It's not everyday that your breakfast conversation includes a candid discussion with BC's Premier about the major challenges facing business in Greater Victoria.
That was the experience yesterday for 300 people at the Victoria Conference Centre as they were able to nourish their bodies while feeding their minds. After speaking about the government's plans to support the private sector and grow BC's economy, Premier David Eby engaged in a lively discussion with Chamber CEO Bruce Williams about topics submitted by Chamber members. Community safety is top of mind for many people, and the Premier acknowledged the province is trying to find a solution for challenges facing governments around the world. The recent move to ban drug use in public spaces is an example of how government reversed course on a policy that wasn't working as intended. The long-term solution is complex, with Eby noting that a continuum of care is required for people experiencing homelessness rooted in mental health or addiction. Other topics included the province's plan to avoid disruptions to ferry sailings this summer — something that happened with alarming frequency last year — and how the province can reduce obstacles for builders so that they can increase housing supply. "The morning flew by and we could have easily kept talking all day," Chamber CEO Bruce Williams said. "I'm grateful for the Premier's time and for everyone who chose to enjoy breakfast with us. We'll keep the dialogue going between business and government and work together to find innovative solutions to the challenges facing our community." The slight increase to inflation reported yesterday is not outside the range that could jeopardize an anticipated interest rate cut in June.
Statistics Canada reported yesterday that the Consumer Price Index rose to 2.9% in March — up from 2.8% in February. Gas prices were the biggest reason for the rise. Without those fuel costs, March's inflation actually slowed from the previous month. "Many inflation indicators are trending in the right direction and interest rate cuts are still on the table for the Bank of Canada’s interest rate announcement in June," the Conference Board of Canada stated, adding that getting to 2% inflation target could take awhile. Many employers are forecasting wage growth and consumers still see prices rising in the months ahead. "While there is still one more CPI release to come before the Bank's next policy decision, (yesterday's) data keeps us on track to see a first rate cut at that June meeting," CIBC Executive Director of Economics Andrew Grantham said. Hurry up and wait. That seems to be the message from the Bank of Canada today, after it held its target for the overnight rate at 5%. The Bank's Governing Council would like to see evidence that inflation will continue to trend down before announcing cuts. Optimism remains that there will be enough evidence by the time the Bank makes its next rate announcement on June 5.
"We currently forecast a first interest rate cut in June," CIBC Executive Director of Economics Andrew Grantham said in a media release. "To steal a line from (Bank of Canada) Governor Tiff Macklem's press conference today, that outlook still appears to be within the realm of possibility." The provincial government received another slap for its spending habits from the world's largest credit rating agency.
On April 8, S&P Global Ratings downgraded BC from AA to AA-minus, the third drop in a row from the firm. Shortly after, Moody's Investors Service also lowered its rating of the province. The downgrades increase debt servicing costs for the province, taking away from funds that could otherwise go to infrastructure or other services. The S&P report said it could lower the rating further unless a better plan to manage provincial deficits emerges. "We believe that the province's commitment to fiscal discipline and stability has wavered in recent years as BC has materially increased its spending for both operations and capital investment to unparalleled levels, while economic growth is slowing," the report said, offering some positive feedback as well. "Overall, BC's financial planning practices are well aligned with those of domestic peers and are transparent." The jump at the pumps was no April Fool's prank as the tax on gasoline increased on April 1 to $0.17 cents per litre from $0.14 per litre.
BC has had a carbon tax since 2008. The provincial tax is separate from the federal tax implemented in many other provinces. As such, the rebates available to Canadians in those provinces are not the same as those offered here. In BC, carbon tax rebates are income tested and only available to those earning less than $61,465 per year. "The Chamber supports climate action leadership, and the idea of a carbon tax has its merits," Chamber CEO Bruce Williams said. "What needs further examination is how the revenue from this tax is being used. We know innovation led by business is key to finding climate change solutions and that requires reducing the burden on the private sector." The Bank of Canada released its Business Outlook Survey as well as its Survey of Consumer Expectations this week.
