Weekly Business Update – 8 September 2023

Welcome to our Weekly Digest – stay in the know with some recent news updates relevant to business and the economy.

StatsCan Reports Decline in Canada’s Economy during 2nd Quarter

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The Canadian economy, once known for its resilience, faced a significant setback in the second quarter due to a continuous decline in housing investment, particularly in new construction. Statistics Canada’s recent report revealed an alarming annualized contraction of 0.2%, sparking concerns among analysts and policymakers who were anticipating more positive results.

The prolonged decline in housing investment has rippled across various sectors, including construction and real estate, causing a dampening effect on the housing market. With a substantial drop in new construction, demand for materials, labor, and related services has dwindled. This downturn has not only impacted the construction industry but has also negatively influenced employment rates and consumer spending, as potential homeowners remain cautious in an uncertain environment.

Beyond its immediate impacts, the decline in housing investment raises broader concerns about the overall health and stability of the Canadian economy. Traditionally, housing has been a cornerstone of economic growth, and its current downturn has left a void in contributing to the nation’s GDP expansion. This void, combined with external factors such as global trade tensions and market uncertainties, has created a challenging landscape for businesses and investors.

This contraction in the second quarter is especially concerning, marking the first economic decline in over a year for Canada. While the nation had previously weathered economic challenges, including the global financial crisis and falling oil prices, this recent contraction raises questions about sustaining past growth and managing future economic headwinds. Policymakers and industry leaders are now expected to explore various measures to stimulate growth, revitalize housing investment, and navigate the path to economic recovery.

Bank of Canada Expected to Maintain Interest Rates Following Unexpected GDP Contraction: Economists’ Insights

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Economists are closely analyzing the recently released GDP data from Statistics Canada, which points to an economic contraction. This development has sparked discussions about the potential conclusion of the Bank of Canada’s ongoing rate hiking efforts. A contracting GDP suggests a decrease in the production and consumption of goods and services within the country, potentially driven by factors like reduced exports, business investments, and consumer spending.

The significance of GDP as a vital economic health indicator has economists closely monitoring this contraction. If sustained, it could signal the onset of economic stagnation or even a recession. This has raised concerns about the appropriateness of continuing the Bank of Canada’s tightening monetary policy, which has aimed to manage inflation and maintain stability through gradual interest rate increases.

The Bank of Canada’s strategy of raising interest rates has been seen as a way to counter inflation and prevent overheating. However, in light of the economic contraction, economists are questioning the rationale behind persisting with this approach. They argue that focusing on stimulating growth might be more appropriate than further tightening monetary policy, as higher interest rates could exacerbate the economic downturn by reducing consumer spending and business investments.

Should the Bank of Canada choose to halt its rate hiking campaign, it would signal a shift towards a more accommodative monetary policy stance. Lower interest rates can encourage borrowing and stimulate economic activity, making credit more accessible to businesses and consumers. This move could potentially help revive the economy and counteract the observed contraction in GDP. However, managing the potential trade-offs between stimulating growth and controlling inflation would remain a challenge in making this decision.

Is Trudeau’s Government on the Verge of Breaking the David Dodge Rule?

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Economists are dissecting the latest GDP data from Statistics Canada, revealing an economic contraction that has prompted discussions about the trajectory of the Bank of Canada’s interest rate increases. With the data suggesting a potential slowdown in economic growth, experts are questioning the rationale behind further interest rate hikes.

The GDP figures provide a snapshot of economic performance, indicating a decline in the production and consumption of goods and services during a contraction. This could be influenced by factors like declining exports, reduced business investments, or decreased consumer spending.

Given the significance of GDP as a measure of economic health, economists are closely watching this contraction. If sustained, it could signal an economic standstill or even a recession, raising doubts about the appropriateness of the Bank of Canada’s ongoing tightening of monetary policy.

