By Ketki Saxena
Investing.com – The biggest story in Canadian economics this past week was the Bank of Canada’s long anticipated rate hike. The BoC hiked rates 25 basis points from 0.25% to 0.50% on Wednesday, marking the first rate hike since 2018. The hike came just a day after the announcement of Canada’s 4th quarter GDP, which grew at an annualized rate of 6.7% in Q4 2021, demonstrating strong resilience to Omicron related lockdowns, indicating optimistic consumer sentiment, and largely undercutting the bank’s rationale for keeping interest rates so low for so long. Meanwhile, inflation continues to soar. Latest CPI figures for January, released in mid Feb, indicate that inflation is at a 30 year high of 5.1%, and unlikely to normalize this year.
Other major Canada economic data this past week included Canada’s current account balance, the Industrial Product Price Index and Raw Materials Price Index. The Parliamentary Budget Office also released its Economic and Fiscal Outlook for March 2022. The report to Parliament provides an overview of economic and fiscal outcomes under the current policy context.
Here’s a rundown of all Canadian Economic Data released in the past week, and an overview of what these metrics reflect:
Canadian current account balance: Canada's current account balance recorded a $0.8 billion deficit in the fourth quarter of 2021 on a seasonally adjusted basis. In the previous quarter, the account balance saw an $0.8 billion surplus. The deficit largely reflected a deterioration of the investment income balance, which posted its first deficit in over two years as investment abroad exceeded direct investment in Canada by $43.1 billion, the highest value on record.
The Industrial Product Price Index, which measures the prices of products manufactured in Canada, rose 3.0% month over month in January 2022, and 16.9% higher than this time last year
The Raw Materials Price Index, which measures the prices of raw materials purchased by manufacturers operating in Canada, was up 6.5% in January 2022, and 30.5% higher than this time last year
Canadian GDP grew 6.7% in Q4 2021, demonstrating strong resilience to the Coivd-19 Omicron variant.. For the full year 2021, the national GDP grew 4.6 %, compared with a decline of 5.2% in 2020, the first year of the pandemic. In addition to strong household spending, Q4 GDP growth was driven largely by Canada’s behemoth housing sector, with residential construction home construction, resales and renovations increasing to record or near-record levels. Household mortgage debt increased by an unprecedented $182.4 billion last year. The Bank of Canada noted that Q4 growth “is now looking more solid than previously projected.”
BoC interest rate: The Bank of Canada hiked its overnight rate 25 basis points from 0.25% to 0.50%. The bank's rationale for hiking rates can be summarized in Tiff Macklem’s statement that the “Slack in the economy is absorbed, there is solid momentum, and inflation is too high.” Inflation is at 5.1% for January 2022, marking the highest pace of increase since 1991.
The Parliamentary Budget Office released its “Economic and Fiscal Outlook for March 2022” report, which provides a baseline projection of economic and fiscal outcomes under current policy settings to Ottawa Parliamentarians. The PBO report projects growth in the Canadian economy to rebound sharply in the second quarter and remain robust in the second half of 2022 as the reopening of the economy continues. Economy-wide inflation is projected to outpace real GDP growth in 2022. The PBO projects that the Bank of Canada will life ts rate to 1% by the end of 2022, and gradually raising it to 2.25% by early 2024
Canadian building permits fell by 8.8% in January from December, while analysts and economists had targeted a slight 2% increase. The total value of building permits decreased 8.8% to $10.1 billion in January. The residential sector fell 11.6% to $6.7 billion, while the non-residential sector declined 2.7% to $3.4 billion. Most of the declines for January were in Ontario and British Columbia
All currencies CAD, unless noted otherwise.