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CTV National News: Canada's economy falls short CTV NewsCanada’s economy grew at a slower pace in the first quarter of the year than economists and the Bank of Canada expected, increasing the possibility that the central bank will cut its benchmark interest rate next week.
Statistics Canada said real gross domestic product (GDP) grew 1.7 per cent at an annualized rate in the first quarter of the year, weaker than the 2.2 per cent that economists expected and short of the Bank of Canada's forecast of 2.8 per cent. In the first quarter the economy grew 0.4 per cent. Fourth-quarter GDP growth was also revised down, from an annualized rate of 1 per cent to 0.1 per cent.
Statistics Canada said in a release that higher household spending on services was a top contributor to the growth in the first quarter, offset by slower inventory accumulations.
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Canada’s economy showed no growth in March, following a 0.2 per cent increase in February. Advanced estimates show GDP grew 0.3 per cent in April, due to increases in manufacturing, mining, and quarrying.
The data comes days before the Bank of Canada is set to make an interest rate announcement that could see the central bank cut rates for the first time since early in the COVID-19 pandemic.
"While the downside surprise in Q1 was driven by a big cut in business inventories, the reality is that underlying growth remains well short of potential, and slack is building for the overall economy," BMO chief economist Douglas Porter wrote in a research note on Friday reacting to the data.
"For the Bank of Canada, we believe the main message is that the output gap is widening, as reinforced by a less-tight job market, modestly increasing the chances of a rate cut next week. There are respectable arguments on both sides of the decision, but we believe the balance of evidence points to a cut."
Money markets increased bets for a rate cut in June, from 66 per cent before the data was released to almost 80 per cent, according to Reuters.
"Given the weaker trend in GDP, and the cooling in inflation, the Bank of Canada remains on track to deliver the first interest rate cut at next week's meeting," CIBC economist Katherine Judge wrote in a research note.
"The Q1 figure was well below the Bank of Canada's last published MPR forecast (2.8 per cent), and activity looks even more sluggish when accounting for population growth, as the surge in domestic demand looks to be a one-off in the broader trend of weak readings seen last year."
While the report missed expectations, Desjardins' senior director of Canadian economics Randall Bartlett noted "the details of the release were more positive than the headline suggests."
Household spending increased 0.7 per cent in the first quarter due to a rise in services spending. The household savings rate also hit seven per cent in the quarter, the highest rate since Q1 of 2022. Business investment rose 0.8 per cent, driven by more spending on engineering structures largely within the oil and gas industry. At the same time, Statistics Canada noted widespread slowdown in business investment in inventories, with the retail auto industry posting the largest deceleration.
"While headline real GDP growth looks as though it will be respectable in the first half of this year, it will be notably below the pace recently forecasted by the Bank of Canada," Bartlett wrote.
"When combined with still-weak survey data and elevated business bankruptcies, we're still of the view that the Bank is likely to begin cutting interest rates at its upcoming June meeting."
Alicja Siekierska is a senior reporter at Yahoo Finance Canada. Follow her on Twitter @alicjawithaj.
Download the Yahoo Finance app, available for Apple and Android.
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US Can't Beat China by Prioritizing Security Over Economy BloombergFront Burner Transcript for May 30, 2024
For transcripts of this series, please visit this page
For more episodes of this podcast, please click this link.
THE WEST’S baby-boomers are the richest generation ever to have lived—but they do not spend like it. Instead, as we report this week, the elderly are squirrelling away money, motivated by ever-longer retirements, the risk that they will need to pay for old-age care, the inevitable uncertainty about how long they will survive and the desire to pass on assets to their children (see Finance & economics section). Whereas in the mid-1990s Americans aged between 65 and 74 spent 10% more than their income, the same age group has been a net saver, in aggregate, since 2015. A similar picture is found across the rich world, from Canada to Japan. A generation sometimes associated with luxury cruises and Château Margaux is in fact unusually miserly.
That matters because retirees are so numerous and rich that their behaviour can drive capital markets. America’s boomers, defined as those born between 1946 and 1964, have a net worth of $76trn, or over $1m per person. For decades their saving for retirement has helped drive down interest rates, which in the long run must move to equilibrate savings and investment globally. But economists had speculated that, upon reaching the end of their careers, boomers would open their wallets, causing this trend to reverse. Some even worried that retirees liquidating assets en masse in order to splurge could cause an asset-market meltdown.
(Bloomberg) -- The US economy expanded at a “slight or modest” pace across most regions since early April and consumers pushed back against higher prices, the Federal Reserve said in its Beige Book survey of regional business contacts.
“Retail spending was flat to up slightly, reflecting lower discretionary spending and heightened price sensitivity among consumers,” according to the report released Wednesday. “Overall outlooks grew somewhat more pessimistic amid reports of rising uncertainty and greater downside risks.”
Employment rose at a slight pace with eight of twelve districts reporting “negligible to modest job gains.” Several districts reported wage growth at, or moving toward, pre-pandemic levels.
Prices increased at a “modest pace” over the period with business contacts noting consumers pushed back against additional price increases.
The latest edition of the Beige Book was compiled by the Federal Reserve Bank of Dallas using information gathered on or before May 20. The report includes anecdotes and commentary on business conditions in each of the 12 Fed districts.
A bevy of Federal Reserve officials, including Chair Jerome Powell, have repeated in recent weeks that the central bank must be patient with its next policy action and wait for more evidence that inflation continues to cool.
Read More: Fed Officials Suggest Interest Rates Should Stay High for Longer
(Updates with details from a number of districts.)
©2024 Bloomberg L.P.
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Next Test for Japan's Economy Is a Nuclear Revival Bloomberg
The International Monetary Fund has upgraded its forecast for China’s economy, while warning that consumer-friendly reforms are needed to sustain strong, high-quality growth.
