Author: Consultant

The Canadian economy has flatlined in recent months as higher interest rates weigh on growth, bringing the country to the brink of a mild recession.

Real gross domestic product was essentially unchanged in September, according to a preliminary estimate that Statistics Canada published on Tuesday. While the numbers will be revised on Nov. 30, GDP is on track to fall by 0.1 per cent annualized in the third quarter, following a 0.2-per-cent drop in the second quarter.

If those figures hold, Canada would post two consecutive quarters of declining GDP – what some economists refer to as a “technical recession.” Output would also be considerably weaker than the Bank of Canada’s most recent projection, published last week, which expected 0.8-per-cent growth in the third quarter.

The numbers provide further evidence that Canada’s economy is slowing quickly as higher interest rates curb spending and investment. The Bank of Canada has rapidly raised interest rates – its policy rate stands at 5 per cent, up from 0.25 per cent in early 2022 – to subdue the biggest inflationary surge in four decades.

But as economic activity wanes, analysts are Bay Street are increasingly convinced that the central bank is finished with its rate-hike campaign.

“This is yet one more crystal clear sign that the Bank of Canada should be done hiking,” Benjamin Reitzes, a Bank of Montreal strategist, wrote in a client note. “The potential for a second consecutive negative quarterly GDP reading will cause recession chatter to ramp up quickly. The soft economic backdrop, which still has downside, will drive inflation down over time … it’s just a question of how quickly.”

In August, eight of 20 industrial sectors posted increases in real GDP. (The Statscan report offered detailed figures for August, but just an overall estimate for September.) Services-producing industries edged up 0.1 per cent, while the goods-producing industries fell 0.2 per cent.

Mining, oil and gas extraction jumped by 1.2 per cent in August, although this was partially a recovery from the disruption of forest fires earlier in the year. Manufacturing fell for a third consecutive month, while the hospitality sector slid by 1.8 per cent, with particular weakness at restaurants and bars.

In its latest projections, the Bank of Canada downgraded its outlook for economic growth, though officials are not predicting a recession.

“We’re expecting growth below 1 per cent for the next three, four quarters,” Bank of Canada Governor Tiff Macklem explained at a press conference last week. “Is that a recession? No, it’s not a recession. It’s low positive growth.”

Mr. Macklem said you can’t rule out “some small negative numbers” in the near future – although this wouldn’t necessarily qualify as a recession.

“When people say the word ‘recession,’ I think what they have in mind is a steep contraction in output and a large rise in unemployment. That’s not what we’re forecasting.”

Canada’s labour market has softened in recent months, as seen with declining job postings and a slower pace of hiring. Still, the unemployment rate (5.5 per cent) is low by historical standards. Statscan will publish the next results from its Labour Force Survey on Friday.

The annual inflation rate has fallen to 3.8 per cent from a peak of 8.1 per cent last summer. Despite that progress, the Bank of Canada has warned of various risks to the outlook, including volatile oil prices and sharp increases in housing costs, owing to a supply shortage.

Mr. Macklem told the parliamentary finance committee on Monday that the BoC could begin cutting interest rates before inflation returns to its 2-per-cent target. The central bank projects a return to target by mid-2025. Many analysts expect rate cuts to start sometime next year.

If GDP declines slightly for two consecutive quarters, it could lead to a hearty debate about whether Canada is in recession – particularly if the labour market continues to exhibit strength.

In 2015, for instance, Canada posted two consecutive quarters of GDP decline, owing to a plummet in oil prices that hammered Alberta’s economy. Many analysts referred to the situation as a “technical recession.”

The C.D. Howe Institute did not agree. In 2018, the think tank’s business cycle council took a final vote on the 2015 downturn and narrowly decided it wasn’t a recession. The council said the breadth of the GDP contraction was narrow and that employment rose during the period in question.

HIGHLIGHTS:

Consolidated Results

• Revenue increased $87.5 million or 8% in the third quarter compared to the similar period last year, with higher revenues in both groups. Equipment Group was up 7% in the quarter on higher equipment sales (up 7%), product support revenues (up 7%) and rental activity (up 11%). CIMCO revenue increased 15%, with progress on package sales (up 2%) and strong product support growth (up 29%).
• Revenue increased $408.5 million (14%) to $3.4 billion for the year-to-date period. Revenue increased in both groups, with the Equipment Group up 13% and CIMCO up 17% year-to-date, on similar trends as noted for the quarter.
• Operating income⁽¹⁾ increased 17% in the quarter reflecting the higher revenue and gross margins, along with the lower relative expense ratio. Operating income as a percentage of sales increased to 16.4% from 15.3% in the prior year.
• Operating income increased 22% in the year-to-date period, and was 14.7% of revenue compared to 13.7% in the similar period last year, reflecting similar trends as noted for the quarter.
• Net earnings from continuing operations increased $25.1 million or 21% in the quarter versus a year ago to $145.6 million or $1.77 EPS (basic) and $1.76 EPS (fully diluted).
• For the year-to-date period, net earnings from continuing operations increased $83.2 million or 29% to $375.1 million, or $4.56 EPS (basic) and $4.52 EPS (fully diluted).
• Bookings⁽¹⁾ for the third quarter decreased 5% compared to last year and increased 5% on a year‑to‑date basis. The Equipment Group reported lower bookings during the quarter (down 10%), after a strong start to the year and given the uncertain economic conditions. CIMCO reported increased bookings (up 18%) on good demand for our products and services. Year-to-date both groups reported increased bookings, with the Equipment Group up 4% and CIMCO up 17%.
• Backlog⁽¹⁾ was $1.2 billion as at September 30, 2023, compared to $1.4 billion as at September 30, 2022, reflecting good order intake, progress on construction and delivery schedules as well as some improvement in equipment flow through the supply chain.

https://www.newswire.ca/news-releases/toromont-announces-results-for-the-third-quarter-of-2023-and-quarterly-dividend-850755229.html

Last Updated: October 25, 2023

Interest rate forecast for 2023: 5.00%*

• October 2023 Canada Mortgage Rate Forecast 

For more information about the 2023 Bank of Canada rate announcement schedule and upcoming 2024 announcement schedule, read more here 

• When will interest rates in Canada go down in 2023? 
• When is the next Bank of Canada rate increase and what can I expect?
• What is the interest rate forecast for 2023 in Canada? 
• What is CPI and how does it affect the Canada interest rate forecast?
• What affects the Bank of Canada’s interest rate forecast?  
• What is the mortgage interest rate forecast for 2023 in Canada?
• What are the interest rate predictions from the banks?

Key Takeaways (updated October 2023)

• The prime rate in Canada as of October 25, 2023 is 7.20%. (last change: +0.00% on October 25, 2023)
• On Wednesday, October 25th, 2023, The Bank of Canada announced that it will be holding its rate, keeping the policy rate at 5.00%.
• The Statistics Canada report published on October 17, shows that Canada’s inflation rate slowed in September to 3.8% from 4.0% in August, which was lower than expected by economists. This decrease was attributed to lower prices for various goods and services, such as travel, durable goods, and some grocery items, leading to a “broad-based” deceleration in the cost of living. On a monthly basis, the cost of living declined by 0.1% in September, the first decrease since November of the previous year. Gasoline prices contributed significantly to the annual rate, falling by 1.3% during the month but still up 7.5% over the past 12 months. Excluding gasoline, the inflation rate would have been 3.7%, down from 4.1% the previous month.
• Statistics Canada reported that the Canadian unemployment rate was unchanged at 5.5%, following three consecutive monthly increases in May, June and July.

2023 Predictions (updated October 2023)

• In 2024, it is expected that the Bank of Canada will cut rates by up to 2% and another 1% in 2025. This will result in lower payments for adjustable rate mortgage holders. We predict that key interest rate will hover around mid 4% in 2024 and mid 3% in 2025. TD economists predict the policy rate can reach 2.25% by 2025 as inflation slows and economic growth decelerates (Source: TD)

https://myperch.io/canada-interest-rate-forecast/

The Bank of Canada today held its target for the overnight rate at 5%, with the Bank Rate at 5¼% and the deposit rate at 5%. The Bank is continuing its policy of quantitative tightening.

The global economy is slowing and growth is forecast to moderate further as past increases in policy rates and the recent surge in global bond yields weigh on demand. The Bank projects global GDP growth of 2.9% this year, 2.3% in 2024 and 2.6% in 2025. While this global growth outlook is little changed from the July Monetary Policy Report (MPR), the composition has shifted, with the US economy proving stronger and economic activity in China weaker than expected. Growth in the euro area has slowed further. Inflation has been easing in most economies, as supply bottlenecks resolve and weaker demand relieves price pressures. However, with underlying inflation persisting, central banks continue to be vigilant. Oil prices are higher than was assumed in July, and the war in Israel and Gaza is a new source of geopolitical uncertainty.

https://www.bankofcanada.ca/2023/10/fad-press-release-2023-10-25/

Published: 10/30/2023 6:10 AM ET

Gold prices traded mixed on Monday, after having hit five-month highs last week on heightened geopolitical tensions.

Spot gold dropped half a percent to $1,996.34 per ounce, while U.S. gold futures were up 0.4 percent at $2,006.

Israeli troops have entered the Gaza Strip for the first time in nearly two decades, but it’s unclear whether the maneuvers mark the official start of an invasion.