The findings show that business conditions have improved in the first quarter of 2024. It's the first positive change in almost two years. The survey also found that fewer Canadian businesses are planning for a recession this year. There was more good news as labour constraints and supply chain challenges are less of a problem. However, businesses reported facing new burdens from taxes and red tape. Consumers said inflation and interest rates are affecting their household budgets, though there was less pessimism about the future of the economy and job prospects. Now more than ever it is vital for governments to reduce the burden on business to spur the investments needed to increase productivity. Doing so will inoculate our economy against runaway inflation, said the Bank of Canada's Senior Deputy Governor Carolyn Rogers on March 26. "An economy with low productivity can grow only so quickly before inflation sets in. But an economy with strong productivity can have faster growth, more jobs and higher wages with less risk of inflation," Rogers said. "That’s why I want to talk about Canada’s long-standing, poor record on productivity and show you just how big the problem is. You’ve seen those signs that say, 'In emergency, break glass.' Well, it’s time to break the glass." Rogers said there was a spark of hope during the pandemic as business showed resourcefulness and ingenuity. However, unlike what is happening in the U.S., Canadian firms reverted to low levels of productivity from before the pandemic. To increase productivity, businesses and their employees need three things:
"Weak investment has been a problem in Canada for a long time. You can go back 50 years and find a persistent gap between the level of capital spending per worker by Canadian firms and the level spent by their US counterparts," Rogers said, noting it's harder for new businesses to compete and too much red tape reduces the incentive to change and evolve. "Higher productivity should be everyone’s goal because it’s how we build a better economy for everyone," she said. "When a business gives workers better tools and better training, those workers can produce more. That, in turn, means more revenue for the business, which allows it to absorb rising costs, including higher wages, without having to raise prices." For the second month in a row, Canada's inflation rate was lower than expected. That's good news for everyone feeling the pinch of higher costs.
"The Consumer Price Index rose 2.8% on a year-over-year basis in February, down from 2.9% in January. Notable contributors to the deceleration included the indexes for cellular services, food purchased from stores, and Internet access services," Statistics Canada said in its media release. Offsetting the deceleration was a year-over-year increase in gas prices, which rose 0.8% in February. "It’s great to see headline inflation move further within the target range, and core inflation continuing its downward trend. We could see that the market was expecting a slightly higher inflation print, due to gasoline prices rising in February, but grocery store prices have slowed, and short-run core momentum measures are tracking around two percent. That’s going to be welcome news for households," Canadian Chamber of Commerce Senior Economist Andrew DiCapua said, adding the Bank of Canada will see the latest figure as a signal its fight against inflation is working. "But we shouldn’t expect any moves from the Bank until June. With two more inflation updates, updated surveys on expectations, and a Federal budget, the Bank will want to see the data and build a case for any changes before they present anything to Canadians." The Bank of Canada did as expected this morning and held steady on its overnight interest rate.
"Economic growth has remained weak, and inflation has eased further as higher interest rates restrain demand and relieve price pressures," Bank of Canada Governor Tiff Macklem said at the morning media conference. "But with inflation still close to 3% and underlying inflationary pressures persisting, the assessment of Governing Council is that we need to give higher rates more time to do their work. With that in mind, Governing Council decided to maintain the policy interest rate at 5%. We are also continuing our policy of quantitative tightening." The Bank cited its reasons for holding its rate as slow economic growth around the world, including in the United States, the increasing cost of oil, and inflation remaining higher than the target range of 2%. "Governing Council wants to see further and sustained easing in core inflation and continues to focus on the balance between demand and supply in the economy, inflation expectations, wage growth, and corporate pricing behaviour," the Bank's statement said. The Bank's next scheduled interest rate announcement is April 10. Canada is a trading nation, and many businesses in Greater Victoria provide goods and services to an international customer base. Building connections across borders is vital to helping business operate as smoothly as possible.
On Monday, the Chamber welcomed Vancouver-based US Consulate General Jim DeHart to Victoria. "I've spoken with Mr. DeHart during trade missions in the past and he's always expressed an interest in learning more about Greater Victoria and Vancouver Island," Chamber CEO Bruce WIlliams said. "I'm glad we were able to host him for a roundtable with some of our region's business leaders for a discussion on trade and cross-border relations." Topics covered an array of interests, including labour force mobility, credential recognition and ongoing efforts to streamline regulations. As expected, the Bank of Canada left its overnight rate at 5% — though there were suggestions in today's announcement that rates could come down eventually.
