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Written By: Benjamin Pipicelli, Lexx Thomson, & Dorje Gyaltsen
Economics Newsletter – July 14, 2023
Canada’s Economy at a Glance
Author’s Commentary
Canadian Trade in May
Canada’s goods trade balance fell unexpectedly into deficit territory this May. Implying that net trade may not be the positive contributor to quarter 2 growth that was previously expected. The $3.44 billion deficit was the largest since the peak of the pandemic. The large drop relative to April reflected both a decline in exports (-3.8%) and a rise in imports (+3%).
The decline in exports partially reflected lower prices, although in volume terms there was still a 2.6% drop in the month. Energy, farming, fishing, and food products led to the decline. The increase in imports was led by metallic and non-metallic mineral products and autos. Imports volumes of motor vehicles and parts are up more than 4% on a year-over-year basis, reflecting an easing of supply chains.
Canada’s trade surplus with the US narrowed from $8.7bn in April to $6.7bn in May, which was the lowest since May 2021. The trade deficit with the rest of the world widened to $10.2bn in May, from $7.8bn in the prior month. The large deficit in trade with the rest of the world suggests that the strike action at BC ports that started in early July will likely have a bigger impact on imports than exports, although both will and are being affected.
News and Noteworthy
Bank of Canada hikes rate to 5%, expects inflation to be above 2% until mid-2025
The Bank of Canada hiked its benchmark interest rate by a quarter-point on Wednesday to five percent as the central bank predicts it will take even longer for inflation to return to its two percent target. “CPI inflation is forecast to hover around 3 percent for the next year before gradually declining to 2 percent in the middle of 2025,” the central bank said in a statement. The new forecast predicts inflation will come back down to its target about six months later than it anticipated earlier this year. Read more.
Inflation slows to a 3.4 percent annual increase in Canada
The stock market is on the path to a new record, thanks to withering inflation that shows the Fed’s war against high prices is finally paying off, according to Fundstrat’s head of research Tom Lee. In an interview with CNBC on Wednesday, Lee reiterated his view that the S&P 500 could hit a new all-time high and end the year at 4,825, implying an 8% increase from current levels. That’s largely due to cooling prices in the economy, Lee said, pointing to the June Consumer Price Index report. Headline inflation eased to 3% and core inflation eased to 4.8%, in line with Lee’s estimate for the month. Read more.
Canadian airlines see fewer cancellations as summer travel season kicks off
Canadian airlines saw fewer flight cancellations and more land on time in June compared to last year, according to aviation analytics firm Cirium, as the busy summer travel season kicked off. The latest data from Cirium showed that 4.1 percent of scheduled flights – or more than 2,000 – were cancelled by Canadian airlines in the month of June. That’s down from last June when Canadian carriers cancelled 6.4 percent of scheduled flights, or more than 3,100. Read more.
Labour market adds 60K jobs as Bank of Canada eyes another hike
The labour market snapped back as employers added 60,000 jobs, Statistics Canada reported on Friday, solidifying at least one more Bank of Canada interest rate hike. The jobs gain was three times more than the consensus from economists surveyed by Bloomberg and come on the heels of job losses in May. “The surge in employment in June suggests that another rate hike at the Bank of Canada’s meeting next week is nailed on,” Olivia Cross, assistant economist at Capital Economics, said in a note on Friday. Read more.
83% of Canadian climate tech investment flows abroad: report
More than 80 percent of Canadian investment in climate technology is flowing outside the country, according to new research describing a “valley of death” for green companies attempting to grow beyond startups. Boston Consulting Group analyzed public disclosures of private equity investors as well as debt financing by venture capital and private equity firms in early, growth, and late-stage funding rounds. The results showed that Canadian investors deployed roughly four-fifths (83 percent) of their capital outside Canada. Read more.
Economics Society News, Events, and Articles
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*As of market close on Thursday, July 13