Canada and Global Economy Watch For The Week Ended January 13
Global equity markets advanced over the week ended January 13 as a slowdown in the U.S. inflation rate heightened expectations that the U.S. Federal Reserve Board (“Fed”) could pare back the pace of interest rate increases. The S&P/TSX Composite Index finished in positive territory, led by the Real Estate sector. In the U.S., the S&P 500 Index gained, led by the Consumer Discretionary sector. Oil and gold prices both finished higher over the week. Yields on 10-year government bonds in Canada and the U.S. both declined
Canadian Building permits rose 14.1% in November
This is the first gain in three months, on increases for both single-family dwellings (+7.1%) and multi-family dwellings (+19.0%). Still, they were down 26.2% from their pandemic frenzy peak in March 2021. Moderation is expected to resume going forward as hikes in the policy interest rate make their way fully into the economy. However, the new construction sector should get some support from the strong demographic growth in the country.
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Easing inflation could slow Fed rate hikes
- The Fed’s rate hikes in 2022 appear to be helping to bring down the U.S inflation rate, which has dropped over the past six months.
- With U.S. inflation easing, it may prompt the Fed to scale back the size of its interest rate increases.
- December’s U.S. inflation rate was 6.5%, slowing from 7.1% in November – its lowest level since 2021.
- Growth in energy prices, particularly gasoline eased in December and contributed to the overall slowdown.
- The core inflation rate, which excludes more volatile items, also slowed in December to 5.7%, from 6.0% in November
U.S. boosts oil production
- According to the U.S. Energy Information Administration, stocks of crude oil in the U.S. surged higher over the week ended January 6, rising by 18.96 million barrels.
- This follows a 1.69-million-barrel increase in the previous week – the largest weekly increase since February 2021. Stocks of gasoline also rose more than expected.
- The U.S. government is looking for higher oil production to help bring down energy costs.
- The third straight weekly increase comes as the Organization of the Petroleum Exporting Countries considers reducing its own production amid expectations for weaker economic conditions.
- The price of oil moved higher over the week. On the S&P/TSX Composite Index, the Energy sector advanced.
China’s bank loans increase
- New loans from banks in China increased to CNY 1.4 trillion (C$277 billion) in December, from CNY 1.2 trillion in November.
- This was higher than economists’ expectations.
- With China’s economy hampered by ongoing COVID-19 lockdown restrictions and slowing global economic activity, the government and People’s Bank of China have loosened financial conditions to help boost economic activity.
- Meanwhile, China’s inflation rate accelerated in December, largely in response to higher food prices. Conversely, producer prices dropped for a third straight month.
- China also reported that its exports dropped by 9.9% in December over the same month in 2021, due to a drop in global demand amid tighter financial conditions
Global economic growth outlook bleak
- According to the World Bank, the global economy is projected to grow by only 1.7% this year, putting it on the cusp of a recession.
- This is a downgrade from its prediction last June of 3.0% growth in 2023.
- The economic organization believes that slowing growth in the U.S., China and Europe, will reverberate throughout the global economy.
- As well, higher interest rates in key economies, including the U.S. and Europe, will attract investment away from emerging market economies.
The World Bank cites rising interest rates, high inflation and ongoing geopolitical tensions as the key reasons why the global economy will slow this year.