The bank remains concerned about ongoing high inflation and forecasts core costs to continue increasing by 3% in 2024, before easing to the target rate of 2% in 2025. Among the metrics the bank is watching are wages, which continue rising around 4% to 5% annually, even as job vacancies are being created at a slower rate than population growth. "Global economic growth continues to slow, with inflation easing gradually across most economies. While growth in the United States has been stronger than expected, it is anticipated to slow in 2024, with weakening consumer spending and business investment," the bank said. "In Canada, the economy has stalled since the middle of 2023 and growth will likely remain close to zero through the first quarter of 2024. Consumers have pulled back their spending in response to higher prices and interest rates, and business investment has contracted." The Consumer Price Index rose 3.4% on a year-over-year basis in December, following a 3.1% increase in November. The increase adds a little more uncertainty to what the Bank of Canada will do at its next interest rate announcement on Jan. 25.
Some of the reasons for the acceleration in inflation include higher costs for airfares, fuel oil, passenger vehicles and rent. Prices for food rose 4.7% year over year in December. Greater Victoria's unemployment rate of 4.1% in December was unchanged from November 2023. According to Statistics Canada, the region's population increased to 367,400 from 366,700 over the month.
Our local labour force was also up with 244,700 people in December compared to 242,900 in November. The stats reflect the national trend as employment growth slowed in the second half of 2023 with population growth outpacing the number of new jobs added to the economy. "The momentum in the labour market is weakening alongside the fastest population growth in more than 50 years," Canadian Chamber Senior Economist Andrew DiCapua stated in a news release. "With essentially flat job growth in December, the Canadian labour market ends 2023 with over 5% wage growth and an unemployment rate steady at 5.8%. Although hours worked rose for the month, this will be a drag on fourth quarter GDP as we round out the year. This signals to the Bank of Canada that the guise of a strong labour market is cracking amid strong labour force gains. With wages accelerating, the Bank was wise to not celebrate at their last meeting, possibly delaying their intentions to begin rate cuts." The Canadian Chamber has sent an open letter to the Prime Minister's Office calling for the government to focus its foreign policy on results rather than "good feelings."
"It is clear that we can no longer take for granted the stable and peaceful international conditions that Canada helped to shape following the Second World War. This moment calls for a sober assessment of our international priorities and a recalibration of how we engage with other nations," states the letter from Canadian Chamber President and CEO Perrin Beatty. The Chamber is concerned about Canada's place in a world that has profoundly changed over the last few years, "with the international order being challenged and undermined on many fronts." The letter notes that, other than the Indo-Pacific Strategy, Canadian foreign policy has become reactive and unfocused, "signaling that we have too often concentrated our efforts on policies designed to produce good feelings instead of on those that will produce good results." The Canadian Chamber has proposed three ways to improve Canada's international standing. The first is to fulfill our trading potential as a reliable global supplier. The second is showing a serious commitment to economic and security commitments that Canada helped establish after the Second World War. And the third is recognizing the value of good relationships with our North American neighbours by promoting Canada's importance in those countries. "The Canadian Chamber of Commerce is a longstanding advocate of unlocking Canada’s international potential, and we support our businesses in trade advocacy, navigating global markets and representing Canada at key multilateral fora," the letter concludes. "The Canadian business community recognizes that our collective long-term prosperity is closely tied to how we engage with the world." Never bet against the ingenuity of small business, especially when entrepreneurs and employers work together.
The Chamber was among 240 organizations that sounded the alarm last year about the looming Jan. 19 deadline for the Canada Emergency Business Account. The federal government has committed to reviewing, on a case by case basis, the circumstances of businesses still struggling to pay back their loan. However, the Canadian Chamber of Commerce reports that more than three-quarters of businesses that accessed the loan were able to repay in time. Additionally, a company specializing in small business financing recently announced it has secured $300 million to help businesses that need to refinance their CEBA loans. BC-based Merchant Growth is working with financial advisor Raymond James to help businesses that need to refinance their CEBA loans. "Help is available for businesses who continue to be impacted by the effects of the pandemic and the rise in inflation and interest rates," Chamber CEO Bruce Williams said. "If you're ever facing a situation where you are not sure what to do, please know that The Chamber is here for you and we will do everything in our power to help." In 2023, generative artificial intelligence was suddenly everywhere. It's showing up in business software applications, Internet search functions and standalone apps that enable even non-technical users to overcome writing, coding and design challenges.