The IMF’s report, issued late Tuesday, said the world’s second-largest economy will likely expand at a 5% annual rate this year, based on its growth in the first quarter and recent moves to support the property sector. That is a 0.4 percentage point above its earlier estimate.
But it warned that attaining sustained growth requires building stronger social safety nets and increasing workers’ incomes to enable Chinese consumers to spend more.
The IMF also said Beijing should scale back subsidies and other “distortive” policies that support manufacturing at the expense of other industries such as services.
The ruling Communist Party has set its annual growth target at “around 5%,” and the economy grew at a faster-than-expected 5.3% in the first quarter of the year, boosting the global economy.
The IMF said its upgraded forecast also reflects recent moves to boost growth, including fresh help for the property industry such as lower interest rates and smaller down-payment requirements on home loans.
But it said risks remained, with growth in 2025 forecast to be 4.5%, also up 0.4% from an earlier forecast.
The IMF praised the Chinese government’s focus on what it calls “high quality” growth, including increased investment in clean energy and advanced technology and improved regulation of financial industries.
But it added that “a more comprehensive and balanced policy approach would help China navigate the headwinds facing the economy.” Job losses, especially during the pandemic, and falling housing prices have hit the finances of many Chinese.
The report echoes opinions of many economists who say more must be done to provide a social safety net and increase incomes for workers so that Chinese families can afford to save less and spend more.
The IMF report’s longer-term assessment was less optimistic. It said it expected China’s annual economic growth to fall to 3.3% by 2029 due to the rapid aging of its population and slower growth in productivity as well as the protracted difficulties in the housing sector.
Use of industrial policies to support various industries such as automaking and computer chip development may waste resources and affect China’s trading partners, it said, alluding to a key point of contention between Washington and Beijing.
U.S. officials contend that China is providing unfair support to its own industries and creating excessive manufacturing capacity that can only be absorbed by exporting whatever cannot be used or sold at home.
China rejects that stance, while protesting that the U.S. and other wealthy nations have invoked false national security concerns to impose unfair restrictions on exports of technology to China.
Elaine Kurtenbach, The Associated Press
(Bloomberg) -- The entire world economy is at risk from a glut of cheap Chinese exports, France’s Finance Minister Bruno Le Maire said in tandem with a barrage of joint criticism from the Group of Seven.
“We have an issue with the economic model in which China is producing more and more cheaper industrial devices because it could be a threat not only for the EU, not only for the US, but for the global world economy,” Le Maire said in an interview with Bloomberg Television. “We need to address that issue.”
Leading industrialized nations are coalescing for a tougher and more united challenge to overcapacities in China, which they say threaten their domestic manufacturers.
G-7 finance chiefs meeting in Stresa, Italy cited the country by name as they agreed to “respond to harmful practices” and “to consider taking steps to ensure a level playing field.” Those words marked an escalation from the sparse and more neutral language on trade they standardly use in communiques.
Their statement followed Washington’s announcement on Friday that President Joe Biden will reimpose tariffs on hundreds of goods imported from China. Meanwhile the EU is nearing the end of an electric-vehicle subsidy investigation that is likely to lead to defensive measures against China’s auto exports.
The EU’s potential levies are expected to be significantly lower than the US’s and based on a different approach within World Trade Organization rules and procedures.
Le Maire said at the G-7 meeting that member countries need to strengthen information exchange and establish a shared assessment of China’s industrial practices. Nonetheless, he insisted that the EU has all the necessary tools to reestablish a level playing field .
“Don’t make any mistake about the determination of the EU countries and the French determination,” Le Maire said.
AI Cooperation
The French minister said he is seeking to preserve gains from years of government policies and investment to build its own industry and technology sectors.
A key priority is Artificial Intelligence, where France intends to preserve its leadership in Europe. That has attracted foreign capital, with Microsoft Corp. announcing €4 billion in investment in French cloud and AI infrastructure this month. Paris-based Mistral AI has also announced a partnership with Microsoft in February.
Asked if he could used state screening rules to prevent foreign investors taking over French tech companies, Le Maire said the point at the moment is to increase cooperation, not to block it.
“We will see what are the options of cooperation between Mistral and Microsoft,” Le Maire said. “For the time being, Microsoft is investing in France, is opening data centers in France and investments of Microsoft in France are most welcome.”
--With assistance from Caroline Connan, Viktoria Dendrinou, Toru Fujioka, Kamil Kowalcze, Alessandra Migliaccio, Tom Rees and Jorge Valero.
©2024 Bloomberg L.P.
Nearly everything Americans believe about the economy is wrong, according to a recent Harris-Guardian poll. And that’s pretty much everyone’s fault.
The poll, conducted earlier this month, found that perceptions of the U.S. economy are often at odds with reality. For instance, most Americans (55 percent) think the economy is shrinking, with about the same share saying we’re in a recession.
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South Africa Finance Minister Defends ANC's Economic Record Bloomberg
(Bloomberg) -- Federal Reserve Bank of Cleveland President Loretta Mester said the US central bank should consider ways to better communicate to the public how economic conditions will affect future policy decisions.
Speaking in Tokyo on Tuesday, Mester recommended two key changes: adding more words to the Fed’s post-meeting policy statement – to describe how officials assess economic developments and potential risks to the outlook – and more detail to its quarterly summary of policymakers’ economic forecasts.
“Enhancements to communications would make monetary policy more effective in normal times and also improve the effectiveness of nonconventional policy tools, such as forward guidance, in extraordinary times,” she said in prepared remarks at a conference hosted by the Bank of Japan.
The Cleveland Fed chief, who votes on the Fed’s policy-setting committee this year, said she expects officials to consider communications as part of the five-year review of their policy framework set to kick off toward the end of 2024. She did not comment on the outlook for the economy or interest rates.
