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Written By: Benjamin Pipicelli, Dorje Gyaltsen, & Gordon Huynh
Economics Newsletter – July 12, 2024
Canada’s Economy at a Glance
Author’s Commentary
Since the pandemic, the Canadian central bank and the U.S. federal reserve have mirrored each other in interest rates. However recently, the Canadian central bank has decided to take on a more aggressive stance by cutting interest rates, spurred on by the low growth it has seen compared to the U.S. This move would incentivize investors and businesses at a crucial time in the AI arms race, while also inviting some talent from the U.S., giving Canada a better strategic position in the global tech landscape. On the other hand, this divergence in central bank policies could cause the CAD to lose value against the USD, and increase the current USD/CAD exchange rate to 1.4 from 1.36. Although this could lead to increased prices in imports, the trade-off may be worth it in the long run, as along with the massive investment into AI made by the government recently, this favourable environment is poised to enhance Canada’s technological capabilities and global competitiveness in the years ahead.
News and Noteworthy
LCBO strike creates uncertainty for restaurants at already difficult time
While the LCBO strike may provide an opportunity for private alcohol retailers and grocery chains selling beer and wine, for some restaurants and bars in Ontario, the strike comes when they are already grappling with significant challenges. LCBO workers, represented by the Ontario Public Service Employees Union (OPSEU), went on strike on July 5. The LCBO says its retail locations will stay closed for two weeks, while online ordering remains available with free home delivery. Read more.
Canadian unemployment could exceed 7% if interest rates aren’t cut
Canada’s unemployment rate is on a path to hit or exceed seven percent this year if the Bank of Canada (BoC) doesn’t make interest rate cuts “sooner than later,” a National Bank economist warns. The labour market is “gasping for air” and should not be ignored because of a fixation on inflation figures alone, National Bank Financial Markets director of economics and strategy Taylor Schleich wrote in a note published Monday. Read more.
Canada’s job market stalls in June, as unemployment rate climbs to 6.4%
Canada’s labour market stalled in June, losing a net 1,400 jobs, pushing the unemployment rate up 0.2 percentage points to 6.4 percent, Statistics Canada said on Friday. The data was weaker than expected, as analysts polled by Reuters had forecast a net gain of 22,500 and the unemployment rate to rise to 6.3 percent. Markets increased bets of a Bank of Canada rate cut in July slightly, from below 50 percent before the labour report was released, to around 55 percent. Read more.
China to hit back hard if Canada slaps tariffs on Chinese EVs: Experts
Canada will slap tariffs on Chinese electric vehicles, say two trade experts, predicting the world’s second-largest economy will forcefully retaliate if Ottawa falls in line with Washington and Brussels. Ottawa started a 30-day public consultation period on July 2 on possible responses to what Finance Minister Chrystia Freeland calls China’s “state-directed policy of overcapacity, undermining the Canadian EV sector’s ability to compete in domestic and global markets.” Read more.
Canada real estate: Home prices continue to rise despite slumping sales
Home prices in Canada climbed 1.9 percent in the second quarter of the year, Royal LePage said in a report released Thursday, even as inventory levels climbed, activity slowed and prospective buyers remained on the sidelines. Royal LePage said the national aggregate price of a home increased 1.9 percent on an annual basis to $824,300 in the second quarter of 2024. Read more.
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