To help businesses benefit by adopting AI responsibly, the Canadian Chamber of Commerce held an AI Executive Summit on Nov. 22. Among the key themes that emerged were:
The themes will guide the work of the recently formed Future of AI Council, a 30-member forum representing a cross-section of organizations. The council "will play a leading role in advocating for government policies that establish AI as a positive economic force through the responsible development, deployment and ethical use of AI in business." It ain't over 'til it's over, but there are promising signs that better days are ahead for everyone squeezed by inflation and interest rates.
That was the sentiment of the Bank of Canada, which held rates steady at 5% today, citing a sluggish Canadian economy that's slowing the rise of prices for many goods and services. "Combined with the drop in gasoline prices, this contributed to the easing of ... inflation to 3.1% in October," the bank stated in its media release. "However, shelter price inflation has picked up, reflecting faster growth in rent and other housing costs along with the continued contribution from elevated mortgage interest costs." Most analysts, such as CIBC's Avery Shenfeld and the Conference Board of Canada, said the statement aligned with market expectations that also call for interest rates to begin to drop in mid to late spring. Shenfeld noted the bank no longer considers Canada's economy to be in "excess demand," though today's messaging included a warning that rates could rise again if we don't stay the course. "Governing Council ... continues to focus on the balance between demand and supply in the economy, inflation expectations, wage growth, and corporate pricing behaviour," the media release said. The provincial government released its Q2 fiscal update on Tuesday, calling for a smaller deficit than previously forecast. The difference is due to bringing in more revenue from personal and corporate income taxes as well as $358 million in federal funding for wildfire recovery.
BC's Second Quarterly Report now projects a $5.6-billion operating deficit this year, and an improved debt-to-GDP ratio of 17%. Next week, BC's Minister of Finance is scheduled to meet with the Economic Forecast Council to discuss next year's budget, which will be released on Feb. 22. Traditionally, the minister addresses members of the Greater Victoria Chamber of Commerce shortly after budget day. Among other highlights in the Q2 report were:
Watching inflation numbers is a bit like going fishing. Anticipation builds as we approach the latest monthly update on the Consumer Price Index from Statistics Canada. And much like the feeling when you lower your rod into the water, even a subtle sign can feel exciting. The latest nibble to delight inflation watchers happened Tuesday as CPI came in at 3.1% for October. That marks a significant deceleration from 3.8% in September.
Lower gas prices helped lower inflation last month, while mortgage costs and food prices are keeping it higher than the Bank of Canada's target rate of 2%. The Bank makes its next interest rate announcement on Dec. 6, with expectations that it will hold steady before potentially starting to lower rates next spring. The federal government's much-anticipated fall economic statement was released yesterday, Nov. 21. There were few surprises from a government that has little room left to spend and a tepid economic environment to work with.
"(The federal government) followed a highly stimulative fiscal framework following the pandemic, from which they had not significantly withdrawn as the economy hit its capacity in the past two years. That forced the Bank of Canada to apply even more restrictive monetary policy to offset the effects of the government’s stimulative impulses, akin to pushing the brake and gas pedals at the same time," the Conference Board of Canada said in its analysis. "Let us hope that the two policymaking bodies can begin to row in the same direction in the future as inflation pressures subside. Interest rates will likely be coming down next year, but negative federal fiscal balances also need to be pushed back toward neutral territory at a greater pace." There are some positives for business as the statement included proposals to ensure open access to markets, fewer taxes on mental health support and relief for mortgage holders at risk from higher interest rates. The government also earmarked $15 billion for rental home construction, though there are no details on how the funds will deliver 30,000 new units as promised. Consultations have begun on the 2024 federal budget and The Chamber will work with our national network to give members a voice in the process. It's a strange time for the real estate industry, which is a major contributor to Greater Victoria's economy. The winter typically brings a slow down, but high interest rates and uncertainty about the future are chilling activity in our region and across the country.