Mester said increasingly short policy statements, while often seen as a virtue, can also be problematic as each word takes on added significance. They can also make it harder for the public to see the link between economic developments and policy decisions.
She said it would be better for policymakers to “take control of the narrative” and use more words to describe how economic developments have affected the outlook, and the potential risks to that outlook.
Putting more emphasis on risks “would give market participants and the general public a better sense of the contingent, data-dependent nature of policymaking and would raise the central bank’s credibility in that a change in policy would be seen less as a breach of promise,” she said.
Mester also said scenario analysis – or describing how different scenarios would lead to different policy actions – should also be a standard part of Fed communications.
“This could be particularly useful in periods like today when the underlying structural elements of the economy may have changed,” she said.
Read More: Fed’s Forecasting Method Looks Dated as Bernanke Pitches New Way
The Fed should also consider publishing an anonymized matrix connecting officials’ forecasts for interest rates – often referred to as the “dot plot” — with their projections for growth, unemployment and inflation in their Summary of Economic Projections, Mester said.
“Currently, the variables in the SEP are not linked across participants, and the median paths provided don’t necessarily represent a coherent forecast,” she said.
Connecting the dots would give the public a better sense of how each individual official would adjust policy based on changing economic conditions, Mester said, echoing an argument Chicago Fed President Austan Goolsbee also made in May.
Mester will step down from her role as Cleveland Fed president in June when her term expires.
Balance Sheet
Speaking on the same panel, Fed Governor Michelle Bowman focused her prepared remarks on the Fed’s balance sheet, the reduction of which “has proceeded relatively smoothly,” she said.
Fed officials will slow the pace at which they’re shrinking the balance sheet starting next month, and have said they intend to stop when the level of bank reserves are somewhat above a level they deem ample.
“In my view, we are not yet at that point,” Bowman said, adding that she would have supported waiting to slow the pace of asset runoff or implementing a more tapered slowing.
“In my view, it is important to continue to reduce the size of the balance sheet to reach ample reserves as soon as possible and while the economy is still strong,” she said. “Doing so will allow the Federal Reserve to more effectively and credibly use its balance sheet to respond to future economic and financial shocks.”
©2024 Bloomberg L.P.
(Bloomberg) -- Germany’s business outlook rose for a fourth month as confidence builds that the country’s economic rebound will strengthen over the rest of the year.
An expectations gauge by the Ifo institute rose to 90.4 from a revised 89.7 the previous month — less than economists had estimated in a Bloomberg survey. A measure of current conditions fell, according to a statement published Monday.
“It’s not yet a full recovery,” Ifo President Clemens Fuest told Bloomberg Television. “The German economy is improving, but slowly,” he said, noting better performances for manufacturing and construction.
Europe’s biggest economy dodged a recession over the winter, thanks in part to mild weather that boosted construction and helped lift gross domestic product by 0.2% in the first quarter. Other indicators show momentum building in other sectors, putting the recovery on a more solid footing.
Private-sector activity expanded at the fastest pace in a year in May, according to surveys by S&P Global. While the pickup was again driven by buoyant services, the weakness in the crucial manufacturing industry abated.
Consumers are expected to drive a gradual revival in the coming quarters as they benefit from cooling inflation and strong wage gains. Negotiated pay jumped by more than 6% in the first quarter, the Bundesbank said this week, while inflation is expected to have remained below 3% in May.
What Bloomberg Economic Says...
“Recent survey data suggest the road to recovery for Germany’s economy will continue to be long and bumpy. Overall, the unchanged May reading of the Ifo business climate and the higher PMI gauge support our view of a stronger dynamic in the second half of the year, while activity in the current quarter might still be subdued.”
—Martin Ademmer, economist. Click here for full REACT
“Private consumption is a puzzle to some extent because we see disposable incomes improving” but households appear to be saving more, Fuest said. “What we hope for is an improvement in consumption demand this year. It’s just not forthcoming.”
Factories may also benefit from rising exports and lower interest rates, though the latter may take time to be felt as central banks take a cautious approach to loosening monetary policy. The European Central Bank is widely expected to decide on a first rate cut in June, while the path thereafter remains unclear and investors have recently pared back bets on how much easing it’ll deliver this year.
In an interview with the Financial Times published Monday, ECB Chief Economist Philip Lane confirmed the intention to reduce borrowing costs next month as inflation and wage growth recede, but warned that policy would remain tight.
“The best way to frame the debate this year is that we still need to be restrictive all year long,” he said. “But within the zone of restrictiveness we can move down somewhat.”
Fuest said pay pressures will remain because labor markets continue to be tight.
“One answer to that is increases — this is a risk for inflation and at the same time we need those wage increases to make sure workers go where they are most productive,” he said. “This is going to be challenging for monetary policy. So I think maybe rates will stay high for longer.”
--With assistance from Joel Rinneby and Kristian Siedenburg.
(Updates with Bloomberg Economics after sixth paragraph.)
©2024 Bloomberg L.P.
Hong Kong, China – Hong Kong resident Mimi Lau regularly heads to Shenzhen to grab a meal with friends or go shopping in one of the Chinese megacity’s many upscale malls.
For Lau, who lives in Hong Kong’s New Territories near the border with mainland China, Shenzhen is not only a shorter bus ride than most of the popular shopping and dining areas in her home city, but much cheaper, too.
“It’s so easy, especially from Shenzhen Bay Port. You just walk across [the border]. They check your Hong Kong ID and your mainland ID, and you have a massive network of transportation right at the border: taxis, and buses. You can call your own Didi,” Lau told Al Jazeera, referring to China’s popular answer to Uber.
“It’s just so convenient, and you don’t have to bring any cash with you. Everything is electronic payment.”
Lau is not alone in her enthusiasm for Shenzhen, a sprawling metropolis of more than 17 million people whose transformation from a sleepy fishing village took off in tandem with China’s economic reforms of the 1980s.