The Bank of Canada has gradually increased interest rates to manage inflation and maintain economic stability. However, with the economy contracting, more rate hikes could hinder recovery by curbing consumer spending and business investments. The recent GDP contraction has led economists to reconsider the continuation of the rate hiking campaign, suggesting that stimulating growth might take precedence over tightening monetary policy.

The Cost Disparity between Shipping from China and within Canada

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Shipping packages from Canada to China can incur costs that are up to five times higher than usual, primarily due to the influence of the Universal Postal Union (UPU). While the UPU aims to promote global postal cooperation, its terminal dues system inadvertently results in exorbitant shipping expenses for Canadian businesses and individuals.

The terminal dues system, where member countries like Canada and China exchange payments for international mail delivery, disproportionately affects countries facing higher operational costs due to vast distances and limited population density. Additionally, the UPU’s rules grant certain countries, such as China, significant shipping subsidies. This creates an uneven playing field for Canadian businesses, hampering their ability to compete globally and impacting consumers seeking affordable international shipping options.

The disparity in shipping costs poses challenges for various sectors, particularly small and medium-sized enterprises (SMEs) aiming to expand into the Chinese market. The financial strain caused by the UPU’s policies hinders business growth, forcing SMEs to limit their potential or pass increased costs onto consumers. Furthermore, the UPU’s framework doesn’t adequately address the booming e-commerce and cross-border shipments, disadvantaging Canadian businesses by imposing costly shipping rates.

To tackle these issues, Canada should engage with the UPU to advocate for a fairer shipping system. By rectifying terminal dues imbalances and eliminating preferential treatment for select countries, Canadian businesses and consumers can benefit from more competitive shipping rates. Moreover, the UPU should adapt its policies to account for the evolving e-commerce landscape, ensuring equal opportunities for all member countries to participate in international trade.

Transforming Eastern Ontario: $219 Million Investment in High-Speed Internet Access

Kedden Business Services High Speed Internet CanadaCanada and Ontario have embarked on a groundbreaking joint initiative, committing an impressive investment of C$219 million. This substantial funding aims to bridge the digital divide by providing high-speed internet access to more than 66,000 households across 300 diverse communities in Ontario. The initiative holds the promise of empowering households with seamless connectivity and unlocking a range of opportunities for growth and development.

This initiative is poised to bring about a transformative impact, addressing longstanding barriers that have hindered progress and prosperity within these communities. The prospect of widespread high-speed internet access opens doors to improved education, economic advancement, enhanced healthcare services, and enriched social interactions.

A significant and commendable aspect of this initiative is its focus on inclusivity. The investment targets over 600 Indigenous households within the selected communities, recognizing and addressing the digital disparities that have disproportionately affected Indigenous populations in the past.

Beyond its immediate benefits, this initiative underscores the strength of collaboration between federal and provincial governments. It underscores their united commitment to addressing the urgent need for widespread high-speed internet access. The partnership between Canada and Ontario stands as a testament to their shared determination to promote digital inclusion and ensure equitable participation in the digital age.

Small Business Confidence and an Endless Stream of Challenges

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The latest CFIB Business Barometer® has unveiled a disconcerting trend in Canada, as a notable 40% of businesses indicate hindered growth due to insufficient domestic demand – a figure that hasn’t been this high since February 2021. This revelation accentuates the gravity of the situation, casting its impact across various sectors and endangering the very foundation of the Canadian economy. The ongoing COVID-19 pandemic has only exacerbated matters, resulting in diminished consumer spending and heightened economic uncertainty, further exacerbating the challenges faced.

The insights provided by the CFIB’s findings shine a light on the difficulties experienced by small and medium-sized enterprises (SMEs). This information holds significant value, guiding not only policymakers and economists but also business owners in navigating these trying circumstances. Effectively tackling this issue necessitates a comprehensive and multifaceted strategy. Governments should play a pivotal role by enacting measures aimed at invigorating consumer spending and bolstering confidence within the business ecosystem. Potential avenues could include offering targeted financial support and introducing tax incentives that encourage spending and investment, ultimately revitalizing demand.