After U.S. airstrikes targeted Iranian targets in Syria last week, there were fears that tensions could spread into a wider conflict.

The U.S. has advised Israel to delay ground invasion in Gaza to allow hostage negotiations.

The United Nations Security Council is due to be briefed on the humanitarian situation in Gaza today.

The Federal Reserve’s monetary policy decision along with reports on manufacturing and service sector activity remain in the spotlight this week amid fears of a looming recession.

The highly anticipated Federal Reserve interest-rate decision is due on Wednesday, with no change expected.

Traders expect the Bank of Japan to tweak its yield curve control policy when it wraps up a two-day policy meeting on Tuesday.

The Bank of England is to hold its penultimate meeting of the year on Thursday, with economists anticipating a ‘status quo policy update.’

Published: 10/30/2023 5:51 AM ET

Oil prices tumbled on Monday as Middle East worries eased, and investors looked ahead to a busy week of economic data and central bank meetings.

Benchmark Brent crude futures fell 1.6 percent to $87.75 per barrel, while WTI crude futures were down 1.7 percent at $84.06.

Israeli troops have entered the Gaza Strip for the first time in nearly two decades, but it’s unclear whether the maneuvers mark the official start of an invasion.

After U.S. airstrikes targeted Iranian targets in Syria last week, there were fears that tensions could spread into a wider conflict and disrupt global crude supplies.

The attack by the U.S. was in response to a flurry of recent rocket and drone assaults against American soldiers in Iraq and Syria.

On the economic front, investors await global manufacturing data and the all-important U.S. jobs report this week for clarity on the economic outlook.

The U.S. Federal Reserve, Bank of England and Bank of Japan are set to hold their monetary policy meetings this week, with economists expecting a status quo policy from the U.S. central bank and the U.K. central bank.

Analysts expect the Bank of Japan to potentially further tweak its yield curve control (YCC) policy when it meets on Tuesday.

Cooling inflation will likely keep the Federal Reserve on pause in coming months, traders bet on Friday, even as persistent underlying price pressures amid strong consumer spending kept some chance of a rate hike later this year in play.

The personal consumption expenditures price index, which is the Fed’s preferred inflation gauge, rose 3.4% in September from a year earlier, a Commerce Department’s Bureau of Economic Analysis report showed on Friday, and the core PCE price index, which the Fed takes a signal for future price pressures, rose 3.7%. That’s down from a 3.8% reading in August but well above the Fed’s 2% inflation target.

Consumer spending rose 0.7% in September from August, more than economists expected.

Still, traders continue to price in no chance the Fed will lift its policy rate from the current 5.25%-5.5% range at next week’s rate-setting meeting, and less than a 20% chance of an increase by the Fed’s December meeting, based on futures contracts that settle to the U.S. central bank’s target policy rate.

“Overall, spending remains positive, and inflation is slowing, a welcome combination for policymakers,” wrote analysts at High Frequency Economics. “We continue to expect a slower pace of growth going forward and a further easing in price pressures, which should keep the FOMC on the sidelines for the rest of 2023.”

Traders continue to expect a first Fed rate cut in June of next year, based on interest-rate futures pricing.

Fortis Inc. reported a third-quarter profit of $394 million, up from $326 million a year earlier.

The gas and power utility says the profit amounted to 81 cents per diluted share for the quarter ended Sept. 30, up from 68 cents per diluted share in the same period of 2022.

Revenue for the quarter totalled $2.72 billion, up from $2.55 billion.

On an adjusted basis, Fortis says it earned 84 cents per share in its latest quarter compared with an adjusted profit of 71 cents per share a year earlier.

The company says its increased profits reflect the new cost of capital parameters approved for the FortisBC utilities in September 2023, higher retail revenue in Arizona due to warmer weather and new customer rates at Tucson Electric Power, and rate base growth across its utilities.

It says earnings were tempered by lower long-term wholesale and transmission revenue, as well as higher operating and corporate finance costs.

This report by The Canadian Press was first published Oct. 27, 2023.

Imperial Oil Ltd. says it earned $1.6 billion in the third quarter of 2023, down from $2.0 billion in the prior year’s quarter.

The Calgary-based oil company says its profit worked out to $2.76 per share, compared with $3.24 per share in the same three-month period of 2022.

Imperial reported upstream production in the third quarter of 423,000 gross oil-equivalent barrels per day on average.

The company’s Kearl oilsands site reported its highest-ever quarterly production at 295,000 total gross oil-equivalent barrels per day.

Refinery throughput in the quarter averaged 416,000 barrels per day with refinery capacity utilization of 96 per cent.

Imperial says its quarterly cash flow from operating activities was $2.4 billion.

This report by The Canadian Press was first published Oct. 27, 2023.