last year.
"There’s always a concern with too much optimism, but longer term a sort of consolidation here speaks to a positive market going out," he said.
Reporting by David Randall; Editing by Ira Iosebashvili and Deepa Babington
Our Standards: The Thomson Reuters Trust Principles.
Wall St Week Ahead Hopes of 'Goldilocks' economy, rate peak buoy US stocks - Reuters
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Friday, July 28, 2023
Germany Exits Recession But Economy Only Stagnated Last Quarter - Bloomberg
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Germany Exits Recession But Economy Only Stagnated Last Quarter BloombergGermany Exits Recession But Economy Only Stagnated Last Quarter - Bloomberg
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US Economy Powers Ahead, Boosting Chances of Averting Recession - BNN Bloomberg
(Bloomberg) -- The US economy shined in its latest report card, supporting calls that it can dodge recession despite the most aggressive interest-rate hikes in a generation.
Gross domestic product advanced in the second quarter by more than most economists’ estimates, buoyed by resilient consumer spending and robust business investment. Even so, price pressures still cooled, with underlying inflation rising at the slowest pace in more than two years.
Combined with other data Thursday that showed stronger-than-expected orders for business equipment and fewer applications for unemployment benefits, the GDP figures bolster the case that the Federal Reserve can tame inflation without putting millions of people out of work.
It also risks supporting another Fed rate hike after the central bank lifted borrowing costs to the highest level in 22 years on Wednesday and left the door open for more.
“While economists remain divided on the probability of recession at present, today’s report raises the odds of a soft landing,” Wells Fargo & Co. economists Tim Quinlan and Shannon Seery said in a note. “That said, it likely also keeps the heat somewhat turned up on the Fed.”
Treasury yields rose after the report. Fed Chair Jerome Powell, speaking in a press conference after the central bank’s latest move, said policymakers could go either way with another hike or holding steady depending on what the data show in the next eight weeks.
He also said the central bank staff is no longer forecasting a recession. Similarly, some Wall Street economists are beginning to reassess the timing or odds of a downturn.
What officials would like to see, however, is below-trend growth, and the GDP report may be too strong for comfort. Despite a rapid ascent in interest rates since early 2022, consumers and businesses are still spending with vigor so far this year.
Consumer spending — the engine of the US economy — increased at a 1.6% pace after surging at the start of the year, the Commerce Department’s initial estimate showed Thursday. The latest print was more than forecast and reflected solid outlays on both goods and services.
One caveat of the report was consumer spending on food services and accommodations subtracted the most from GDP since the second quarter of 2020.
More remarkable was spending by businesses. Investment in structures continued to grow at a breakneck pace, bolstered by recent efforts to shore up domestic factory production. The Biden administration championed a series of bills that provide both direct funding and tax incentives for private companies to invest in areas like semiconductors and electric vehicles.
“The biggest surprise to me was the business sector strength, which seems to be driven by implementation” of legislation like the CHIPS Act and Inflation Reduction Act, said Yelena Shulyatyeva, senior US economist at BNP Paribas.
Purchases of business equipment bounded ahead at the fastest pace in more than a year, largely due to stronger spending on transportation equipment such as aircraft and vehicles.
A separate government report on factory orders showed stronger-than-expected bookings of business equipment. Orders for all types of durable goods rose 4.7% in June, the most in nearly three years and fueled by bookings for commercial aircraft.
What Bloomberg Economics Says...
“The second quarter’s accelerated GDP growth reflects an economic force working against the Fed’s efforts to reduce inflation – expansionary fiscal policy... If the recession we predict this year is delayed rather than averted, and the Fed ultimately has to hike more than we currently anticipate — the most likely culprit will be Bidenomics.”
— Anna Wong, economist
To read the full note, click here.
The quarterly spending and inflation figures precede Friday’s release of June data, which will provide an indication of economic momentum ahead of the third quarter. Economists expect a pickup in real consumer outlays and the slowest annual inflation rate in more than two years.
Those are the ingredients of a soft landing, especially with jobless claims dropping to the lowest levels since early this year. However, it’s a delicate balance for the Fed to strike to ensure that stronger growth doesn’t reignite price pressures.
“This is the closest we’ve come to a Goldilocks scenario since the onset of the pandemic,” said Diane Swonk, chief economist at KPMG LLP in Chicago. “What the Fed has to worry about is whether or not there will be a later rebound in inflation.”
--With assistance from Steve Matthews.
©2023 Bloomberg L.P.
US Economy Powers Ahead, Boosting Chances of Averting Recession - BNN Bloomberg
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French Economy Grows More Than Expected in Boost to Euro Zone - BNN Bloomberg
(Bloomberg) -- France’s economy grew significantly faster than estimated and inflation eased, providing a positive surprise as rising interest rates stoke recession fears in the 20-nation euro area.
