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business briefing

Briefing highlights

  • ‘Negative shock’
  • Stocks, Canadian dollar, oil at a glance
  • TD raises dividend
  • What to watch for today

‘Negative shock’

Bank of America is cutting its forecast for economic growth in Canada this year, and now expects the Bank of Canada to cut interest rates as early as April.

“We cut our GDP growth forecast to 1 per cent from 1.5 per cent for 2020, although we keep 2021 growth unchanged at 1.8 per cent,” Carlos Capistran, the bank’s head of Canada and Mexico economics, and his colleague Mingzi Yi said in their projection this week.

“Most of our revision is due to lower oil prices and lower demand from China (i.e. COVID-19), but some is also due to rail disruptions in 1Q,” they added.

“Previously we projected a ‘V-shape’ rebound after nearly no-growth in Q4 [2019] given still solid domestic demand and progress in global trade disputes. But with rising new risks we now expect a mild ‘U-shape’ rebound. If China’s economy rebounds in 2Q and oil prices stabilize in [the second half], Canadian economic growth will likely rebound by year-end, in our view.”

The coronavirus, they added, is a “negative shock” to Canadian economic growth.

The economists also changed their forecast for the Bank of Canada, saying they expect the central bank to trim its key overnight rate. Previously, they had projected the central bank to hold rates steady.

“How much the BoC cuts and the timing partly depend on how the [Federal Reserve] reacts to the virus,” they added.

“But for now we feel comfortable pencilling in one 25-basis-point cut in April, when we believe the BoC will have to cut its GDP growth forecasts again. We see risks to the downside.”

CIBC World Markets also expects the Bank of Canada to cut rates at some point, but it doesn’t expect the same of the Federal Reserve.

“We won’t shift that view until we see evidence of more than a handful of transmissions of COVID-19 within North America, as we’re already seeing in South Korea and Italy,” said chief economist Avery Shenfeld.

“But if that indeed happens, the macro analyses reviewed herein suggests that the economic consequences of a pandemic would justify a monetary policy response, perhaps co-ordinated globally, to shore up confidence.”

Bank of Montreal chief economist Douglas Porter said the threat to the global economy has “clearly increased” given the spread of the coronavirus.

“It is by no means a foregone conclusion that the virus will spread widely in North America,” he added. “But even in that unfortunate scenario, the economic damage would likely be equivalent to a short, sharp, shock to growth, and activity would likely recover quickly.”

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Markets at a glance

TD raises dividend

From The Canadian Press:

Toronto-Dominion Bank raised its dividend but fell short of expectations as it reported a first-quarter profit of $3-billion, up from $2.4-billion in the same quarter last year.

The bank says it will now pay a quarterly dividend of 79 cents per share, up from its previous payment of 74 cents per quarter.

The increased payment to shareholders came as TD says it earned $1.61 per diluted share for the quarter ended Jan. 31.

That compared with $1.27 per diluted share in the same quarter a year earlier.

On an adjusted basis, TD says it earned $1.66 per diluted share for the quarter, compared with an adjusted profit of $1.57 per diluted share in the first quarter of 2019.

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Ticker

What to watch for today

Watch for Alberta’s budget, its second in about four months.

“There is no shortage of uncertainty on the horizon for Alberta: from unknowns pertaining to coronavirus to major project approvals to rail disruptions,” said Bank of Nova Scotia economist Rebekah Young.

“A softening of the economy over the last couple of months despite more favourable oil prices prior to the coronavirus outbreak, particularly evident in labour market metrics, adds to the uncertainty,” she added.

“However, one thing is evident: The government is firmly resolved to deliver on its fiscal austerity agenda amidst challenging negotiations on the education and health care fronts.”