Latest news with #RoyceMendes
France 24
3 days ago
- Business
- France 24
Canada growth up but Trump tariffs starting to hurt
The nation has been shaken by the mercurial Republican billionaire's repeated tariff threats -- and his targeting of its automotive, steel and aluminum sectors in particular with 25 percent levies. The protectionist policy has fractured longstanding relations between the two neighbors that had seen a progressive melding of their supply chains over decades. The Canadian economy grew by 2.2 percent in the first three months of 2025, as exports surged to try to get ahead of the US tariffs, according to the national statistical agency. Most analysts had expected only modest growth. The rise was largely driven by exports and a buildup in business inventories mostly by wholesalers, said Statistics Canada. But lower household spending in the quarter suggests the "domestic economy looked very frail," Desjardins analyst Royce Mendes said in a research note. He noted the "boost in outbound shipments was the result of US buyers trying to get ahead of tariffs" imposed by Trump. At the same time, domestic demand "stagnation points to a disappointing underlying growth rate relative to the already-tempered expectations," he said. TD Economics senior economist Andrew Hencic agreed, saying: "The top line measure would suggest the Canadian economy continues to chug along at a decent clip, but digging beneath the surface suggests otherwise." "Trade tensions and the uncertainty they heaped on the economy have started to show through on activity," he said, with consumers pulling back on spending. Trump had announced -- then halted, pending negotiations -- several levies on Canadian imports into the United States, while Canada hit back with counter tariffs. 'Worrying signs' Canada, whose economy is heavily reliant on trade, sends about 75 percent of its exports to its southern neighbor. According to Statistics Canada, exports led by passenger vehicles and industrial machinery rose 1.6 percent in the first quarter of 2025. Imports also increased in the first three months of the year. Household spending, however, slowed 0.3 percent after rising in the last three months of 2024. The GDP figure is the last economic indicator before Canada's central bank on Wednesday makes its next interest rate announcement. That decision is going to be "a close call," commented Nathan Janzen of RBC Economics. He predicted the Bank of Canada would continue to hold its key lending rate steady. The central bank in April paused a stream of recent rate cuts at 2.75 percent. Janzen said the economy has shown itself to be "relatively resilient relative plunging consumer and business confidence." But he acknowledged "worrying signs of softening" in the labor market, with tens of thousands of manufacturing jobs shed last month. Preliminary estimates indicate the economy would expand only slightly in April at the start of the second quarter. Hencic said this, combined with rising unemployment, suggests that "domestic demand has all but petered out." But he added, "With the tailwinds from last year's rate reductions fading, the Bank of Canada should have room to deliver two more rate reductions this year and give the economy a bit more breathing room." Prime Minister Mark Carney, elected at the end of April, promised to radically transform the Canadian economy, the world's ninth largest economy, by focusing particularly on internal trade and energy. But he faces pressures to act quickly as several auto companies have already announced temporary production reductions in one of Canada's largest industrial sectors. © 2025 AFP
Globe and Mail
3 days ago
- Business
- Globe and Mail
Markets scale back bets for BoC rate cut next week after GDP report
Market bets for a Bank of Canada rate cut next week have dwindled further after this morning's stronger-than-expected GDP report, although there are still some economists calling for easing. Gross domestic product in the first quarter grew by 2.2% on an annualized basis as compared with the downwardly revised 2.1% growth posted in the previous quarter, Statistics Canada said. The GDP grew by 0.1% in March after a contraction of 0.2% in February. The economy is likely expected to expand by 0.1% in April, the statistics agency said referring to a flash estimate. This was the final economic indicator before the Bank of Canada's rates decision on Wednesday. In the wake of the data release, money markets now see only about a 16% probability of a rate cut June 4, down from 28% prior. However, they are still pricing in between one and two quarter-point rate cuts by the end of this year. Here's how implied probabilities of future interest rate moves stood in swaps markets moments after the 830 am ET data, according to LSEG data. The overnight rate now resides at 2.75 per cent. While the bank moves in quarter-point increments, credit market implied rates fluctuate more fluidly and are constantly changing. Columns to the right are percentage probabilities of future rate moves. Here's what they looked like minutes before the inflation report: Here's how economists are reacting: Royce Mendes, managing director and head of macro strategy, Desjardins 'Despite the strength in headline GDP, the domestic economy looked very frail. Final domestic demand contracted 0.1%. Housing was particularly weak during the quarter and consumer spending also printed soft. Household spending per capita was up just 0.1% in Q1, down sharply from the 0.8% growth rate in Q4 2024. While business fixed investment proved more resilient, the fact that it was driven by equipment and machinery could indicate that some of the strength was due to firms trying to front run retaliatory tariffs. Given the temporary volatility in the trade data during the quarter, the reading on final domestic demand provides a clearer signal of the health of the economy. The stagnation in that indicator points to a disappointing underlying growth rate relative to the already-tempered expectations. Furthermore, revisions also cut the Q4 2024 GDP print down to 2.1% from the 2.6% growth previously estimated, pointing to less momentum towards the end of the year. ... The weak final domestic demand reading for Q1 suggests that the economy was stalling even before feeling the full impact of tariffs. Given the deterioration in recent labour market indicators, we believe that the economy will struggle to post meaningful growth in the second quarter. Despite the upward move in core measures of inflation, which looked to be driven by one-off factors, we expect the Bank of Canada to cut rates another 25 basis points next week." With a report from Reuters More to come