"Overall, property sales drifted down in October compared to the previous month, likely due to consumers continuing to navigate interest rates higher than those seen in nearly two decades," Victoria Real Estate Board Chair Graden Sol said. "The uncertainty around the direction of the Bank of Canada rate announcement in mid-October may have caused some buyers to push their purchasing plans into the future because it was unclear if rates were going to be hiked again or remain stable." VERB said sales were down 15.2% in October compared to the same month last year. Total listings have increased by 25.7% over the same time. Meanwhile, the benchmark value for a single family home in the region's core in October was $1,305,900 — up 3.9% from October 2022. "Greater Victoria typically fares better than many other regions during economic downturns because of our diversity of sectors," Chamber CEO Bruce Williams said. "We have a large public sector, for example, that relies on the services and goods of other industries. What we've seen in the past is that those who can, lend support to those in need. This current situation will pass, but let's remember to exercise compassion and kindness in the spirit of supporting our local economy." Some good news this morning for businesses and households feeling the pinch of higher borrowing costs.
The Bank of Canada kept its target for the overnight rate at 5%, signalling that earlier efforts to cool inflation by slowing the economy are working. Interest rates climbed faster than expected as inflation spiked after a series of global crises. The war in Ukraine, climate events in agricultural areas and disrupted supply chains have been cited for increasing input costs. The central bank said today that it might still raise interest rates further, though some experts say the message is likely more bark than bite. The Conference Board of Canada said that fears of a recession could become a "self-fulfilling prophecy." The Bank of Canada’s recent Survey of Consumer Expectations found that 55% of respondents expect a recession is coming. "It is likely these recession fears are encouraging households to scale back their spending, a finding backed by trends seen in our Index of Consumer Spending and Index of Consumer Confidence," the Conference Board said in its report. "This additional pull-back could give the final nudge to materialize a recession within Canada." Last week's announcement by the federal government that it was working with Canada's largest grocers to stabilize food prices is a start. But it will take more than blaming business to bring inflation back to its target rate of 2%.
On Oct. 5, the Minister of Innovation, Science and Industry said grocery store chains were committed to price stability. The government also moved to strengthen the voice of consumers, increase industry transparency and improve available data on Canada's agri-food supply chain. Yesterday, an industry association representing grocers called for a pause on increases to the regulated price of milk. The Canadian Dairy Commission sets changes to the cost of milk that take effect every February. "If government is serious about reducing the price of groceries it needs to look at cutting costs before products get to retailers," Chamber CEO Bruce Williams said. "Government contributes to cost increases when it adds regulatory burdens and increases taxes. We can't expect farmers and other producers to pay for these extra costs which get passed along to the consumer." How much is too much when it comes to adjusting price points to ensure your business stays sustainable? In a speech yesterday to the Montreal Chamber of Commerce, the Bank of Canada said changes to how prices are set has become a risk for inflation.
"In ordinary times, prices are sticky. Companies typically don’t adjust prices often, even if input costs change or consumer demands shift. Why not? Because it can be expensive to change prices," Bank of Canada Deputy Governor Nicolas Vincent said, citing steps in a typical process to analyze competitive risks. "But during the recovery from the pandemic, firms were faced with fast-rising input costs and they saw that consumers had less choice because supply was low everywhere. This allowed them to pass those changes on to consumers more quickly and more fully than usual." The Bank, which is scheduled to make its next interest rate announcement on Oct. 23, said it's concerned that rising prices are now seen as normal. "If stores expect their suppliers and competitors to change prices more frequently, and consumers are willing to continue paying higher prices rather than shopping around, then it creates a feedback loop," the Bank said. "This could make prices more sensitive to shocks, making it more difficult to get inflation back to our 2% target." Unless you're stuck under the proverbial rock, you know that economies around the world are facing some serious doldrums. The latest report from the Conference Board of Canada adds to the dreary outlook. Headlined, "Consumer confidence falls to Its second lowest point to date," the index of Consumer Confidence shows that Canadians are feeling bummed about their finances.
"We had hoped to be through the rough patch by now but it's proving persistent," Chamber CEO Bruce Williams said, noting that the fight against inflation and the re-balancing of global supply chains continues to take a toll. "We will get through this, as we have countless times in the past, by supporting each other. So much work has gone into building a resilient economy for Greater Victoria, and, as a result, we are in a better place than many other regions." The Index of Consumer Confidence was 59.6 in September, compared to 61.2 in August. The Conference Board said wildfires likely contributed to the pessimistic outlook in BC. |
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