Hong Kong residents made 53 million trips over the border to Shenzhen in 2023, the first full year since the lifting of COVID-era border restrictions, according to government data.
In March, the city experienced a record 9.3 million departures, mostly to mainland China, leaving nightlife and shopping hotspots virtually empty during the Easter holiday period.
For many Hong Kongers, Shenzhen’s draw is a superior range of shopping, dining and entertainment options at a fraction of the price.
Hong Kong resident Yvonne Koh said she and her friends enjoy visiting Shenzhen for day trips full of massages, affordable meals and fun activities like go-kart racing.
“It’s just very safe and everything is so convenient,” Koh told Al Jazeera.
Hong Kong, a former British colony that retains a distinctly more capitalistic way of life than the Chinese mainland, has long been wealthier than other parts of China, although the gap has narrowed amid the swift rise of the world’s second-largest economy.
Hong Kong’s economy is nearly twice the size of Shenzhen’s on a per capita basis, according to the Hong Kong Trade Development Council, giving the city’s residents superior spending power across the border.
But Hong Kongers have recently found their money going further still due to the favourable exchange rate between the Hong Kong dollar, which is pegged to the US dollar, and the Chinese yuan.
At the same time, China’s slower-than-expected recovery from the pandemic has made prices appear even more attractive to visitors.
With enhanced purchasing power in China, Hong Kong residents are spending an increasing share of their income across the border on everything from cheaper medical services to bargain hunting at Shenzhen’s new Costco, according to Chim Lee, a senior China analyst at the Economist Intelligence Unit.
“On top of outbound tourism to the mainland [and overseas], residents are also spending more on daily necessities such as groceries and prescription glasses,” Lee told Al Jazeera.
“Lower prices in the mainland – aided by the relative strength of the US dollar…, growing familiarity with mainland lifestyle apps and better customer services have facilitated this trend,” he added.
Travelling to Shenzhen is also easier than ever, with multiple subway and bus routes to choose from. By high-speed train, the first stop over the border is just 15 minutes away.
While making the journey requires visitors to go through immigration, the process is usually speedy outside of major holidays.
China is not only trying to lure Hong Kong natives across the border.
Late last year, Beijing relaxed visa requirements for foreign residents in Hong Kong, a sizeable portion of the city’s population. They can now apply for a six-day visa to enter Guangdong Province, home to Shenzhen and Guangzhou. Paying for goods and services, long a source of frustration for foreign tourists, has also recently become easier.
Foreigners can now link their credit card with the payment app Alipay and spend up to $2,000 without registering their ID, although certain functions remain inaccessible without registration.
Still, Hong Kong retains some draws over the mainland.
While the distinction between Hong Kong and mainland China has blurred amid a far-reaching national security crackdown in the semi-autonomous territory, the city still has many more rights and freedoms than the mainland.
Mainland China also lacks an open internet and its apps have a reputation for being invasive of users’ privacy, leading frequent visitors like Lau to keep a separate phone for trips there.
“There is a little bit of a psychological apprehension once you cross the border. You know you have to change your settings on your SIM card. You’re no longer getting Facebook and WhatsApp,” she said.
“[But to] be honest, the price, or the value for money on offer for that temporary suspension of connection to a free world, is well worth it.”
The boom in Hong Kongers heading to Shenzhen marks a major reversal at the border, where traffic used to move primarily in the opposite direction.
Thousands of Chinese swam to Hong Kong, then still a British colony, to escape the turmoil of the Cultural Revolution in the 1960s and 1970s.
Following Hong Kong’s return to Chinese sovereignty in 1997, the city became a draw for mainland Chinese seeking more economic opportunities and a more open social and political environment.
Hong Kong also drew millions of Chinese tourists each year who could access brands and products unavailable on the mainland.
COVID-19 brought cross-border traffic to a standstill as both the mainland and Hong Kong imposed some of the harshest restrictions in the world on travel and freedom of movement.
Neither fully dropped “COVID-zero” restrictions until the end of 2022, long after most of the world had reopened. Both economies have struggled to return to pre-pandemic levels due to their unique challenges.
Tens of thousands of Hong Kong residents and numerous firms have departed the city since sweeping national security laws were enacted following massive pro-democracy protests in 2019.
The city is also struggling to draw tourists south of the border, in part due to the strength of the Hong Kong dollar.
Once the engine of Hong Kong’s retail economy, mainland tourists are increasingly flocking to places like Thailand and Singapore, which offer visa-free entry, unlike Hong Kong.
Chinese tourists have also been drawn to Japan, where the weak yen has led to a surge in international tourism.
In many parts of Hong Kong, including trendy hotspots like Central and Sai Ying Pun, boarded-up storefronts and restaurants are a common sight.
Lee of the Economist Intelligence Unit said he is cautiously optimistic about the future as the Hong Kong dollar will weaken along with the US dollar as the Federal Reserve cuts interest rates in the coming months.
Big box retailers like Sam’s Club, which has a Shenzhen location, are also adjusting to a more price-sensitive Hong Kong with plans under way by the US brand to launch an online shopping and delivery service for the city, the South China Morning Post has reported.
That is good news for Hong Kong residents who still prefer to shop locally and may be avoiding the mainland for personal reasons.
Jenny, a Hong Kong resident who asked to only use her first name, said she does not go to Shenzhen because she can do most of the same things in Hong Kong.
She said the hype around travelling to the mainland was mainly due to social media, but it was also blurring the distinction between China and Hong Kong – something the government is eager to do.
“I think it’s reasonable to do some travel in China if you’re looking for something you can’t do in Hong Kong, like they have some really stunning countryside or hiking,” she told Al Jazeera.
“But if you are doing some daily routine things like watching movies or having dinner, and you choose to go to China… it’s accepting that it’s really one country. The line, the border, the separation is getting blurred here.”
