Canada And Global Economy Watch For The Week Ended January 20
Global equity markets finished lower over the week ended January 20 with weaker economic data raising fears that the global economy may be headed for a recession. In Canada, the S&P/TSX Composite Index finished higher, led by the Information Technology sector. The S&P 500 Index fell, hindered by weakness in the Industrials sector. Oil prices finished higher but were volatile over concerns that demand could decline if economic conditions deteriorate. Yields on 10-year government bonds in Canada and the U.S. ticked lower.
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- Raw Materials Price Index slid 3.1% m/m in December
- Manufacturing sales stayed more or less flat on a monthly basis in November at C$72.3 billion
- Housing starts fell 14.4K in December to a nine-month low of 248.6K (seasonally adjusted and annualized). Urban starts dropped 12.9K to 227.7K on declines in both the single-family segment (-5.5K to a post-pandemic low of 44.9K) and the multifamily segment (-7.4K to 182.9K). New home listings sank 6.4% m/m in December, a fifth decline in six months
Canada’s inflation rate eases
- Canada’s inflation rate eased again in December to 6.3%, its slowest pace since February 2022.
- This was below the 6.4% rate economists had expected, and down from 6.8% in November.
- Gasoline prices rose by only 3.0% year-over-year in December, which contributed to the slowdown.
- The core inflation rate, which excludes food and energy, also eased in December, signalling that the slowdown is broad-based
- Despite falling, inflation remains elevated and could force the Bank of Canada to keep raising interest rates.
North American retail sales tick lower
- After rising by 1.3% in October, retail sales in Canada fell by 0.1% in November, driven by a decline in sales at food, beverage, building material and gardening stores.
- However, Statistics Canada estimates that retail sales rose by 0.5% in December during the key holiday season, suggesting Canadian consumers remain relatively resilient despite tighter financial conditions.
- In the U.S., retail sales fell by 1.1% in December after falling by 1.0% in November, an indication that tighter financial conditions appear to be weighing on U.S. households.
- Consumers spent less on gasoline, motor vehicles and electronics during the month.
- Part of the drop in December may be attributed to U.S. consumers shopping early for the holidays in response to rising prices.
China posts slower GDP growth
- China’s economy expanded by 2.9% year-over-year in the fourth quarter of 2022, decelerating from the 3.9% expansion in the third quarter.
- In 2022, China’s economy expanded by 3.0%, its second slowest pace of annual growth since 1976. The government had a target of 5.5% growth for 2022.
- Over the year, China’s economy was dragged down by ongoing supply chain disruptions, COVID-19 lockdown restrictions and a weak property market.
- Retail sales fell in December, and growth in industrial production also slowed.
Lagarde: ECB to raise interest rate further
- Europe’s inflation rate eased to 9.2% in December, the second straight month of declining inflationary pressure.
- Despite falling, inflation remains well above the European Central Bank’s (“ECB”) 2% target.
- At a speech to the World Economic Forum in Davos, ECB President Christine Lagarde said that with inflation remaining high, the ECB will continue to raise interest rates.
- Even with higher interest rates, Lagarde also said she expects the European economy to fall into a small contraction not a deep recession.
- The minutes from the ECB’s last meeting showed that many bank officials believe that it needs to continue raising interest rates at a sustained pace, even to restrictive levels if necessary.