To effectively confront these challenges, businesses need to proactively evolve and adapt to the evolving landscape. Avenues like diversifying product or service offerings, enhancing online visibility, and exploring untapped markets can help foster resilience. By incorporating digital technologies and leveraging data-driven insights, enterprises can more effectively discern emerging opportunities amidst the adversity.

The increasing number of affected businesses underscores the urgency of a collaborative approach to reinvigorate the Canadian economy. As various stakeholders, including government bodies, industry associations, and businesses, come together, a comprehensive strategy can be formulated to mitigate the repercussions of lackluster domestic demand. Such cooperative endeavors can lead to the development of targeted initiatives tailored to the distinct needs of different sectors, ultimately fostering sustainable growth and forging a path toward a more resilient and prosperous economic future.

China’s Economic Slowdown Bolsters Canada’s Battle Against Inflation

Kedden Business Services Canada's InflationIn a recent interview, Jimmy Jean, the chief economist at Desjardins Group, engaged in a discussion with Larysa Harapyn from the Financial Post, shedding light on the noteworthy repercussions of China’s slowing economy and its potential worldwide ramifications. Jean emphasized the substantial impact of China’s economic deceleration, given its position as the globe’s second-largest economy.

The resulting implications, he noted, could encompass disturbances across global trade, investments, and overall market sentiment, which could pose substantial challenges for countries deeply interconnected with China’s economic performance.The conversation delved into the intricate connection linking China’s economic slowdown and the possible emergence of inflationary pressures, with a specific focus on Canada. Jean expounded on the prospect of reduced demand for commodities in China potentially leading to a decline in global commodity prices. Such a scenario, he argued, might further compound inflation concerns in regions like Canada.

Interestingly, Jean put forth a scenario wherein China’s substantial reserves of foreign currency, including Canadian dollars, could be strategically employed to infuse liquidity into the Canadian market. This strategic maneuver, he suggested, could play a pivotal role in stabilizing the Canadian economy and alleviating the mounting pressures of inflation.

Throughout the interview, Jimmy Jean’s insights provided a lucid understanding of the intricate web of factors interconnected with China’s economic trajectory and how these dynamics could reverberate across the global economic stage. Moreover, his analysis brought to the fore a unique perspective on how China’s potential actions, leveraging its foreign reserves, might offer a supportive lifeline to Canada’s efforts in effectively managing inflation and nurturing a foundation of economic stability.

The Pros and Cons of Union Membership: Balancing Benefits and Costs

Kedden Business Services Labour Unions in CanadaThe non-profit Angus Reid Institute recently conducted a comprehensive study that delves into the multifaceted perceptions surrounding labour unions in Canada. This study explores the contrasting viewpoints held by union members and non-members, revealing divergent opinions on the significance and costs associated with organized work. The research by the Angus Reid Institute provides an in-depth analysis of perspectives across Canada regarding labour unions. The findings show a nation grappling with differing views on the value and cost of organized work, irrespective of individuals’ union affiliations.

The study offers valuable insights into the perspectives of union members, showcasing a diverse range of viewpoints within this group. While some staunchly advocate for unions’ essential role in protecting workers’ rights, others express concerns about potential drawbacks and costs of membership.

The perspectives of non-union members are equally intriguing, providing a unique lens to understand Canadian attitudes towards organized work. The study reveals a complex array of opinions, with some non-union members acknowledging potential benefits such as improved working conditions and fair wages. However, a significant portion also harbor reservations about drawbacks like increased expenses and reduced flexibility.

The research underscores the need for nuanced understanding of labour union perceptions in Canada. It highlights a diverse landscape of thought, where individuals hold differing viewpoints on the value and cost of organized work. By shedding light on these perspectives, the study becomes a valuable resource for policymakers, union leaders, and employers, facilitating informed decision-making and fostering constructive dialogue to address concerns of all stakeholders. Overall, the Angus Reid Institute’s study provides a detailed exploration of Canadian perceptions about labour unions, elucidating contrasting viewpoints and reflecting the complexity of organized work.

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