Boosted by a surge in exports, gross domestic product in the currency bloc’s second-largest member rose 0.5% between April and June, having increased by 0.1% in the first three months of the year, the Insee statistics agency said Friday. Economists surveyed by Bloomberg had estimated expansion of 0.1%.
Consumer prices, meanwhile, rose 5% from a year ago in July — the lowest since Russia’s invasion of Ukraine triggered an energy crisis in Europe. The result is just below analyst expectations, though services inflation inched higher.
The figures offer some cheer after European Central Bank President Christine Lagarde painted a worsening picture for the euro region over the coming months, with private-sector activity for July already pointing to a contraction.
Germany — the continent’s largest economy — is the biggest weak spot. Data due Monday will reveal whether it managed to exit its winter recession. Economists surveyed by Bloomberg estimate output edged higher in the second quarter, though the International Monetary Fund sees it suffering the Group of Seven’s only contraction this year.
In France, Finance Minister Bruno Le Maire described the economy’s performance as “remarkable,” affirming the government’s forecast for 1% expansion in 2023.
“For the first time, growth is driven by exports and business investment much more than consumer spending,” he told French radio.
The data showed foreign sales were stoked by the delivery of a cruise ship. They also revealed a drop in consumer outlays of 0.4% as inflation, while lagging behind most of the region, remains well above the ECB’s 2% target.
“The near-term economic outlook for the euro area has deteriorated owing largely to weaker domestic demand,” Lagarde said Thursday after interest rates were lifted for the ninth time since last July. “Over time, falling inflation, rising incomes and improving supply conditions should support the recovery.”
Read more: Swedish GDP Shrinks More Than Expected, Fueling Recession Risks
French inflation data later Friday are expected to show a small slowdown this month, to 5.1%. The 20-nation euro region will publish its reading, alongside GDP, on Monday.
As food inflation surges, French consumers have sought to cut costs, with sales of own-brand goods at Carrefour SA rising twice as fast as national brands.
“We are still in this inflationary environment with trading down, with pressure on volume, with accelerations on private label and all the new behaviors of the customer we have observed for one year,” Chief Executive Officer Alexandre Bompard said Wednesday in a presentation of Carrefour’s latest financial results.
A separate publication showed French consumer spending had begun to rebound by the end of the quarter, with a 0.9% increase in June as food purchases partially recovered.
--With assistance from Joel Rinneby, Angelina Rascouet and Ainhoa Goyeneche.
(Updates with inflation starting in first paragraph.)
©2023 Bloomberg L.P.
French Economy Grows More Than Expected in Boost to Euro Zone - BNN Bloomberg
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Wednesday, July 26, 2023
Canada's standard of living is falling behind: TD - CTV News
A new economic report from TD says Canada is falling behind the standard-of-living curve compared to its peers.
According to the report published last week, Canada has been lagging behind the U.S. and other advanced economies in terms of standard of living performance (or real GDP per capita), despite recent years of “headline growth.”
“Economic growth does not necessarily equate to economic prosperity,” TD economist Marc Ercolao wrote.
Aside from considering GDP, Ercolao explains, standard-of-living quality is an important factor in understanding Canada’s economic performance.
In the 10 years before the pandemic, Canada was pretty close to the U.S. in terms of average growth, just over two per cent per year, which hovered above the 1.4 per cent average for all G7 countries, Ercolao says.
Following the turmoil of the pandemic, Canada managed to pull off a strong economic recovery, emerging with one of the fastest growth rates compared to other advanced economies. Ercolao cites the growth of the country’s population as a large contributor to this economic growth.
According to the report, Canada’s economic output per person (real GDP per capita) has actually been decreasing for many years.
Back in the 1980s, the report points out, Canada was doing better than the average of advanced economies by about US$4,000 per person. Over time, however, the advantage faded, and the U.S. jumped to US$8,000 a person, according to TD.
Ercolao writes that the 2014-15 oil shock led to a worsened economic performance. Canada’s real GDP per capita has grown at a slow rate of only 0.4 per cent on every year, which is much slower than the average of other advanced economies (which has an annual rate of 1.4 per cent).
The recent increase in population growth to three per cent per year is not the main issue -- especially since the average population growth since 2020 has only been slightly higher than before 2000 (around 1.2 per cent).
The real problem, according to Ercolao, is that GDP growth has been decreasing since the 1980s. This means that low GDP per person is not merely because of the growing population but the slower growth of the economy itself.
The report states that the decline is largely related to productivity.
Regions like Alberta, Saskatchewan, and Newfoundland and Labrador, where the economy relies heavily on the exchange of commodities, used to have the highest GDP per person, TD says. Over the past ten years, however, their lead has been challenged. Following the pandemic, only B.C. and P.E.I. have been able to raise their GDP per person levels they had in the years prior to COVID-19, TD reports.
