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Written By: Benjamin Pipicelli, Lexx Thomson, Dorje Gyaltsen, & Gordon Huynh
Economics Newsletter – Jan 26, 2024
Canada’s Economy at a Glance
Author’s Commentary
Canada’s Consumer Spending
Canadian households have been spending more to buy less. On a per capita basis, nominal spending has been above its pre-pandemic trend, with consumers having to pay higher prices for essentials such as food. However, that has left less money for discretionary purchases, and in volume terms per-capita spending is well below its pre-pandemic trend and falling. So where to from here? The good news is that the recent sluggishness in real consumer spending doesn’t just reflect the impact of inflation, but also greater prudence among households, particularly younger ones, when it comes to saving. The bad news is that the decline in per-capita consumer spending already nearly matches some prior recessions, and is starting to affect employment in impacted industries. The potentially ugly news will start in 2025 if the Bank of Canada fails to cut interest rates enough to soften the blow from mortgage renewals for those households refinancing their pandemic home purchases. Not just because interest rates are much higher, but also because these homeowners have on average seen less income growth than those who bought earlier.
News and Noteworthy
Formula One new team name mocked as the worst in series history
Jenson Button, so entrenched in his preparation for the Rolex 24 at Daytona, seemed to miss the news that Red Bull’s junior Formula One team had been rebranded. After climbing off the timing stand Thursday at Daytona International Speedway, he was asked his thoughts on the team known as AlphaTauri the last four years being renamed to Visa Cash App RB F1 — a moniker that has been widely panned by fans as the worst in F1 history. Read more.
CEBA loan forgiveness would risk ‘upward pressure on interest rates’
Delaying or forgiving Canada Emergency Bank Account (CEBA) loans would have significant financial consequences for the federal government, warn economists at Desjardins. Ottawa distributed $49.2 billion in emergency loans in a bid to help nearly a million businesses survive the economic impact of the COVID-19 pandemic. Business groups have called for an extension of Thursday’s deadline to repay the loans and receive partial forgiveness of up to $20,000, or one-third of the loan. After the deadline, the debt is rolled into a three-year loan with a five percent annual interest rate. Read more.
Bank of Canada takes rate hikes off the table, as it holds overnight rate at 5 percent
The Bank of Canada left its benchmark interest rate at five percent on Wednesday, while signalling further rate hikes are largely off the table amid a slowing economy. However, Governor Tiff Macklem says he needs “more assurance” that inflation is losing steam before the central bank will consider easing monetary policy. “We know Canadians want to see interest rates come down. So do we,” he said at a press conference in Ottawa. Read more.
Gas prices tumble in Vancouver, luxury sports car sales rev up in Canada
Gas prices in Vancouver tumbled this week, a lone beacon of savings among Canadian cities, where prices mainly held flat. Regular gasoline in Van City fell nearly eight cents per litre between Jan. 4 and Jan. 11, according to pump prices from the data firm Kalibrate. Across Canada, the average price was lower by less than a cent, at $1.449. Gatineau, Que., saw the biggest increase over the past seven days, with prices rising 8.7 cents per litre, while prices across the river in Ottawa fell by one cent per litre. Read more.
AIMCo expresses interest in buying a stake in the expanded Trans Mountain pipeline
As the expansion of the Trans Mountain oil pipeline nears completion, the Alberta Investment Management Corporation (AIMCo) has expressed interest in buying a stake in the project. The project has faced consistent delays, and capital costs have ballooned to more than $30 billion due to construction-related challenges. The news that AIMCo would consider purchasing the Trans Mountain pipeline was first reported Thursday by BNN Bloomberg. Read more.
Economics Society News, Events, and Articles
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– Check out our most recent original article, Ploughshares to Swords, written by Finn O’Connor