Calgary Herald
20-05-2025
- Business
- Calgary Herald
Canada Inflation Slowest Since September on Carbon Tax End
Article content (Bloomberg) — Canadian inflation eased to its slowest pace since September on the elimination of the consumer carbon tax and lower oil prices, but core measures accelerated. Article content Article content The consumer price index rose 1.7% from a year ago in April, down from 2.3% in March, Statistics Canada data showed Tuesday. The median projection in a Bloomberg survey of economists saw the headline rate rising by only 1.6%. Article content The index fell 0.1% on the month, compared with economists' projections of a 0.2% drop. Article content Article content The average of the Bank of Canada's two preferred core inflation measures accelerated to a 3.2% yearly pace, up from 2.9% in March and higher than economist estimates. The three-month moving average of the core rates rose to 3.4%, from 2.9% previously. Article content The loonie reversed the day's losses versus the US dollar and traded at C$1.3927 as of 9:50 a.m. in Ottawa. Canadian debt fell across the curve, with the two-year yield up about nine basis points to 2.624%. Traders in overnight swaps lowered bets that the central bank will cut rates at its next meeting, putting the odds at about 35% compared with nearly 70% previously. Article content Policymakers at the central bank had expected headline inflation to slow to about 1.5% in April due to lower crude demand and the removal of the carbon tax. Their challenge now is predicting the inflation path ahead as opposing pressures — a weaker economy and tariff-driven costs — influence consumer prices. Article content Article content 'The Bank of Canada typically looks through level shifts in prices like the one driven by the removal of the carbon tax and officials will clearly be concerned with the recent acceleration in core measures of inflation,' Royce Mendes, managing director and head of macro strategy at Desjardins Securities, said in a report to investors. Article content 'That said, given that the removal of the federal carbon price will also likely impact inflation expectations, there's scope for the change to further affect price dynamics in a positive way.' Article content The Bank of Canada paused its easing campaign in April to await more clarity on US President Donald Trump's trade policy. Before the inflation print, economists had largely expected the bank to restart its rate-cutting cycle as early as the next meeting on June 4, after jobs data earlier this month pointed to a deteriorating job market.
Hamilton Spectator
01-05-2025
- Business
- Hamilton Spectator
Behind the scenes, Bank of Canada seriously considered a rate cut amid Trump's tariff turmoil
Bank of Canada officials considered cutting interest rates by 25 basis points in April, but some feared it would fuel inflation amid U.S. President Donald Trump's 'erratic' tariffs , according to a report published by the bank Wednesday. The summary of closed-door deliberations comes two weeks after the bank held its key interest rate at 2.75 per cent following seven consecutive cuts from a peak of five per cent. It offers a behind-the-scenes look at the close-call decision, and what policymakers expect for Canada's economic future. 'While there were differences in views, everyone agreed there was a great deal of uncertainty and the situation could change quickly,' the report stated. 'They also agreed they should be less forward-looking than usual.' All seven members of the bank's governing council, the report said, eventually reached a consensus. Going forward, some economists expect the bank to resume cutting rates. Canadian industry officials warn that the changes won't remove the threat to jobs or companies 'We continue to believe that the Bank of Canada will resume its rate cutting cycle in June, with the debate potentially being about whether to cut 25 or 50 basis points,' Desjardins economist Royce Mendes wrote in a note to clients shortly after the release of Wednesday's central bank report. According to the report, central bankers agreed the Canadian economy ended 2024 in 'good shape,' but will slow in 2025 due to tariffs, while inflation will decline in the near-term due to lower oil prices and the end of the consumer carbon tax. In the long-run, the outcomes are less clear. If tariffs end up being larger and permanent, they expect Canada to fall into a recession and inflation to rise above three per cent in 2026 due to higher tariff costs and supply-chain shifts. If tariffs are short-lived, economic growth would still suffer, but the impact on inflation would be smaller, according to the bank. 'If new information pointed clearly to one side or the other of these opposing forces on inflation, governing council would be prepared to act decisively,' the report concluded. Since the bank's April 16 decision, Trump threatened to hike his auto tariff on Canada and then signed an executive order aiming to give U.S. automakers some relief on import tariffs . The order, signed Tuesday afternoon, clarified overlapping tariffs won't 'stack' on top of each other while stating that manufacturers would be able to apply for rebates on tariffs paid on some auto parts. Bank of Canada governor Tiff Macklem emphasized that the bank cannot undo the devastating Meanwhile, the economy is already showing signs of struggle. Policymakers discussed concerns about a recent slowdown in consumer confidence, real estate activity and business investment, the Bank of Canada's report showed. They also noted that the labour market is softening. And, on Wednesday, new data showed Canada's gross domestic product (GDP) contracted by 0.2 per cent in February, though Statistics Canada said the economy likely grew overall in the first quarter. 'Today's soft GDP numbers,' said Desjardins' economist Royce Mendes, 'suggest that the economy was already losing momentum ahead of the worst of the tariff shock to date.' The bank's next decision is scheduled for June 4. 'The Bank of Canada is going be reactive rather than proactive,' predicts BMO economist Benjamin Reitzes. 'Accordingly, next week's April jobs report and the next round of GDP figures (due at the end of May) will be key for the Bank of Canada's June meeting.'