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China's Industry Threatens Entire Global Economy, France Warns BloombergArticle content
David Rosenberg, founder and president of Rosenberg Research, recently told the Financial Post’s Larysa Harapyn that he expects a rate cut at the central bank’s next announcement in June.
“I think the bank should be cutting rates at the next meeting,” he said in the video interview. “If they don’t, I think providing some hard guidance for a move at the following meeting would be in store.”
“The longer they wait, the more they’re going to have to do.”
Rosenberg said the economy is currently in excess supply, and in times of excess supply the policy rate has historically hovered around 2.5 or three per cent.
“That’s how far the Bank of Canada has to go, and I don’t know what the reason would be – I really don’t – as to why they would be dragging their heels,” he added.
Charles St-Arnaud, chief economist with Alberta Central, echoes Rosenberg’s sentiment that a further hold to interest rates would hurt the economy.
“If the (Bank of Canada) doesn’t cut, it would be a matter of extreme caution in our view, rather than suggesting that upside risks to inflation remain a concern,” he wrote in a note to clients earlier this week.
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In terms of how many cuts to expect in 2024, Rosenberg is predicting Canadians could see several steps of mortgage relief this year.
“I think the bank should be cutting rates and cutting more than once,” he said.
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Prime Minister Justin Trudeau responds to a question from the opposition during Question Period, in Ottawa, on May 22.Adrian Wyld/The Canadian Press
The Liberals whipped out a magic wand in the spring budget, waving away concerns about Canada’s surging population outstripping economic growth.
The arithmetic is clear enough: Canada’s population grew by 3.2 per cent in 2023, while real gross domestic product edged up just 1.1 per cent, weighed down by high interest rates. Statistics Canada said that was the slowest rate of economic growth since the oil-price collapse of 2016 (excluding the pandemic year of 2020).
The population surge was driven almost entirely by immigration, particularly an unprecedented spike in students and other temporary arrivals to fill low-wage jobs. The combination of sluggish economic growth and a population boom has resulted in a continuing decline in real per capita GDP, a trend that threatens to erode Canadians’ living standards.
Not to worry, the Trudeau government says … the economy will balance itself. The decline in real per capita GDP is “largely temporary, not systemic” and will rebound as immigrants’ earnings rise, as they have in the past.
But there is a hitch, a big one, in that argument. The most recent surge in immigration is different not just in scale but also in its composition compared to the recent history that the government leans on in making its prediction of a fleeting economic dip. Plus, Ottawa appears to be on the verge of taking steps that would make reversing that dip less likely.
Will an international student who came to Canada to study at a strip-mall college succeed in the way that an immigrant in the carefully vetted economic stream has? Perhaps, but a repeat of the historical success of immigrants in catching up to, and then exceeding, the earnings of native-born Canadians is far from guaranteed.
A carefully designed immigration policy could maximize the chances of such a happy outcome, but current trends are hardly encouraging.
In 2019, nearly all of the immigrants arriving under the express entry system for economic migrants were in the general pool, with a handful of spots – just over 1 per cent – set aside for skilled trades. So far in 2024, nearly two-thirds of express entry spots have been set aside for a slew of niche categories: French-language proficiency, transport occupations, health-care workers, STEM professions and agriculture and agri-food workers.
That change has important consequences. It is much easier to get accepted in one of the set-aside categories than in the general pool – the lowest score under the government’s points-based system is just 336. For the general pool, the lowest score is much higher, at 524.
It’s a complex set of numbers, but it boils down to this: Ottawa has made the choice to select lower-scoring immigrants who fit into specialized niches in the economy rather than those who, according to Canada’s own immigration system, have a better chance of long-term success.
That problem could be made worse, depending on how the Liberals choose to deal with the hundreds of thousands of temporary immigrants currently in Canada.
Immigration Minister Marc Miller has indicated that he wants to reduce the ranks of temporary migrants relative to the overall population. A necessary first step, ratcheting down the pace of new arrivals, has already been announced.
But there remains the question of what to do with temporary migrants already in Canada. Mr. Miller has talked about creating “a pathway for those who are in the country who wish to stay and contribute to the country and to the economy.”
That is a laudable sentiment: temporary migrants should be given that chance. Work experience in Canada will bolster their score under the existing system. But it would be a serious policy blunder to carve out even more exceptions and further squeeze the general pool of permanent resident spots. Such an action would cement the trend toward a low-wage economy largely populated by immigrants.
A better, if tougher, approach would be to allow temporary migrants to compete for a spot in the general pool. Some will undoubtedly qualify, and will help to build Canada in the coming decades. Others won’t and will have to leave.
The Liberals need to keep in mind two imperatives in sorting out economic migration policy: the needs of Canadians come first – and magical thinking won’t get the country’s economy back on track.
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Japan's Economy is Stirring to Life. So Why is the Yen Weak? Bloomberg[unable to retrieve full-text content]
World Economy Latest: Inflation Easing in G-7 Countries Will Be Uneven Bloomberg
(Bloomberg) -- Zambian economic growth is expected to recover next year from the effects of the worst drought in at least four decades, Secretary to the Treasury Felix Nkulukusa said.
Gross domestic product is expected to expand by about 6% in 2025 and by a similar amount the following year, Nkulukusa told reporters in a virtual briefing on Saturday from Lusaka, the capital. The economy is expected to grow 2.3% this year.
Output in the southern African nation is being curbed by an El Niño-induced drought that’s slashed production of the staple food corn. The government has received commitments totaling about $500 million from its partners to deal with the effects of the dry weather, Nkulukusa said.
The secretary also reiterated that the government is confident that eurobondholders will approve a proposed restructuring of the nation’s debt, ahead of a meeting with creditors next month.
Read More: IMF’s Georgieva Urges Zambia’s Bondholders to Approve Revamp
©2024 Bloomberg L.P.