“This underscores that without fundamental changes to our approach to productivity and growth, Canada’s standard-of-living challenges will persist well into the future,” the report says.
Canada's standard of living is falling behind: TD - CTV News
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The economy will bleed 'vacancies as opposed to jobs,' says CIBC economist - The Globe and Mail
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Tiff Macklem, Governor of the Bank of Canada, leaves a news conference after announcing the Monetary Policy Report, at the Bank of Canada auditorium in Ottawa, Ontario, Canada, on July 12.DAVE CHAN/AFP/Getty Images
Despite the Bank of Canada raising interest rates 10 times since March, 2022, to the current rate of 5 per cent, the stock market and economy have absorbed the hikes without severe damage. Can this resiliency last?
The Globe and Mail recently spoke with Benjamin Tal, deputy chief economist at CIBC World Markets, who shared his views on the economy and interest rates, as well as the housing and equity markets.
There are growing expectations that we’ll see a soft landing, where a recession will be averted. What odds do you place on that?
I think that you can get a mild recession or a soft landing. In my book, it’s basically the same. It’s basically GDP very close to zero over the next six to nine months, which is basically our forecast. A real recession is the situation where you have blood in the labour market. Namely, the unemployment rate goes up dramatically.
The scenario that we’re seeing at this point is that we’re going to get a mild recession or soft landing without too much damage in the labour market. What we are going to see, according to this scenario, is that the economy will be bleeding vacancies as opposed to jobs. Namely, companies will not be hiring but they will not be firing.
Let’s talk about the course of interest rates.
I think we are either at a peak or very close to a peak.
Now, one of the reasons why I believe we are very close to the top is what the Bank of Canada did recently. In the Monetary Policy Report, the Bank of Canada surprised the market by doing two things. One, GDP growth for the first half of 2023 is forecast to be much stronger than before. As well, the 1.5-per-cent growth for the third quarter is much stronger than we think they assumed based on their previous GDP forecast. And the second thing they did, which was very important, is they said 2-per-cent inflation will happen in 2025, not 2024. I think that was a very smart move – I see it as strategic positioning.
If you raise forecast GDP growth, you basically eliminate the need to continue to raise interest rates even if the economy outperforms because you already predicted it. Also, when you tell the market inflation will go down to 2 per cent but it will happen in 2025, they’re not forced to react and have to raise rates again and again so they bought themselves some time.
When do you expect the Bank of Canada will cut rates?
I think a reasonable scenario is that the Bank of Canada will cut in May, June of next year so we still have about a year of elevated interest rates. Why? Because the Bank of Canada will have to make sure that inflation is absolutely dead before they cut interest rates. They don’t want to reignite inflation prematurely so they will buy insurance in terms of time. The same goes for the Fed.
What level do you believe the Bank of Canada will lower the overnight rate to and when would that occur?
First, let’s assume for a second that inflation goes down from 3 per cent to 2.7, 2.6, 2.5, 2.4 and then is stuck. Is it close enough to 2? Are you going to continue to raise interest rates, take the economy into a recession just because of 0.4 per cent of inflation?
We have to remember that over the past 20, 30 years, the target was 2 per cent but actual inflation was about 1.8. We were undershooting on a consistent basis so maybe you can overshoot a little bit on a consistent business and still call it 2 per cent. So, when we say 2 per cent, it can be 2.2, it can be 2.3, it can even be 2.4 per cent.
Second, the reality is that we have some long-term inflationary forces happening. COVID accelerated so many processes. We have deglobalization – that’s inflationary. We have just-in-case inventory replacing just-in-time inventory – that’s inflationary. The labour market is getting tighter demographically due to increased retirement – that’s inflationary. And some of the green initiatives are inflationary.
The Bank of Canada is not going to change the 2-per-cent target any time soon. So, you need higher interest rates because there’s more inflation. We started this cycle at 1.75 per cent. We are going to 5, 5.25. We rest there for a year, and we go down to what? I say to 2.75, 3 by mid- to late 2025. Now, why is this important? Because 2025 is a major year.
If you look at 2020, 2021, the middle of COVID, interest rates were basically at zero. That’s where we saw a significant increase in borrowing. If you look at total mortgages outstanding, close to 50 per cent were taken in those two years. Most mortgages are for five-year terms, variable and fixed, so upon renewal in 2025 and 2026 we will get a big wave of renewals at mortgage rates significantly higher than the rates seen in 2020 and 2021.
So clearly that would be a major shock to the system if interest rates don’t go down.
Staying on the housing market, what’s your outlook? The fundamentals of the housing market are very strong with limited supply and rates that appear to have peaked. We have low unemployment and high household savings. What’s your pricing outlook for the low-rise as well as the high-rise markets?
