Canadian Trade is on the Rebound
For those of you anxious about January and February’s poor trade numbers (or was that just us?) we have good news: trade is on the up-and-up and Canadian growth is looking better than expected.
Things are so good, economists are pointing to these numbers as a ‘turning point’ for the Canadian economy, which has experienced a growth slump for the past two quarters. Imports have risen by 2.5% and – even better – our exports have risen by 3.2%.
According to Scotiabank economist Derek Holt, “the import side of the ledger suggests the consumer is rebounding, and business investment ended the first quarter on a positive note.”
On the export side, trade rose in 9 of the 11 sectors, notably including the energy sector, which experienced an 8% gain.
As a general rule of thumb, the more we trade, the stronger the Canadian economy is. Recently, the Bank of Canada predicted Canada’s 2019 GDP growth to be 1.3%. Now, economists are thinking that number might be closer to 2%, annualized. Not too shabby, Canada!
China – U.S. Trade War: Almost as Dramatic as the Real Housewives
Shit is hitting the fan in negotiations between the US and China, with no sign of resolutionbetween the two biggest economies on earth.
How did we get here? Basically, Trump ran on an economic platform that included ‘getting tough on China’ – that included trying to get Beijing to change laws on intellectual property, stop forcing American companies to turn over trade secrets, and ending American subsidies of Chinese companies.
In short, China didn’t like those ideas. So Beijing bumped up tariffs on American goods coming into China, and heavily subsidized their products to unfairly compete with American goods in international markets.
On Friday, after a week of intense negotiations in DC, Trump pulled the trigger, announcing that he plans to extend heavy tariffs to cover all US$539 billion worth of Chinese imports coming into the U.S.
According to one estimate, the new tariffs will cost American families around $767 per year, and will cause 934,000 job losses in the U.S.
The trade drama, which has largely played out on Trump’s twitter feed– had an inconsistent effect on the stock market this week. To be sure, the markets are looking vulnerable – but until a deal is reached (or negotiations officially end without an agreement) it’s TBD what that will look like.
More Good News for the Canadian Dollar
According to foreign-exchange strategists at Scotiabank, the Canadian Dollar (CAD) is “egregiously undervalued”. Egregiously? Sounds dramatic.
So, what gives? There are three reasons why economists are saying the CAD is stronger than it looks.
- Investors are becoming more confident investing in Canada because the return differences between Canadian bonds and US bonds are shrinking. i.e. Canadian bonds are becoming more attractive and are producing returns more in line with American counterparts. (see above about Cdn Trade)
- Also contributing to the unrealized strength of the CAD is the largest month-over-month job growth ever in April. 106,500 new jobs to be sort of exact, exceeding the 12,000 jobs that were predicted by economists. This is the biggest month-over-month jump in 40 years (!) painting a picture of a Canadian economy much stronger than previously thought.
- Canadian crude prices are slowly creeping up as the differential between American and Canadian oil narrows, giving a much-needed boost to the Canadian economy, especially in the Western provinces.
So all this is to say, things are looking pretty good. With the increased strength of the economy will likely come increases in interest rates from the Bank of Canada to further drive the appreciation of the CAD. The US Federal Reserve is more reluctant to raise rates based on the slowing of the American economy – further shrinking the rate differential and further.
Women’s Economic Empowerment on the Agenda for France’s G7 Presidency
Earlier this week, Maryam Monsef, Minister of International Development and Minister for Women and Gender Equality, led a delegation to Paris, France for ministerial meetings centred around gender equality ahead of the G7 Summit in Biarritz set for the end of August.
Following Canada’s example during its G7 presidency in 2018, French President Emmanuel Macron has focused this year’s meetings on fighting inequality, especially gender inequality. The May 9 and 10 meetings, called Women 7 or W7, gathered leaders from around the world to draft recommendations for women’s empowerment to present to G7 leaders at the Biarritz Summit.
Several sessions called for increased economic opportunities for women internationally and championed women’s economic empowerment as a key driver of global economic growth. Minister Monsef garnered support for women’s economic security as a priority item for G7 meetings later this year: “I look forward to working with my G7 counterparts over the coming days to help advance gender equality, address important issues like cyberviolence and women’s economic security, and build a more equal, prosperous and healthy future for all.”
The W7 meetings are an important precursor to the 2019 Women Deliver conference taking place in Vancouver from June 3 to 6. Women Deliver is the largest conference on gender equality in the world and Minister Monsef has announced that women’s economic empowerment is a priority theme for the event. Quoting a 2017 McKinsey Global Institute report, she called on Canadians to advance equal participation in the workforce to unlock as much as $150 billion in economic growth in Canada by 2026.