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War Dealing Severe Blow to Palestinian Economy, World Bank Says Bloomberg
Politburo meetings of the Chinese Communist Party’s (CCP’s) were supposed to unveil new, more effective policies to deal with China’s economic problems. All the Politburo saw, however, was a rehash of existing policies that so far have had little or no substantive effect on the economy. True, since those meetings Beijing has announced a real estate buying policy. But despite its seeming scale, it is small next to the need. Now party leaders have implicitly promised announcements of stronger policy at July’s Third Plenum meetings. Given the behavior of China’s leadership to date, that seems unlikely. Even considering the new apartment-buying policy, Beijing’s behavior to date signals a timidity that in turn implies an inability among China’s leadership to find remedies for China’s severe economic challenges.
Meanwhile, China’s economy has continued to show signs of weakness. Some hope had emerged in the opening months of the year that economic activity beginning to recover. More recent data has, however, scotched that hope. Surveys of purchasing managers show economic activity has slowed again and at best is stagnating between growth and decline. That is an improvement on the outright declines recorded in 2023 but hardly a basis for optimism. Recent statistical releases on services shows outright declines after modest gains earlier in the year. Industrial profits reported for the first quarter have plunged from year-ago levels – for both state-owned and private firms.
The real estate crisis continues unabated dragging down both home sales and construction. April sales among the top 100 developers, according to the China Real Estate Information Corp. (CRIC), are down some 43% from last year’s levels, down 13% from March, and 80% from levels in December 2020 before the crisis broke. Exports had turned up briefly but then weakened again. Even the brief upturn was less a sign of economic health than that the declining value of the yuan has given China a transitory advantage over its competitors in the simpler, price-sensitive products that the nation’s leadership wants to de-emphasize.
Yet, the nation’s leadership in Beijing has only offered small, clearly inadequate measures to right the economy or worse just vague promises of something more. At the March Two Sessions meeting, leadership talked about interest rate cuts the People’s Bank of China (PBOC). They referenced a program called “white lists” in which local governments identify stalled development projects for special financing that state-owned banks will advance after their review. These policies were already in place, leaving the implication that more substantive policy measures would be announced at the Politburo meetings late in April. But all that emerged there were a repeat of these three measures and vague promises of more to come.
Although the “white lists” have merit, Beijing has operated on a much smaller level than is needed. The amounts announced so far are barely over 5% of the initial Evergrande failure in 2021, much less the failures that have occurred among other developers in the years since, including those of Country Garden. Unless the program scales up drastically, the “white lists” are more a talking point for CCP meetings than a policy, much less a remedy for the property crisis.
Since the Politburo meetings, Beijing has announced that it will issue one trillion yuan ($140 billion) in bonds to ease the strain on local government balance sheets and finance local government purchases of now vacant apartments. This effort, though seemingly large, is too small to even put much of a dent in the estimated 7 million empty apartments. It is even less adequate next to the local government debt overhang estimated at 11 trillion yuan.
The PBOC’s rate-cutting program is even less impressive. So far, the bank has cut rates five times but for a total of less than half a percentage point. Such a small move could hardly be expected to raise the economy, even in the best of circumstances. And circumstances are far from optimal. During the time that the PBOC has been cutting interest rates, China has seen a moderate inflation of about 2% a year turn to a moderate deflation of about 0.8% a year. After considering the effect of this change on the buying power of money borrowed and repaid, real interest rates in China have effectively risen and are acting as a disincentive to borrow and spend. The bank would have had cut interest rates by almost 3 percentage points just to keep real incentives as they were when it started. It will have to do a lot more to encourage borrowing and spending.
Some have speculated that that new, more imaginative solutions will make an appearance at the Third Plenum scheduled for this coming July. Something might emerge, but given leadership’s behavior to date, the huge policy shifts China needs to deal with its challenges are not especially likely. It is not even a sure thing that the Third Plenum will come off on time. The party’s governing charter calls for a plenum meeting at least once a year, but China has not had one since February of 2023. This 17-month interval is the longest since Mao Zedong was in charge. Clearly, the party’s and the nation’s leadership does not know what to say.
If the meeting comes off on schedule and if China’s leadership announces forceful policies, the economy might begin a recovery. But these are two big ifs. More likely, recent patterns will prevail, and China will have a struggling economy for some time to come.
(Bloomberg) -- Another round of blowout earnings from artificial-intelligence darling Nvidia Corp. and the economy’s steady advance mean the S&P 500 Index likely has further room to rise, according to JPMorgan Chase & Co.’s trading desk.
“With the AI-theme still delivering and the macro hypothesis intact, we are likely to continue to make new all-time highs,” the team including Head of US Market Intelligence Andrew Tyler wrote in a note to clients. He sees a mix of at or above-trend gross domestic product growth, positive earnings, and the Federal Reserve on pause as a recipe for a bull market.
The S&P 500 was slightly higher Thursday, on track for its 25th record this year, after a higher-than-expected sales forecast from Nvidia drove the company’s shares past the $1,000 milestone. The move extends a more than 5% advance in the index so far in May, driven by strong financial results from Corporate America and expectations that the Fed will ease policy by the end of this year.
Chipmaker Nvidia, a major driver of the stock market’s momentum and a linchpin of the artificial-intelligence rollout, jumped some 10% after the bullish sales forecast showed that AI investment spending remains strong. The company is responsible for about one-fourth of the gains in the S&P 500 this year.
From here, JPMorgan traders see the benchmark’s advance continuing, albeit at a slower pace, as investors seek out AI plays in smaller segments and the stock market rally broadens to pockets beyond megacap technology.
Tyler recommends a barbell portfolio strategy composed of the so-called Magnificent Seven stocks and semiconductor companies, along with value and cyclicals like banks, credit cards, automakers and suppliers, and homebuilders.