Yahoo
07-02-2025
- Business
- Yahoo
Odds of Bank of Canada interest rate cut in March drop after jobs beat
Canada's unemployment rate continues to decline, falling to 6.6 per cent in January as the economy created more jobs than economists expected. The economy added 76,000 positions, according to Statistics Canada's latest labour force survey on Friday, beating estimates of 25,000 additions. Economists had also called for the jobless rate to rise to 6.8 per cent. Canada's jobless rate has fallen for two consecutive months, as it dropped to 6.8 per cent in December from a recent peak of 6.9 per cent in November. Prior to that, the unemployment rate had been on a steady rise from a post-pandemic low of 4.6 per cent in July 2022. Market bets on a cut at the Bank of Canada's March 12 meeting fell to 55 per cent from 80 per cent after the data. Here's what economists think the latest employment data means for the central bank and interest rates. 'Amidst all the uncertainty about tariffs, the Canadian economy posted another heady month of job creation,' Royce Mendes, managing director and head of macro strategy at Desjardins Group, said in a note, referring to December when the economy added 91,000 jobs, which also handily beat economists' estimates. Most of the gains last month came from the private sector, adding to the 'good news,' he said. Total hours worked rose 0.9 per cent in January from December, boosting estimates for first-quarter growth to two per cent from 1.8 per cent. The labour report provides the Bank of Canada with flexibility in uncertain times, Mendes said. Policymakers could easily hold in March if tariffs are not implemented by the beginning of the month, Donald Trump's newest deadline. 'Central bankers have some flexibility to respond if a shock hits the economy,' he said, given that inflation is hovering around the Bank of Canada's two per cent target and hourly wage growth continues to slow, a metric policymakers have been closely tracking. 'Rates have risen across the Government of Canada yield curve and the Canadian dollar has appreciated in light of the surprisingly strong data.' 'You would struggle to find anything disappointing in the January Labour Force Survey,' Thomas Ryan, an economist at Capital Economics Ltd., said in a note, as job gains were racked up in the manufacturing and construction sectors, though the gain in the former could have been tariff-induced. In January, job gains outpaced population growth, a sign that Ottawa's new policy of cutting the number of international students and temporary foreign workers is working. In previous labour force reports, employment gains typically fell short of monthly increases in population, helping to boost the unemployment rate. 'The only sign of relative weakness was the drop back in earnings growth to 3.5 per cent, but that will be welcome news for the (Bank of Canada) governing council given the recent pick-up in core inflation pressures,' Ryan said. January's job report gives the Bank of Canada permission to hold on rates in March, he said. 'We remain of the view the Bank (of Canada) will err on the dovish side of caution and reduce the policy rate by a further 25 basis points,' Ryan said. 'Three consecutive months of solid job growth suggest the cyclical boost to Canada's economy from lower interest rates is clearly taking effect,' Leslie Preston, managing director and senior economist at TD Economics, said in a note. The Bank of Canada has reduced interest rates to three per cent from five per cent by implementing six consecutive cuts starting last June. Preston thinks the current rate is 'no longer' holding back the economy. 'Unfortunately, the imminent threat of tariffs hanging over the Canadian economy is likely to temper business confidence and could weigh on hiring in some sectors in the coming months,' she said. After the Bank of Canada's January rate cut, TD forecast that rates would fall to 2.25 per cent by year-end. Canada's unemployment rate drops to 6.6% Macklem says tariffs would damage the 'long-run prosperity' Now, Preston seems to suggest that it's just up to the monetary policy to guard the economy. 'Now it's over to Canadian governments to do what they can to improve the competitiveness of the economy in the face of the tariff threat,' she said. • Email: gmvsuhanic@ Sign in to access your portfolio
