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Briefing highlights

  • No ‘immediate risk’ of recession
  • Stocks, loonie, oil at a glance
  • ECB acts on sluggish growth, holds rates
  • A look at the labour market
  • CIBC shuffles its ranks
  • Canadian Natural swings to loss
  • From today’s Globe and Mail

No ‘immediate risk’

That dreaded R-word has been tossed around of late, but economists don’t see a Canadian recession in the cards.

That doesn’t mean our economy isn’t sluggish. But there is a psychological impact that accompanies the word.

“Canada is not at immediate risk of recession, but the chance of GDP growth rising back above potential in the second half of the year looks slim,” Stephen Brown, senior Canada economist at Capital Economics, said in a recent forecast.

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“We now expect growth to average just 1 per cent in 2019,” he added.

Traditionally, a recession is marked by two consecutive quarters of a contracting economy, though many observers believe that’s out of date and much more needs to be considered.

Canada arguably may be just skirting that definition, given that gross domestic product expanded in the fourth quarter at an annual pace of just 0.4 per cent and the current quarter is shaping up to be a loser as well.

But we didn’t cross the line in the final three months of last year.

And, as Mr. Brown put it, “absent any revisions to the fourth-quarter data, Canada does not appear to be at much risk of falling into a technical recession in the near term.”

The fourth quarter was hit by a number of issues, notably the housing sector, business investment and slowing consumer spending.

The current quarter will suffer from production cuts in the oil patch, which Mr. Brown projected will cut annualized economic growth by 0.8 of a percentage point, or double the toll it took in the last three months of 2018.

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“To avoid a decline in GDP, the rest of the economy will have to pick up the slack,” Mr. Brown said, noting that first-quarter indicators have been mixed.

“Housing starts fell again in January, and the latest credit market data showed further declines in consumer credit growth in both January and February,” he said.

“On the other hand, there were strong monthly gains in both housing sales and new car sales at the start of the year. At this early stage, our best estimate is that the rest of the economy performed a bit better, thereby offsetting the hit to GDP from the oil sector and resulting in a similarly slow pace of total GDP growth this quarter.”

Remember, too, that Alberta Premier Rachel Notley, who ordered the oil production cuts in the first place, has given a green light to more production beginning next month.

Bank of Montreal, in its latest forecasts released this week, also sees no recession, though it has trimmed its projection for 2019 economic growth to 1.3 per cent from its earlier expectation of 1.8 per cent.

“Unlike U.S. companies feasting on lower taxes and a lighter regulatory touch, Canadian businesses have slashed spending by double-digit rates in the past two quarters, with notable weakness in the energy sector,” said BMO senior economist Sal Guatieri.

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“As well, consumers are spending at the slowest pace since the recession (1.3 per cent, year over year, in real terms), as higher interest rates and elevated debts have sown the weakest household credit growth in 35 years (3.1 per cent, year over year).”

Mr. Guatieri believes growth is flatlining this quarter, but projected it will perk up to 2.5 per cent, 2.2 per cent and 1.9 per cent in the second, third and final quarters, respectively.

The Bank of Canada, too, sees a weaker-than-expected period, which means interest rates are going to hold where they are for some time yet.

“After growing at a pace of 1.8 per cent in 2018, it now appears that the economy will be weaker in the first half of 2019 than the bank projected in January,” the central bank said Wednesday as it held its benchmark rate steady at 1.75 per cent.

“With increased uncertainty about the timing of future rate increases, governing council will be watching closely developments in household spending, oil markets and global trade policy.”

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Markets at a glance

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ECB acts on sluggish growth

The European Central Bank is taking steps to fight the region’s sluggish economic growth, pledging to hold rates at low levels until at least next year and pumping money into the banking system.

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“The governing council now expects the key ECB interest rates to remain at their present levels at least through the end of 2019, and in any case for as long as necessary,” the central bank said today.

It also said it will also begin offering fresh funds to banks, starting in September.

“These new operations will help preserve favourable bank lending conditions and the smooth transmission of monetary policy,” the central bank said.

The ECB also cut its forecast for economic growth to just 1.1 per cent this year.

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The jobs bonanza

The Globe and Mail’s Matt Lundy takes a look today at what’s behind Canada’s strong jobs market.

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CIBC shuffles ranks

Canadian Imperial Bank of Commerce has appointed Michael Capatides as the new chief executive of its U.S. business, succeeding current head Larry Richman as he moves to a new role as chair.

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The change at the top of CIBC Bank USA speeds up a succession plan put in place when CIBC acquired the Chicago-based lender PrivateBancorp Inc. for US$5-billion last year, landing a cornerstone to begin rebuilding CIBC’s presence in the United States, The Globe and Mail’s James Bradshaw reports.

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