The upbeat view is once again at loggerheads with the bank’s own chief market strategist, Marko Kolanovic, who just days ago said he does not currently see stocks as an attractive investment given a litany of risks, including lofty valuations, sticky inflation and geopolitical uncertainty.
While it’s not unusual for firms to have different views under one roof, the disconnect at JPMorgan has been amplified since last year, with Tyler correctly calling for all-time highs as Kolanovic predicted a rout that has so far failed to materialize.
--With assistance from Natalia Kniazhevich.
(Adds context on scale of expected rise in fifth paragraph.)
©2024 Bloomberg L.P.
A worker checks products at a pasta factory on March 28.AHMET OGUZ CAPAN/Reuters
Aaron Wudrick is the domestic policy director at the Macdonald-Laurier Institute.
Last week, the federal government announced a $1.7-million subsidy for a pasta manufacturer in Brampton, Ont., citing the creation of 10 jobs. This may appear insignificant compared with the tens of billions allocated to industries such as electric vehicles, but it highlights just how normalized corporate welfare has become across our economy.
Under the Trudeau government, federal business subsidies have more than doubled from $17-billion in 2014 to some $40-billion today. Add to this the significant provincial contributions in recent years, such as those from the Ford government in Ontario and the Legault government in Quebec, and it’s clear that the private sector is increasingly infused with taxpayer money.
This trend is problematic for several reasons. There’s the glaring issue of opportunity cost: Every dollar spent on these subsidies is a dollar not spent on public services or left in the pockets of Canadians. There’s also the regional division created by governments playing favourites to shift or preserve jobs and the risk of friction with major trading partners who might plausibly argue we are running afoul of trading rules.
Most concerning, however, is how this deluge of subsidies allows governments at all levels to drown out calls for necessary policy reforms. Our anemic productivity, declining tax competitiveness and plummeting attractiveness as an investment destination are all serious challenges that are being ignored in favour of short-term political benefits.
The history of Canadian corporate welfare wasn’t always this bleak. Until the mid-1970s, business subsidies from all levels of government combined did not exceed $10-billion annually in today’s dollars. But apart from a brief dip in the 1990s, this figure has continued to grow. The justification for these subsidies has also shifted – from being necessary to create jobs to being essential to merely maintain them. The term “funding” has been euphemistically replaced by “investment,” and the notion that such subsidies are exceptional – confined to specific sectors for specific reasons – has been abandoned.
These days, no one blinks an eye at taxpayer money going to a thriving pasta maker. In this case the government insists it is only offering a “repayable loan,” but if so, and if that loan is offered at market rates, the obvious question is why the government needs to be involved at all; surely any thriving company can avail itself of one of the many lending institutions known as “banks.”
The recent backlash to the Trudeau government’s hike in the capital gains inclusion rate underscores the bleaker economic picture: Taxes are rising, and the cost of investing in Canada is increasing. Since the 1980s, our economic productivity has fallen drastically compared with that of the United States, and since 2016 foreign direct investment has declined significantly. Offering billions to foreign automakers might generate a few good, transient headlines, but it implicitly points to a deeper problem: If the only way to attract investment is to literally pay investors to put their money here, our economic policies must be failing.
Positive spending announcements also allow government officials to sidestep difficult questions about their role in creating an unfriendly business environment. Minimum-wage hikes represent a major cost for most employers (some of which hit consumers in the form of higher prices). Development charges imposed by municipal governments for housing not only increase consumer costs but can threaten the very viability of projects in a country already facing a severe housing shortage. Politicians naturally prefer the accolades that come with ribbon-cutting over addressing these policies, which come with uncomfortable trade-offs.
Even if subsidies are reduced or eliminated, there’s an increasing reluctance among the public to let market processes play out. We celebrate market successes but are quick to criticize when any business fails, forgetting that this is a necessary part of a dynamic market economy. We have moved away from expecting the government to support those affected by economic shifts, instead asking it to intervene aggressively to protect the status quo or even act as a venture capitalist – or a gambler at a casino – with taxpayer funds.
Perhaps the absurdity of subsidizing successful spaghetti makers to create a handful of jobs will finally draw attention to how ridiculous our corporate welfare policies have become. If Canada is to regain its economic footing, it must embrace fundamental market principles. Canadians need to accept that economically unviable businesses should fail and that those capable of succeeding on their own should do so without government intervention. Change will only come when Canadians demand accountability for the misuse of their tax dollars, signalling to politicians that it’s time to stop the corporate welfare bonanza and get back to basics.
(Bloomberg) -- Another round of blowout earnings from artificial-intelligence darling Nvidia Corp. and the economy’s steady advance mean the S&P 500 Index likely has further room to rise, according to JPMorgan Chase & Co.’s trading desk.
“With the AI-theme still delivering and the macro hypothesis intact, we are likely to continue to make new all-time highs,” the team including Head of US Market Intelligence Andrew Tyler wrote in a note to clients. He sees a mix of at or above-trend gross domestic product growth, positive earnings, and the Federal Reserve on pause as a recipe for a bull market.
The S&P 500 was slightly higher Thursday, on track for its 25th record this year, after a higher-than-expected sales forecast from Nvidia drove the company’s shares past the $1,000 milestone. The move extends a more than 5% advance in the index so far in May, driven by strong financial results from Corporate America and expectations that the Fed will ease policy by the end of this year.
Chipmaker Nvidia, a major driver of the stock market’s momentum and a linchpin of the artificial-intelligence rollout, jumped some 10% after the bullish sales forecast showed that AI investment spending remains strong. The company is responsible for about one-fourth of the gains in the S&P 500 this year.
From here, JPMorgan traders see the benchmark’s advance continuing, albeit at a slower pace, as investors seek out AI plays in smaller segments and the stock market rally broadens to pockets beyond megacap technology.
