A comparison of the March statement to the April statement reflects the “major shift” in the US trade policy and unpredictability of tariffs. Hence the second verse (April) is no where near the first (March).
Below is the red line change (or rather the complete re-write)
FOR IMMEDIATE RELEASE
March 12, 2025
April 16, 20225
The Bank of Canada today reducedmaintained
its target for the overnight rate toat
2.75%, with the Bank Rate at 3% and the deposit rate at 2.70%.
The Canadian economy entered 2025 in a solid
position, with inflation close to the 2% target and robust GDP growth. However,
heightened trade tensions and tariffs imposed by the United States will likely
slow the pace of economic activity and increase inflationary pressures in
Canada. The economic outlook continues to be subject to more-than-usual
uncertainty because of the rapidly evolving policy landscape.
After a period of solid growth, the US economy
looks to have slowed in recent months. US inflation remains slightly above
target. Economic growth in the euro zone was modest in late 2024. China’s
economy has posted strong gains, supported by government policies. Equity
prices have fallen and bond yields have eased on market expectations of weaker
North American growth. Oil prices have been volatile and are trading below the
assumptions in the Bank’s January Monetary Policy Report (MPR).
The Canadian dollar is broadly unchanged against the US dollar but weaker
against other currencies.
Canada’s economy grew by 2.6% in the fourth quarter
of 2024 following upwardly revised growth of 2.2% in the third quarter. This
growth path is stronger than was expected at the time of the January MPR. Past
cuts to interest rates have boosted economic activity, particularly consumption
and housing. However, economic growth in the first quarter of 2025 will likely
slow as the intensifying trade conflict weighs on sentiment and activity.
Recent surveys suggest a sharp drop in consumer confidence and a slowdown in
business spending as companies postpone or cancel investments. The negative
impact of slowing domestic demand has been partially offset by a surge in
exports in advance of tariffs being imposed.
Employment growth strengthened in November through
January and the unemployment rate declined to 6.6%. In February, job growth
stalled. While past interest rate cuts have boosted demand for labour in recent
months, there are warning signs that heightened trade tensions could disrupt
the recovery in the jobs market. Meanwhile, wage growth has shown signs of
moderation.
Inflation remains close to the 2% target. The
temporary suspension of the GST/HST lowered some consumer prices, but January’s
CPI was slightly firmer than expected at 1.9%. Inflation is expected to
increase to about 2½% in March with the end of the tax break. The Bank’s
preferred measures of core inflation remain above 2%, mainly because of the
persistence of shelter price inflation. Short-term inflation expectations have
risen in light of fears about the impact of tariffs on prices.
While economic growth has come in stronger than
expected, the pervasive uncertainty created by continuously changing US tariff
threats is restraining consumers’ spending intentions and businesses’ plans to
hire and invest. Against this background, and with inflation close to the 2%
target, Governing Council decided to reduce the policy rate by a further 25
basis points.
Monetary policy cannot offset the impacts of a
trade war. What it can and must do is ensure that higher prices do not lead to
ongoing inflation. Governing Council will be carefully assessingThe
major shift in direction of US trade policy and the unpredictability of tariffs
have increased uncertainty, diminished prospects for economic growth, and
raised inflation expectations. Pervasive uncertainty makes it unusually
challenging to project GDP growth and inflation in Canada and globally.
Instead, the April Monetary Policy Report (MPR) presents two
scenarios that explore different paths for US trade policy. In the first
scenario, uncertainty is high but tariffs are limited in scope. Canadian growth
weakens temporarily and inflation remains around the 2% target. In the second
scenario, a protracted trade war causes Canada’s economy to fall into recession
this year and inflation rises temporarily above 3% next year. Many other trade
policy scenarios are possible. There is also an unusual degree of uncertainty
about the economic outcomes within any scenario, since the magnitude and speed
of the shift in US trade policy are unprecedented.
Global economic growth was solid in late 2024 and
inflation has been easing towards central bank targets. However, tariffs and
uncertainty have weakened the outlook. In the United States, the economy is
showing signs of slowing amid rising policy uncertainty and rapidly
deteriorating sentiment, while inflation expectations have risen. In the euro
area, growth has been modest in early 2025, with continued weakness in the
manufacturing sector. China’s economy was strong at the end of 2024 but more
recent data shows it slowing modestly.
Financial markets have been roiled by serial tariff
announcements, postponements and continued threats of escalation. This extreme
market volatility is adding to uncertainty. Oil prices have declined
substantially since January, mainly reflecting weaker prospects for global
growth. Canada’s exchange rate has recently appreciated as a result of broad US
dollar weakness.
In Canada, the economy is slowing as tariff
announcements and uncertainty pull down consumer and business confidence.
Consumption, residential investment and business spending all look to have
weakened in the first quarter. Trade tensions are also disrupting recovery in
the labour market. Employment declined in March and businesses are reporting
plans to slow their hiring. Wage growth continues to show signs of
moderation.
Inflation was 2.3% in March, lower than in February
but still higher than 1.8% at the time of the January MPR. The higher inflation
in the last couple of months reflects some rebound in goods price inflation and
the end of the temporary suspension of the GST/HST. Starting in April, CPI
inflation will be pulled down for one year by the removal of the consumer
carbon tax. Lower global oil prices will also dampen inflation in the near
term. However, we expect tariffs and supply chain disruptions to push up some
prices. How much upward pressure this puts on inflation will depend on the
evolution of tariffs and how quickly businesses pass on higher costs to
consumers. Short-term inflation expectations have moved up, as businesses and
consumers anticipate higher costs from trade conflict and supply disruptions.
Longer term inflation expectations are little changed.
Governing Council will continue to assess
the timing and strength of both the downward pressures on inflation from a
weaker economy and the upward pressures on inflation from higher costs. The
Council will also be closely monitoring inflation expectations. The Bank is
committed to maintaining price stability for CanadiansOur
focus will be on ensuring that Canadians continue to have confidence in price
stability through this period of global upheaval. This means we will support
economic growth while ensuring that inflation remains well controlled.
Governing Council will proceed carefully, with
particular attention to the risks and uncertainties facing the Canadian
economy. These include: the extent to which higher tariffs reduce demand for
Canadian exports; how much this spills over into business investment,
employment and household spending; how much and how quickly cost increases are
passed on to consumer prices; and how inflation expectations evolve.
Monetary policy cannot resolve trade uncertainty or
offset the impacts of a trade war. What it can and must do is maintain price
stability for Canadians.
This article was written by Greg Michalowski at www.forexlive.com.