The market was slowing until January. In January, the governor of the Bank of Canada said that they were pausing. After that, sales and prices started to rise. So, what we learned from that is you need clarity about rates in order for people to go back to the market. And we have seen this mini-recovery over the past six months.
Now, in June, July, interest rates went up, and we are not clear whether or not rates are going to go up again. You will see activity slow down, and that’s exactly what’s starting to happen.
Over the next six to eight months, we might see a resumption of prices going down in both low-rise and high-rise. But I think that this is not going to be a free fall by any stretch of the imagination.
Beyond that, the softening that we’re going to see is a blip. The fundamentals of the housing market are so strong, we simply don’t have enough supply and that doesn’t change. In fact, the opposite is the case. Demand for housing is rising faster than expected and the industry simply does not have the capacity to increase supply.
We simply don’t have enough labour in construction, and I’ll give you some examples. Over the next 10 years, no less than 300,000 people will be retiring from construction. The number of apprentices is going down. If you look at the number of construction workers among new immigrants, only 2 per cent of them are in construction. So, we have to change policies in a way that is consistent with more labour.
Your real GDP growth forecasts are 1.5 per cent in 2023 and 0.8 per cent in 2024. Is the macroeconomic backdrop that you’re forecasting bullish for equity markets?
The short answer is yes, to an extent. Although the economy is going to slow down, it’s already priced in.
And the minute it’s clear that the Fed and Bank of Canada are done, and people start talking about the timing of the first cut that would be bullish for stock markets in general.
Long-term, what impact will generative AI have on GDP growth and productivity?
One issue that we are facing is the potential growth of the economy. Potential growth is a function of two things: one is the labour force, the other is productivity. The labour force is rising because of immigration but productivity is basically zero. If you can lift productivity by 1 or 2 per cent, you can increase the ability of the economy to grow without inflation and everybody will benefit from that.
So far, we are relying too much on people, new immigrants to grow the economy. Sure, you grow the economy but per capita, you’re not growing the economy, the economy is shrinking and therefore you need productivity.
You know, 10, 15 years ago, Mark Carney, back then the Governor of the Bank of Canada, was talking about dead money – corporations sitting on mountains of cash, not investing. If back then it was dead, now it’s very dead as companies are sitting on much more money.
So, the minute the fog clears, which can be a 2025 story, I think we’ll see more and more business investment happening that will enhance productivity and AI will be a big part of it.
This interview has been edited and condensed.
The economy will bleed 'vacancies as opposed to jobs,' says CIBC economist - The Globe and Mail
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Canada's Trudeau plans wide-ranging cabinet shuffle to focus on economy - Reuters Canada
OTTAWA, July 26 (Reuters) - Canadian Prime Minister Justin Trudeau is going to carry out a wide-ranging cabinet shuffle on Wednesday to focus on the economy at a time when the cost of living is a major issue for voters.
Trudeau, whose left-leaning Liberals have been in power since November 2015, will make the formal announcement at Rideau Hall, home to Governor General Mary Simon, the official representative of head of state King Charles.
New ministers will be sworn in at 10:30 a.m. (1430 GMT) and Trudeau will hold a press conference at 12:15 p.m., according to his official itinerary.
The Canadian prime minister looks set to leave heavy hitters such as Finance Minister Chrystia Freeland, Innovation Minister Francois-Philippe Champagne and Foreign Minister Melanie Joly in their cabinet portfolios.
Instead, in a shuffle of mainly second-tier ministers, he will seek to improve messaging on the economy at a time when the official opposition Conservatives are ahead in the polls.
"In the core economic files we are going to add more strength," a senior government source said on condition of anonymity. "The idea is to put new energy in key roles, and to put experienced people into new roles. When the time comes, they will be ready to hit the campaign trail."
The timing of the next election is unclear, since Trudeau commands only a parliamentary minority and relies on support from the left-of-center New Democrats to govern. That party has agreed to keep him in power until 2025, but the deal is not binding.
The right-of-center Conservatives blame what they call excessive government spending for high inflation and increasing complaints about unaffordable housing.
"We have a duty to avoid the danger that is coming for Canadian workers if we continue down Trudeau's path. Stop the inflationary spiral," Conservative leader Pierre Poilievre wrote on social media on Tuesday.
A Liberal source said Defence Minister Anita Anand was in the running to become head of the Treasury Board, which has overall control of government spending.
Ahead of the shuffle, four cabinet ministers said they would leave politics.
The Liberal source said Trudeau would ditch seven ministers. The Canadian Broadcasting Corp said they included Public Safety Minister Marco Mendicino and Justice Minister David Lametti.
Reporting by David Ljunggren and Steve Scherer; editing by Paul Simao and Mark Heinrich
Our Standards: The Thomson Reuters Trust Principles.
Canada's Trudeau plans wide-ranging cabinet shuffle to focus on economy - Reuters Canada
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