Tyler recommends a barbell portfolio strategy composed of the so-called Magnificent Seven stocks and semiconductor companies, along with value and cyclicals like banks, credit cards, automakers and suppliers, and homebuilders.
The upbeat view is once again at loggerheads with the bank’s own chief market strategist, Marko Kolanovic, who just days ago said he does not currently see stocks as an attractive investment given a litany of risks, including lofty valuations, sticky inflation and geopolitical uncertainty.
While it’s not unusual for firms to have different views under one roof, the disconnect at JPMorgan has been amplified since last year, with Tyler correctly calling for all-time highs as Kolanovic predicted a rout that has so far failed to materialize.
--With assistance from Natalia Kniazhevich.
(Adds context on scale of expected rise in fifth paragraph.)
©2024 Bloomberg L.P.
(Bloomberg) -- Standing in the rain and drowned out by protesters playing the Labour Party’s 1997 victory anthem “Things Can Only Get Better” will not have been Rishi Sunak ’s preferred backdrop for his announcement naming the date of the next UK election. The soundtrack, though, was apt.
The prime minister will fight the campaign over the next six weeks in the belief that the economy is going to pick up further. Labour leader Keir Starmer will counter that the next government, which his party is the clear favorite to form, faces the worst economic inheritance since the World War II.
Sunak has gambled on calling a vote for July 4 when many in his Conservative Party were still counting on having months to prepare. Yet the battle ahead is the same, whatever the timing: the trajectory for growth and living standards versus where the economy is right now.
Wind has started to fill Britain’s sails. Last year’s mild recession is over, gross domestic product is growing strongly and inflation is roughly at the central bank’s 2% target. For the electorate, unemployment is low, wages have outpaced inflation for 10 months and workers are feeling the benefit of £20 billion ($25 billion) of tax cuts. On Wednesday, Sunak said inflation was “back to normal” and “brighter days are ahead.”
Labour’s response is that while real wages are rising, they remain lower than before the financial crisis, meaning pay packets buy less than they did in 2007. Prices are almost 25% higher than before the coronavirus pandemic and GDP per head is 0.7% weaker than a year ago.
What’s more, for a Conservative Party that used to chastise Labour for taking people’s money, the tax burden is on course for a 70-year high, despite Chancellor Jeremy Hunt’s tax giveaway.
Last week, Hunt acknowledged that living standards have fallen since the last election in 2019, when former leader Boris Johnson triumphed with his promise to “Get Brexit Done” and leave the European Union.
“The Conservatives are trying to build momentum on the back of this latest economic data to try to build a case,” said Kate Dommett, professor of digital politics at the University of Sheffield. “But it’s going to be a real challenge.”
There are unresolved issues with Brexit, institutions such as the National Health Service and the UK’s vaunted university system are straining and immigration remains a key issue because of wrangling over how to process asylum seekers — and then where to send them. But it’s living standards that loom largest over the election.
Indeed, Labour will fight the campaign on the economy, Shadow Chancellor Rachel Reeves has said. Sunak also put the economy front and center in his speech on Wednesday announcing the election date.
“Economic stability is the bedrock of any future success,” he said. “Now is the moment for Britain to choose its future. To decide whether we want to build on the progress we have made, or risk going back to square one, with no plan, and no certainty.”
So far, Labour has played it safe. Its fiscal rules are almost a carbon copy of the government’s. The party has supported Hunt’s tax cuts. Growth-related policies like “productive finance” pension reforms could have been lifted from Tory documents.
When Labour’s economic plans clashed with fiscal virtue, public finances have won. Its £28 billion green investment plan was hacked back, though climate investment remains a central pledge. Planned employment rights laws were watered down as the party courted business. Industry swung behind Reeves’ “securonomics,” a doctrine of self-reliance, stability and investment.
Financial markets, too, are unworried by Labour. Opinion polls suggest traditional roles have reversed, largely due to the market shock caused by former Prime Minister Liz Truss during her short tenure two years ago. Labour is now more trusted on the economy, according to polls by YouGov and Ipsos.
Neil Wilson, chief market analyst at financial services firm Finalto, welcomed Labour’s poll lead. Investors prefer certainty, with the stock market tending to do better “when results are easily predicted and not really close,” he said. A Labour-led government would be the best result for stocks and the pound, a Bloomberg survey of investors last year found.
Sunak was dealt a tough hand. After becoming chancellor in 2020, he supported the economy through Covid and then a cost-of-living crisis exacerbated by the war in Ukraine, which drove UK national debt to nearly 100% of GDP. Inflation hit a 40-year high and interest rates were lifted to levels last seen in 2008.
The higher cost of servicing public debt, combined with weak growth, required tax rises and spending cuts. Coming on the back of earlier austerity, the cuts have been described as unsustainable. The International Monetary Fund this week warned that another £30 billion of savings need to be found to balance the books and fund Britain’s crumbling public services properly.
Both parties have the same solution for the country’s economic woes: growth. Naturally, both argue that the other’s stated ambitions to get there are fiscally undeliverable.
The Tories believe tax cuts and tech innovation will deliver it. Last week, the Organisation for Economic Cooperation and Development said the UK tech industry is the fastest growing in Europe and catching up with the US. Labour also wants to “cut taxes on working people” but would invest more.
Both also hope the Bank of England will help by cutting interest rates now that inflation is largely under control. That first reduction, though, is now unlikely to come until after the election.
One Tory minister who asked not to be named said the early election was a terrible idea. Had Sunak waited until the autumn, households would have been feeling the effects of the improving economy and lower interest rates.
Back in 1997, unemployment was down to its lowest in years, growth had picked up and the national debt had shrunk. But the damage to the Conservative Party had been done in previous years. Labour leader Tony Blair won a landslide.
--With assistance from Isabella Ward, Asad Zulfiqar and Alex Wickham.
©2024 Bloomberg L.P.
