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Briefing highlights

  • The impact of trade uncertainty
  • Stocks, loonie, oil at a glance
  • Required Reading

Trade uncertainty

The U.S. and China are suppressing Canada’s economy.

“Here’s the bottom line: When we take into account the impact on the global economy and commodity prices, trade conflicts and uncertainty are projected to reduce the level of Canadian GDP by as much as 2 per cent by the end of 2021,” Carolyn Wilkins, the Bank of Canada’s senior deputy governor, said Wednesday as she and her colleagues unveiled a monetary policy report that flags the severity of their concern.

Trade concerns go beyond the U.S. and China, to be sure, as the Trump administration attacks what it sees as unfair practices. But the U.S.-China trade war is front and centre at this point, becoming an issue for central banks around the world.

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Bank of Canada senior deputy governor Carolyn Wilkins

Sean Kilpatrick/The Canadian Press

The Bank of Canada is no exception. Though export numbers of late have been “encouraging,” the trade climate “continues to be the biggest wild card in our outlook,” Ms. Wilkins said.

As The Globe and Mail’s Bill Curry reports, the central bank held its benchmark rate steady at 1.75 per cent Wednesday as it tweaked its economic outlook, now expecting slightly stronger growth this year and weaker next.

There are certainly positive developments, the central bank noted: The U.S. has killed its steel and aluminum tariffs on Canadian imports, while the new U.S.-Mexico-Canada trade deal is moving closer to ratification.

Still, for a sense of how the trade uncertainty and other measures are affecting Canada, here are some other facts and figures from the monetary policy report:

Exports are still projected to rise over the next couple of years but “we forecast them to be around 1.5 per cent lower than they would have been without the trade uncertainty,” Ms. Wilkins said.

“We have also marked down the level of investment by 3 per cent in 2021 for the same reason.”

The central bank said it expects investment outside the energy sector to rise “at a solid pace, but “the forecast for investment would be stronger, however, were it not for elevated trade policy uncertainty.”

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Then there are the actions by Beijing against Canada alone: “Restrictive trade actions by China against imports of canola and meat produced in Canada are estimated to reduce Canadian exports by about 0.2 per cent,” according to the monetary policy report.

The impact goes well beyond Canada, of course.

“Trade conflicts between the United States and China are dampening global economic activity,” the central bank in its monetary policy report.

“Their effects are slowing growth in these two economies and spilling over to other countries through trade and investment,” it added.

“Trade has slowed sharply, particularly in China and in countries that share supply chains with it, including those in emerging Asia and Japan.”

Indeed, the Bank of Canada now projects that a combination of tariff increases over the last two years plus the uncertainty will cut global GDP by 0.6 per cent by the end of 2021.

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The monetary policy report included two scenarios, both of which should be considered “extreme,” Ms. Wilkins said.

Source: Bank of Canada

The Globe and Mail

The first, the “downside scenario,” assumes the U.S. slaps 25-per-cent tariffs on all imports, and countries fight back with similar levies. That would cut global GDP by about 3 per cent, knock down commodity prices about 30 per cent, and eat into Canadian GDP to the tune of 6 per cent.

“That underscores how much we all have to lose of the trade war escalates,” Ms. Wilkins said.

The “upside scenario,” in turn, which assumes the world returns to the trade regime before 2017, would boost global GDP by 1 per cent by the end of 2021, and Canadian GDP by about 2 per cent.

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Markets at a glance

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Ticker

Core consumer prices rise

From Reuters: U.S. underlying consumer prices increased by the most in nearly 18 months in June amid solid gains in the costs of a range of goods and services, but will probably not change expectations the Federal Reserve will cut interest rates this month.

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Iran tries to block tanker

From Reuters: Three Iranian vessels tried to block the passage of a BP-operated tanker through the Strait of Hormuz but withdrew after warnings from a British warship, the British government said.

British banks can cope

From Reuters: British banks hold enough capital to cope with a simultaneous disorderly no-deal Brexit and global trade war, the Bank of England said as part of its half-yearly assessment of financial risks.

Carney mum on IMF

From Reuters: Bank of England Governor Mark Carney declined to comment on whether he was interested in succeeding Christine Lagarde as head of the International Monetary Fund, saying he was committed to an orderly transition to whoever succeeds him at the BoE.

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Tax approved

From Reuters: France’s Senate gave final approval to a tax on big technology companies, potentially opening a new front in a trade row between Washington and the European Union.

Required Reading

Housing divide

A new housing forecast shows a geographic divide in Canada’s real estate market, with home prices expected to decline across cities in Western Canada by the end of 2019, but show growth in major centres from Ontario eastward, Janet McFarland writes.

Bombardier flags concerns

Bombardier Inc. is raising concerns about the “commercial viability” of its Thunder Bay railcar plant should it not secure new work, even as the Ontario and federal governments took turns blaming each other for impending job losses at the facility. David Milstead, Oliver Moore and Laura Stone report.

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Cutting prices bad news for investors

Canadian telecommunications companies are cutting prices for some of their wireless services. That’s good news for phone-toting consumers, but it might not be so great for many investors. David Berman explains why.

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