Business growth plans may be affected by how much interest rates rise.
The governor of the Bank of Canada.
The photo was taken byJustin Tang.
This week is likely to be better for Taiga Motor Corp.
Federal Industry Minister Franois-Philippe Champagne and Quebec's Minister of Economy and Innovation Pierre Fitzgibbon welcomed the delivery of the world's first electric personal watercraft.
It had all the makings of a good summer business story and Samuel Bruneau wanted to talk about his company's achievement. Even the world's first battery-powered water scooter was ruined by a bomb dropped by the Bank of Canada governor.
The Bank of Canada's decision to raise interest rates by a full percentage point was the most aggressive move by a rich-world central bank to date in the fight against inflation.
Macklem disliked the characterization of his policy decision aspanic, even though central banks usually adjust borrowing costs with quarter-point moves. The Bank of Canada's decision followed an updated forecast that has year-over-year increases in the consumer price index accelerated to eight per cent this summer, an alarming number for a group of policymakers charged with keeping inflation at about two per cent.
The governor sympathized with the people who end up getting squeezed by the sudden change in interest rates, but he didn't apologize. He said that the way to protect people from high inflation was to eliminate it. We're determined to do it.
What was the determination? If that is what it takes, it would appear that Macklem and his associates are prepared for a downturn.
That isn't the base case. The central bank believes it can avoid the worst-case scenario and achieve a soft landing from high growth.
The way to protect people from high inflation is to eliminate it
Tiff Macklem
Theoutput gap is the Bank of Canada's favourite gauge of the economy's temperature and estimates the difference between gross domestic product and the amount of goods and services they think the economy can produce without stoking inflation.
The second quarter's output gap was between 1.5 and 1.5 per cent, up from an estimate of between - 0.25 and 0.75 per cent in the first quarter. That causes scarcity and leads to higher prices.
The central bank can affect demand, but it can't do much about supply.
The central bank ... is now bent on curbing our desire to buy stuff
The only way for the Bank of Canada to lower inflation is by slowing the domestic economy, creating excess capacity and reducing domestic inflationary pressures, according to Charles St-Arnaud. There will be a period of under performance in the labour market and consumer spending as a result of this balancing act. It's not certain whether it will be a soft landing or a recession.
Bruneau might not follow through on expansion plans if interest rates go up and the financial markets are volatile.
The Bank of Canada says that real estate will be a drag on growth for at least the next two years.
Some of the world's frothiest housing markets are deflating quickly as interest rates have risen more in the past four months than they did over the last decade. According to the Canadian Real Estate Association, the average price of an existing home was $665,750 in June, down from a year earlier and from May.
For the next couple of years, real estate will be a drag on growth.
The photo was taken by Azin Ghaffari.
The Bank of Canada predicted earlier this year that housing would subtract 0.2 percentage points from the growth of the economy in the next five years.
The Bank of Canada expects the economy to grow by 1.8 per cent next year, down from 3.5 per cent in 2022, but a decent trajectory. Consumption and government spending will provide some support, but nothing like in the past, as higher costs for essentials such as food, fuel and rent are eating up more of households' disposable incomes, and politicians have promised to curb spending after deployment of an unprecedented amount of fiscalStimulus.
Business investment has tended to be disappointing for much of the past 10 years. There are reasons to believe that business spending will hold up. The unemployment rate is at a record low and the savings rate is high, which makes it hard to see household spending reversing.
Peter Ruis, president of Indigo Books and Music Inc., told the Financial Post that they have no problem staying afloat because they are growing. We were able to work through covid. We don't know where it will go at the moment. It is a positive thing that we are still discussing GDP growth. Money in Canadian consumer accounts is still being discussed.
The former Bank of Canada governor told a conference in Montreal that the world is experiencing a "hinge moment in history." It is a huge opportunity for companies that have the ability to take advantage.
Outside of a Taiga Motor Corp. facility is a sign.
The photo was taken by Christinne Muschi.
Taiga is a company. Bruneau talked about turning his company into the "Tesla of powersports", disrupting markets for snowmobiles and jet skis in the same way that Musk did with cars. He doesn't think higher interest rates will hurt Taiga in the short term. The kind of investment that will be needed to offset a recession has gone up.
Bruneau told the Financial Post that they are not seeing an impact at the moment. He said that projects might cost more than anticipated. We have to adjust and budget for that on our side.
The email address is kcarmichael@postmedia.
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